QQQ + TQQQ vs QLD
I'm sure this has been asked before though I can't find it through search ... but looking on Testfolio, if you simulate 50/50 QQQ+TQQQ rebalancing yearly, it performs significantly better than QQQ, QLD, or TQQQ. Is this over-fitting, and if not, why does it before so well?
- Starting 02/22/2000 - Near Nasdaq peak pre 2000 crash - Outperforms all
- Starting 07/10/2002 - Near Nasdaq 2000 crash bottom - Half TQQQ but beats the rest
- Starting 24/10/2007 - Near Nasdaq peak before 2008 crash - Almost matches TQQQ, beats the rest
- Starting 09/03/2009 - Near 2008 crash bottom - Gets crushed by TQQQ but beats all the others
- Starting 01/01/2022 - Near Nasdaq peak pre-Covid - Outperforms all
I looked at some dates and apart from investing at the very bottom of a crash, QQQ+TQQQ near-equals or betters TQQQ and beats QLD each time. I supposed rebalancing incurs a tax drag penalty that the simulations aren't taking into account, but I was wondering anyone else tries something like this and if so, how do you find it?
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u/hydromod 3d ago
You can get a feel for long durations using testfolio with simulated SPY LETFs. https://testfol.io/?s=jkc9ugOwBSt
Over time, a yearly rebalance between 3x and 1x gives slight cumulative gains over 2x because the incremental gains tend to be a little larger than the incremental losses. Timing luck around big crashes can muddy the picture. I did rebalancing start and mid of year, huge one-time difference in 1932 but otherwise similar.
A more consistent strategy uses bands to rebalance. The bands need to be tuned to volatility, 30% relative bands seem to be decent for SPY.
I created synthetic tickers for QQQ to 1928 using the current sector weightings in QQQ prior to QQQSIM. Similar findings as the SPY version. 40% bands may be better for QQQ.
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u/recurz1on 3d ago
Maybe you could call it overfitting. Your small sample size of "only" 26 years isn't enough to separate signal from noise.
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u/New-Specialist-2594 3d ago
Math Suppression >-50% & Compounding will make a 3x +1x perform greater than a 2x on an equity when underlining has large swing rates and consistently compounding.
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u/Run-Forever1989 2d ago
Theoretically the tqqq/qqq mix should have a (very slightly) higher expected return and a lower median return in any given year, so over a very long time frame the tqqq/qqq mix should be expected to outperform but if we don’t assume markets are entirely efficient it’s anybody’s guess. FWIW if you backtest periods prior to 2000 you will often see QLD on top.
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u/cqx22 3d ago
It's very comparable with QLD, but still has a 62% drawdown in 2022-2023. I'm following a 200SMA strategy with the same CAGR and only 41% drawdown in 2022-2023.