Weekend Reads

Below is my weekend investment reading list:

Value and Momentum Revisited – Optimal Momentum

Pragmatic Capitalism on The “Allocation Matters Most Hypothesis”

Research Affiliates – True Grit: The Durable Low Volatility Effect

Be Humble, Become Wealthy – The Psy-Fi Blog

 How and why to build a bond ladder – Fidelity

More on CAPE… Mebane Faber

From ETF.com:

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Key Trendline To Watch: S&P 500 Breakdown Trigger
S&P Poised For An Upward Push Toward September High
Read more on S&P 500 (SPX), Historical Volatility, Cape Fear Bank at Wikinvest
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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Dual Momentum ETF Portfolio for September

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.

The spreadsheet is available here and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual Momentum”.

Relative momentum is gauged by the 12 month total returns of each ETF. The 12 month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of iShares Barclays 1-3 Treasury Bond ETF (SHY). In order to have an “Invested” signal the ETF with the highest relative strength must also have 12-month total returns greater than the 12-month total returns of SHY. This is the absolute momentum filter which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns.

An “average” return signal for each ETF is also available on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3, 6, and 12 (“3/6/12″) month total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6 and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF.

Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12″).  The test results were posted in the 2013 Year in Review.

Below are the four portfolios along with current signals:

Return data courtesy of Finviz
Equity Representative ETF Signal based on 1 year returns Signal based on average returns
US Equities VTI Invested Invested
International Equities VEU
Cash SHY
Credit Risk Representative ETF Signal based on 1 year returns Signal based on average returns
High Yield Bond HYG Invested Invested
Interm Credit Bond CIU
Cash SHY
Real-Estate Risk Representative ETF Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ Invested
Mortgage REIT REM Invested
Cash SHY
Economic Stress Representative ETF Signal based on 1 year returns Signal based on average returns
Gold GLD
Long-term Treasuries TLT Invested Invested
Cash SHY

As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity, and Vanguard. It is important to note that each broker may have additional trade restrictions and the terms of their commission-free ETFs could change in the future.

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How to Spot a Genuine Momentum Stock
Read more on Momentum at Wikinvest
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Like what you read? Consider a Paypal donation.

Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com