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HFEA May 2022 strategy report

The HFEA strategy continued underperforming significantly in May 2022. Our SPXL is down by -34.52% (thanks to options, the loss is only -30.63%), but the biggest surprise was a substantial loss on TMF holding that was supposed to protect our SPXL drawdown. It didn’t. The TMF is down by a stunning -57.92% (and since we were selling options around the TMF position, we are down only -37.57%).

Overall, I am disappointed with this strategy. But I am still OK with buying leveraged ETFs like the SPXL, but soon, I plan to modify this strategy by buying the SPXL only. I will be buying the SPXL fund on the way down and trimming the position on the way up. For example, when the SPXL drops 20% below my cost basis, I will be buying more shares. When it goes up 20% above the cost basis, I will trim the position and save the cash for purchases. But first, I need to get a break-even at TMF (keep selling options), get rid of it, and reallocate the cash to the SPXL fund or reserves.

Originally, I dedicated $15,000 to this strategy. That represented approx. 15% of our portfolio. If the strategy underperforms and is below this amount, I will add cash to it. If it outperforms and ends above this threshold, I will trim the position and save the cash aside. We will be rebalanced quarterly, and our next rebalancing will occur at the end of June 2022.

The HFEA strategy is about investing in leveraged ETF but adding protection to the downside since the leverage works both ways. I like the idea because drawdowns can be significant.
 

Initial HFEA allocation

 
Start date: 11/27/21
Approach: Variable allocation* – 75%/25% SPXL/TMF
Rebalancing frequency: Quarterly*
Return (total / YTD): -59.50%/-59.50%
Initial contribution: 15% of portfolio Net-Liq (~ $15k)
 

* Variable allocation will be adjusted based on the moving averages and VIX term structure. When moving averages turn negative (downside) and VIX turns into backwardation, the SPXL allocation will be decreased and TMF allocation increased.

 

Current HFEA allocation

 
Goal Approach: 75% SPXL, 25% TMF
Current Approach: 54% SPXL, 16% TMF
 

MONTH NET-LIQ PROFIT/
LOSS
PROFIT/
LOSS %%
November 2021 $13,441.91 $0.00 0.00%
December 2021 $14,773.72 $1,331.81 9.91%
January 2022 $12,597.96 -$2,175.76 -14.73%
February 2022 $11,665.69 -$932.27 -7.40%
March 2022 $12,483.01 $817.32 7.01%
April 2022 $8,694.65 -$3,788.36 -30.35%
May 2022 $6,923.49 -$1,771.16 -20.37%

 

Our HFEA strategy lost -59.50% in April 2022 while the entire market lost -14.03%.
 

HFEA charts

 
HFEA net-liq 05
Strategy Net liquidation value
 

HFEA vs SPY net-liq 05
Strategy vs SPY Net liquidation value
 

HFEA vs SPY
Strategy performance vs. SPY
 

May 2022 turned out to be the second-worst month ever for this strategy as both the SPXL and TMF funds declined significantly. However, I will slowly re-allocate funds into SPXL in preparation for the next market rally. When it comes, I expect this strategy to outperform the market significantly.
 
 





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