Year-to-date (YTD) through September 30, the Nasdaq 100 3x ETF (TQQQ) gained almost 54%, after the ETF returned 118% last year.
In fact, over the past six years, this technology heavy ETF delivered over 60% annually, producing a total return well over 1,300%.
Tech Bubble In-Progress
ETF Portfolio Management (ETF PM) has been highlighting the trends in artificial intelligence, risk parity, and leveraged ETFs such as TQQQ. Today, we still believe the tech bubble has room to grow.
Risk Parity
Leveraged income and growth has performed extremely well and a growing number of robo-advisors, index providers, and trend followers are now employing risk parity in multi-asset index solutions.
At ETF PM, we created Income & Tech 3x (IT 3x) to combine these two leading trends in a dynamic aggressive growth benchmark portfolio.
InvestableBenchmarks.com
Perhaps it is most impressive to note that IT 3x is up 13% YTD through September, after gaining 72% last year. This balanced, technology heavy ETF portfolio has 300% of gross exposure with half allocated to “risk assets” via TQQQ and Semiconductor 3x (SOXL).
Still, past performance can never guarantee future results, and leveraged ETFs often do not deliver the exact multiple of the underlying index return they target. Investors should be careful to engage leverage slowly and cautiously.
ETF PM has long positions in QQQ, TQQQ, and SOXL.
S&P Launches Risk Parity Indexes
The firm claims its benchmarks are the first to replicate the strategy itself, as opposed to tracking existing risk parity funds.
Amy Whyte, August 08, 2018
S&P Dow Jones Indices has developed a suite of indexes designed to replicate the risk parity strategy first popularized by hedge fund firm Bridgewater Associates.
The indexes — which were constructed using futures contracts for equities, fixed income assets, and commodities — are the first risk parity benchmarks to replicate the strategy itself, according to Vinit Srivastava, a managing director at S&P DJI. Other risk parity indexes simply tracked the funds available in the market, and investors seeking a benchmark to evaluate a risk parity strategy’s performance were settling for a 60-40 mix of stocks and bonds.
“The risk parity strategies already out in the market didn’t have an appropriate benchmark,” Srivastava said. “Asset owners wanted a better way to measure the efficacy of these strategies.”
Another problem identified by S&P DJ was a lack of low-cost risk parity options. Most existing institutional strategies are found at hedge funds like Bridgewater and AQR, and come with hedge fund-style fees. Recently, however, these funds have performed poorly: HFR’s suite of universe-tracking indexes are all down since the beginning of the year.
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