ETF Replay Portfolio for March

This month’s ETFReplay.com Relative Strength ETF Portfolio has been updated at Scott’s Investments and includes turnover in two positions.

Sign up here for an $8.95 Trial of MarketClub and see their Trade Triangles in Action

I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.  I originally created a portfolio of 22 ETFs and then expanded it to 25 ETFs which I believe represent a diverse basket of ETFs.  Readers often get confused by this point – I select only the top ETFs out of this static basket of 25 ETFs.

The buy/sell strategy for the portfolio is simple: purchase the top  ETFs based on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking) and the average of  the 3 month return, 20 day return, and 20 day volatility.  I refer to these two different sets as “6/3/3″ and “3/20/20″.  The top 2 ETFs in the 6/3/3 ranking and top 2 in the 3/20/20 ranking are purchased each month.  When there are duplicates in the top 2, I look to the third ranked ETF in the 3/20/20 and, if necessary, the third ranked ETF in the 6/3/3.  The strategy always holds 4 ETFs.

I track this strategy as a public portfolio on Scott’s Investments.  As of the close February 29th the hypothetical portfolio was up 11.09% since inception on January 1st 2011. Returns include dividends but exclude commissions and taxes and all trades are hypothetical so real results will differ.  For some backtests on these strategies please see a post from mid-September.

For February 29th the strategy sold its positions in IEF (iShares Barclays 7-10 Yr Treasury) and TIP (iShares Barclays TIPS). The proceeds were used to purchase SPY (S&P 500 SPDR) and SCZ (iShares MSCI EAFE Small Cap Index). The portfolio also continues to hold PFF (iShares S&P US Preferred Stock Index ) and VBR (Vanguard MSCI U.S. Small Cap Value).

Minor fluctuations in rankings may not always justify selling positions each month. For example, if one ETF drops from the second highest rated to the third or fourth highest rated, it may not warrant selling the position. An investor could only sell a position when it drops out of the top 4 or 5 at the end of the month. This type of modification could be used when someone is looking to limit turnover; however, I think it is important to have whatever rule you prefer to use in place prior to making the investment decision in order to avoid discretionary or emotional decision making.

Follow me on Stocktwits and Twitter!

In January I made some changes in the online portfolio tracking.  There will be less transaction history posted due to the limitations of Google Docs, the clutter created with too many details on the spreadsheets, and the amount of time required to manually track dividends and performance. Instead, I will be using a third-party software platform for performance calculations and post the results monthly.  Below is a performance graph of the portfolio (green) versus SPY (SPDR S&P 500 ETF) in purple from the portfolio’s inception until February 29th, 2012:

Below are the full rankings of both the 6/3/3 and 3/20/20 strategies, in order from top to bottom ranked, Interestingly, Gold (GLD) is the bottom ranked ETF in both categories:

 


6mo/3mo/3mo
Symbols Name
SPY SPDR S&P 500 Index
VBR Vanguard MSCI U.S. SmallCap Value
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
LQD iShares iBoxx Invest Grade Bond (7-8yr)
VNQ Vanguard MSCI U.S. REIT
PFF iShares S&P US Preferred Stock Index
XLE U.S. Energy Sector SPDR
EEM iShares MSCI Emerging Markets
DBV PowerSh DB G10 Currency Harvest
TIP iShares Barclays TIPS (4-8yr)
SCZ iShares MSCI EAFE Small Cap Index
PCY PowerShares Emerging Mkts Bond (7-9yr)
TLT iShares Barclays Long-Term Trsry (15-17yr)
XLU U.S. Utilities Sector SPDR
EFA iShares MSCI EAFE Index
SHY Barclays Low Duration Treasury (2-yr)
IEF iShares Barclays 7-10 Yr Treasury (7-8yr)
WIP SPDR Int’l Govt Infl-Protect Bond (9-10yr)
RWX SPDR DJ International Real Estate
BWX SPDR Barcap Global Ex-U.S. Bond (6-7yr)
DBC PowerShares DB Commodity Index
DBA PowerShares DB Agricultural Commodities
DBB PowerShares DB Base Metals
LSC Elements S&P C.T.I.
GLD SPDR Gold Shares



3mo/20day/20day
Symbols Name
SCZ iShares MSCI EAFE Small Cap Index
PFF iShares S&P US Preferred Stock Index
SPY SPDR S&P 500 Index
XLE U.S. Energy Sector SPDR
EEM iShares MSCI Emerging Markets
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
DBV PowerSh DB G10 Currency Harvest
RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond (7-9yr)
DBC PowerShares DB Commodity Index
EFA iShares MSCI EAFE Index
VBR Vanguard MSCI U.S. SmallCap Value
LQD iShares iBoxx Invest Grade Bond (7-8yr)
WIP SPDR Int’l Govt Infl-Protect Bond (9-10yr)
VNQ Vanguard MSCI U.S. REIT
BWX SPDR Barcap Global Ex-U.S. Bond (6-7yr)
SHY Barclays Low Duration Treasury (2-yr)
XLU U.S. Utilities Sector SPDR
DBB PowerShares DB Base Metals
DBA PowerShares DB Agricultural Commodities
TIP iShares Barclays TIPS (4-8yr)
IEF iShares Barclays 7-10 Yr Treasury (7-8yr)
LSC Elements S&P C.T.I.
TLT iShares Barclays Long-Term Trsry (15-17yr)
GLD SPDR Gold Shares

3 thoughts on “ETF Replay Portfolio for March”

  1. Hi Scott,
    first off, great site and analysis. I read Faber’s Ivy Portfolio and I see your work as a natural extension and improvement of his strategies.
    Have you re-run the backtest simulations from mid-september to see how the strategies have performed since then(compared to your always hold 4 etfs strategy), and have you tested it with weekly rebalancing? Your mid-september results show higher CAGR and lower max. drawdown for the semi-monthly rebalance which had 23% and -9% respectively. Compared to all other backtests: Ivy, Basic ETF, Decision Moose, Paired switching, etc, seems like ETFReplay semi-monthly has performed the best since its CAGR is more than twice the max drawdown.
    Also, have you tested with a list of all unlevered ETFs, as opposed to only those 25?

    1. I will re-run some of the backtests in the next few days and post the results – ETF Replay and Ivy with monthly and semi rebalancing. Weekly rebalancing would probably result in too many commissions/false signals but I will take a look at the results and see if they are worth posting. I have not been able to backtest more than 25 ETFs due to ETF Replay limiting portfolios to 25 positions.

      1. Sounds good, looking forward to the results. What was your reasoning for picking those 25 ETFs? You seem to have many (9) in bonds. Was this backtest-optimized through ETFReplay or using a different selection method?

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>