A Simple Moving Average System on Vanguard Funds

I’ve previously detailed some successful simple moving average systems based on a 10 month SMA. The work is inspired directly by Mebane Faber, author of The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Simple timing systems have been shown to reduce volatility and increase risk-adjusted returns across multiple asset classes.

I decided to test a 200 day SMA system on a series of Vanguard Funds over the past decade from 9/28/99 to 9/25/99. After a fund closes above the 200 day simple moving average by 1%, a buy signal is indicated at the next months open price. When a fund closes a month below the 200 day SMA by 1%, the long position is exited. The twist of a 1% buffer above/below the 200 day SMA was added in order to reduce whipsaws and lower the number of trades.

Below are the results, including the Dow, with the Compound Annual Growth Rate (CAGR) for the timing system versus buy and hold and the standard deviation for both (SD). The 200-day system outperformed buy and hold more often than not; however, the greatest outperformance was in lower standard deviation, which equates to a less volatile portfolio. The moving average system’s CAGR suffered the most with bond funds and did the best with equity funds:

Data generated with the help of Gummystuff

For free trend analysis on any of the funds mentioned below, or any other stock, Click Here.

Buy/Hold 200-day MA Buy/Hold 200-day MA
Stocks CAGR CAGR SD SD
DOW ^DJI -1.1% -2.0% 25.2% 10.8%
500 Index VFINX -1.9% 2.8% 26.7% 11.1%
Total Market VTSMX -1.1% 4.1% 27.0% 11.5%
Wellington VWELX 5.8% 7.7% 15.6% 9.2%
Total Bond VBMFX 5.9% 5.1% 5.5% 5.2%
Short Term Bond VFSTX 4.7% 4.8% 3.3% 3.1%
Hi Yield Bond VWEHX 4.6% 4.0% 6.4% 4.5%
Long Term Bond VWESX 7.4% 4.5% 11.8% 10.4%
Long Treasury VUSTX 7.3% 3.9% 12.1% 10.8%
Intermediate Bond VBIIX 6.7% 4.9% 7.4% 6.9%
Value VIVAX 0.7% 5.3% 27.7% 12.0%
Small Cap NAESX 3.4% 3.5% 30.8% 15.8%
REIT Index VGSIX 7.7% 9.0% 41.4% 17.6%
Total International VGTSX 2.5% 10.9% 26.4% 13.6%
European VEURX 1.9% 10.8% 29.1% 14.1%
International Growth VWIGX 1.6% 9.1% 27.0% 13.9%
International Value VTRIX 4.3% 8.9% 25.6% 14.0%
Pacific Index VPACX 0.2% 5.8% 27.0% 14.8%
Emerging Markets VEIEX 10.3% 15.5% 30.5% 17.5%
Small Cap Value VISVX 6.7% 6.2% 30.1% 17.1%

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4 thoughts on “A Simple Moving Average System on Vanguard Funds

  1. Did everyone just discover what a moving average is? I just don't get it. Not saying that it's not a greate trending technical indicator, but what's the hype about…or what's so 'new' about it?

  2. whats all the buzz about this strategy? It's a SMA – been around for ages. Confused why this is such a hot topic – buy and hold was always a bad idea. This whole thing is one big trailing stop. And using 13Fs? That data is over 5 months old (45 days to file for a 90 day period).

  3. Anom – Yes, the strategy has been around for awhile and buy and hold has always been a bad idea. However, I think most would agree that too many people still buy and hold because they are unaware there are other options so all we're trying to do is educate people and spread the word. In addition, moving average systems are not the only one detailed on this site.

    Regarding the 13F's, if you are referring to Alphaclone's service, take a look at their real-time results on their stie. Even with "delayed" data most of the hedge fund clones significantly outperform indices typically at lower volatility.

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