TuringTrader's Mach-3

Strategy Rules

The operation of Mach-3 can be summarized as follows:

• in bull-markets, trade leveraged ETFs tracking the S&P 500, Nasdaq-100, Dow-Jones Industrial Average, Russell 2000, S&P MidCap 400, and S&P SmallCap 600 indices
• in bear-markets, trade leveraged ETFs tracking U.S. Treasuries with 7-10 year and 20+ year maturity, and gold
• switch between bull- and bear-market regimes based on TuringTrader's Market Vane signal
• evaluate the performance of various asset weightings over a lookback period of approximately three months
• rebalance every week, picking the combination with the best modified Sharpe Ratio

Mach-3 is closely related to LogicalInvest's Universal Investment Strategy. We enhanced the strategy by adding more assets, improving the asset ranking in times of negative returns, and switching between separate bull- and bear-market strategies.

Diversification

Mach-3 fully invests in one or more broad indices tracking the U.S. stock market in bullish markets. During bear markets, the portfolio switches to the safety of U.S. treasuries and gold. With these properties, Mach-3 is well diversified in terms of company risk. However, the strategy typically invests in only one asset class, and relies on serial diversification to switch between asset classes.

Returns & Volatility

Mach-3 beats the S&P 500 benchmark in most years and shows only brief periods of underperformance. The mean-variance optimization helps to manage portfolio volatility, while the market-regime filter helps to avoid deep drawdowns.

The strategy's management results in a beta of approximately 1.5. While this notably amplifies the daily stock market volatility, it is still a 50% improvement over an unmanaged investment in a leveraged stock market position.

In summary, Mach-3 delivers most of the desirable upside of geared ETFs while successfully limiting risks to levels bearable for retail investors.

Account & Tax Considerations

With its 3x leverage, Mach-3 is a very aggressive strategy. Investors should not take this level of leverage lightly and always consider the strategy's tail risk. In our opinion, Mach-3 is best used in the context of meta-portfolios, similar to our All-Stars Leveraged.

Mach-3 trades frequently and regularly triggers taxable events. The portfolio rarely holds assets long enough to qualify for long-term treatment of capital gains. However, because of the portfolio's massive upside over buy-and-hold, Mach-3 may still add value to taxable accounts.

Mach-3 makes use of 3x leveraged ETFs, which are considered high-risk instruments. Many brokerages require signing additional disclosures before allowing investors to use these instruments in their accounts. Because we use these products in tandem with our proven market-regime indicator, we believe our use of these instruments to be responsible.

Mach-3 invests in no more than three ETFs at a time. The strategy should function as intended with as little as $5,000 of capital.