Index Portfolio Delivers Huge Gains
David Kreinces, 4/8/20
The investable benchmark portfolios delivered impressive gains in this historic stock market crash. In the first quarter of 2020, the Income and Tech 3x portfolio rose by 9%, adding to its 84% gain in 2019, to produce a total return of 101% over the past 15-months. This aggressive growth benchmark performance is reported with annual rebalancing to a 50/50 combination of long-term Treasuries (TMF) and the Nasdaq-100 (TQQQ); both with 3x leverage.
The S&P 500 (SPY) lost 19% last quarter, after gaining 31% in 2019, leaving it up just 6% over the past 15 months. Additionally, the unleveraged growth exchange-traded fund (ETF) portfolios from Warren Buffett and Yale CIO David Swensen returned just 6% and 4%, respectively.
It is important to note that long-term Treasuries (TLT) delivered critical portfolio protection once again. This past quarter, TLT gained 22% and TMF, the 3x leveraged version, rose by 63%. In total over the past 15 months, these two defensive bond ETFs gained 39% and 120%, respectively. Extraordinary portfolio protection is now often expected from long-term Treasuries as TLT gained 34% in both the housing crash of 2008 and again in the European debt crisis of 2011.
The Nasdaq 100 (QQQ) is a leading growth index with heavy exposure to technology. Over the past 10.3 years, we estimate that QQQ returned 362%, or roughly 16% annualized, while the 3x version (TQQQ) returned 2,284% or 36% annualized. This means that TQQQ delivered an extraordinary return that was over 12x the S&P 500 total return of 184%.
These leading ETFs provide exposure to many of the world’s top growth stocks which helps to ensure that the mega-growth companies of tomorrow will want to be included in this index. The index ETF structure also enables investors to efficiently maintain appropriate exposure to each of the index components. However, these aggressive growth funds are still somewhat concentrated and may decline precipitously at times. TQQQ actually fell by almost 73% within four weeks last quarter.
Income & Tech 3x
Income and Tech 3x (IT 3x) is a passive index ETF portfolio that is annually rebalanced to 50% long-term Treasuries 3x (TMF) and 50% Nasdaq 100 3x (TQQQ). Over the past 10.3 years, we estimate that this aggressive growth portfolio delivered an astonishing 2,010% in total return, or 35% annualized, just over 11x the unleveraged Income & Growth total return of 182%.
Harry Markowitz explained that “diversification is a free lunch” and the investable benchmarks show that leveraged diversification can be a free retirement nest egg. Read more about these revolutionary core portfolios in our new book: “Investable Benchmarks: A Guide to ETFs, Technology, and Leverage.”
Still, past performance can never guarantee future results and investors must be mindful of the risks, regulatory issues, and misunderstandings concerning leveraged ETFs. Per Greek philosopher Heraclitus, “Life is Flux” meaning “all things change.” Given this truth, and the wide range of economic environments, even the best ETF portfolio is certain to change over time.
See prior versions of this article: 2/20, 12/19, 6/19, 5/19, 8/18, 4/18, 12/17, 12/17, 6/17, 10/16, 6/16, 3/16, 9/14, 6/14, 3/14, 12/13, 9/13, 9/12, 5/12, 4/10, 4/09.
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