Blending Futures and Stocks

Oct. 14, 2024

In a recent Newsletter and recent video, I talked about losing.

As in, I really, really hate losing. 

I hate doing research on a system and then suffering a drawdown. I hate winning a few trades and then going into a drawdown. I hate sharing a very viable system with other people–knowing that inevitably that system will go into drawdown.

Watching a portfolio go down when the only way to win is if it goes up is… awful.

Are there ways around that?

It appears so.

And the “secret” ingredient is this: blend Futures and stocks together.

Why would that work?

Because Futures can do almost anything. You can trade fixed income and corn and the Nikkei and lean hogs and on and on. With Futures, it’s possible to combine things that have nothing to do with each other.

And when we do that, we get a smoother ride.

Plus, we get trends that run a long way.

There’s a shortcoming, though.

Even with its massive diversifying power, there’s nothing in Futures that can match buying-and-holding the stock market.

Can buy-and-hold be terrible? Absolutely.

Is buy-and-hold the best way to trade? Surely not.

But can anything else replicate the power of an uninterrupted bull market run? Unfortunately, no.

The U.S. stock market is a unique animal and Futures can’t do what that does.

So, can we then combine the two?

Yes!

And a smart man made a smart fund back in 2019 that does just that.

The fund uses massive diversification of Futures and combines it with buy-and-hold equities. It’s trend following plus buy-and-hold.

The goal is to make good money and have very little volatility.

Is it working?

Since the start of 2020, the fund, BLNDX, hasn’t had any losing years. Here’s the comparison with SPY:

As you can see, it’s worst year is +3.7%. SPY’s worst year is -18.1%. That’s quite a discrepancy.

Yes, SPY makes a little more money.

But BLNDX’s drawdown is WAY lower.

And it doesn’t lose. At least, it hasn’t lost yet.

Along those lines, the Newsletter from May 3 talked about kind of the same thing.

In that Newsletter, we put together a small portfolio consisting of the Performance Page Gold Strategy and simply buying the SPXL (leveraged S&P ETF) on the first of the year and selling it at the end of the year.

So we trade our Gold (GC) Futures strategy with $10k and we use $10k to essentially buy-and-hold SPXL. It’s not as advanced as BLNDX, of course, but does it work?

Here’s the update using Portfolio Architect:

That’s what it’s done from 2009-2024 trading 1 contract and $10k of stock each time. Pretty impressive.

Here’s the Curve on a sample $20k account:

Up over 900%.

And here are the Annual Returns:

Well, it doesn’t win every year but the losing years are very tiny and the winning years can get up to a 100% hypothetical return.

Combining Futures with stocks looks like a potentially good way to win without much losing.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.