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Who is a Hedgefundie?

Published in Investment Strategy 4 mins read

A "Hedgefundie" is the online moniker of a Bogleheads forum member who gained prominence for proposing an unconventional investment strategy involving 3x leveraged ETFs, specifically a portfolio of UPRO and TMF. This individual's detailed thread on the forum, titled "Hedgefundie's Excellent Adventure," outlined a strategy designed to achieve high returns while managing risk through diversification and frequent rebalancing.

The Origin of the "Hedgefundie" Persona

The Bogleheads forum is widely known for advocating a passive, low-cost index investing approach, inspired by Vanguard founder John Bogle's philosophy. Within this community, "Hedgefundie" emerged as a distinctive voice by suggesting a strategy that diverged significantly from the traditional Bogleheads' tenets of simplicity and low volatility. The moniker itself playfully hints at the more aggressive, high-return aspirations often associated with hedge funds, contrasting with the conservative nature of typical Boglehead portfolios.

Understanding the Hedgefundie Adventure (UPRO/TMF) Strategy

The core of the Hedgefundie strategy revolves around combining two highly volatile, 3x leveraged exchange-traded funds (ETFs) in a specific allocation, typically 55% UPRO and 45% TMF, or sometimes 40% UPRO and 60% TMF, with regular rebalancing.

Key Components of the Strategy

  • UPRO (Direxion Daily S&P 500 Bull 3X Shares): This ETF aims to deliver 300% of the daily performance of the S&P 500 index. It provides leveraged exposure to large-cap U.S. equities.
  • TMF (Direxion Daily 20+ Year Treasury Bull 3X Shares): This ETF aims to deliver 300% of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. It provides leveraged exposure to long-term U.S. Treasury bonds.
ETF Description Underlying Asset Leverage
UPRO Direxion Daily S&P 500 Bull 3X Shares S&P 500 Index 3x
TMF Direxion Daily 20+ Year Treasury Bull 3X Shares 20+ Year US Treasuries 3x

The Rationale Behind the Strategy

The primary goal of pairing UPRO and TMF is to exploit the historical negative correlation between equities (S&P 500) and long-term U.S. Treasury bonds. In periods when stocks decline, bonds often perform well, and vice versa. By combining leveraged versions of these assets, the strategy seeks to achieve:

  1. Enhanced Returns: The 3x leverage aims to amplify gains during bull markets.
  2. Volatility Reduction (Relative): The negative correlation is intended to smooth out portfolio returns to some extent, as one asset might offset losses in the other, especially during significant market movements.
  3. Risk Management: Regular rebalancing, often monthly or quarterly, is crucial to maintain the target asset allocation and manage risk. This involves selling portions of the outperforming asset and buying more of the underperforming one to return to the original percentages.

How the Strategy Works (Simplified)

  • Initial Allocation: An investor allocates a chosen percentage (e.g., 55/45 or 40/60) to UPRO and TMF.
  • Leveraged Exposure: Both ETFs provide magnified daily returns (and losses) to their respective underlying indices.
  • Rebalancing: Periodically, the portfolio is rebalanced back to the target allocation. For instance, if UPRO significantly outperforms TMF, some UPRO would be sold and TMF bought to restore the desired ratio. This acts as a form of risk control and profit-taking.
  • Long-Term Horizon: The strategy is generally advocated for long-term investors due to the potential for significant drawdowns and the impact of compounding on leveraged products.

Why the Hedgefundie Strategy Gained Traction

The "Hedgefundie" strategy garnered considerable attention within the investing community due to its bold approach and the simulated historical performance suggesting impressive returns, often outperforming traditional 60/40 portfolios over long periods. While complex and carrying substantial risks (including volatility decay and large drawdowns), its detailed presentation and the intellectual curiosity it sparked led to widespread discussion and analysis among investors seeking alternative high-return strategies.

For more detailed analysis and backtesting data, you can explore resources dedicated to the Hedgefundie's Excellent Adventure, such as this summary: Hedgefundie's Excellent Adventure (UPRO/TMF) - A Summary.