Replies to post #38345 on A.I.M. Users Bulletin Board (AIMUSERS)

[jaiml]

Thanks Clive.

OK I think I get it. Do not AIM the LETF itself (can cause too much leverage and in practice can be nerve racking).

Lets's call the bond portion to go along with the LETF as the enhanced bond. As you described, this can be a combination of laddered bonds. A short term corporate bond can also be of use. Perhaps a conservative high yield bond fund as well (there are some clever and reputable bond fund managers like PH&N and Beutel in Canada in my case). The point is to obtain higher yield, access to some liquidity but without taking on unnecessary additional risk.

Hence a 20/80 AIM program using a 2X LETF like SSO and enhanced bond.

- 20% cash with the desired instrument of choice (SHY, IEF, TLT etc...)
- 80% stock with a 50/50 split between SSO and enhanced bond as the instrument of choice.

on an AIM buy recommendation, use the called amount from the cash reserve to add to the stock value. Use that AIM cash to restore the 50/50 weight between SSO and the enhanced bond.

Similarly, on an AIM sell recommendation, use the called amount from the stock value to add to the cash reserve. While at it, restore the 50/50 weight between SSO and the enhanced bond.

It is important that one occasionally (once per year) visit the stock value and restore the 50/50 weight. This would be particularly needed when there are long periods when AIM made no buy/sell recommendation. If an SSO buy is required, AIM cash would not be touched; instead, the maturing bonds in the enhanced bond can provide the needed liquidity. If an SSO sell is requierd, then the cash goes towards the enhanced bond, perhaps to the longer duration bonds.

Very interesting idea, and it seems to me it does have the potential to add more alpha and possibly less beta.

Are you actually applying this method Clive? If so, to what portion of your portfolio? Do you prefer it to individual stocks?

How easy is for you to backtest this method? Would you be so kind to provide some backtested results, say using SHY for AIM cash, and SSO/AGG for AIM stock?

Thank you so much!

Kindest regards,
J