Ivy Portfolio – March Update

Early in 2012  Scott’s Investments added a daily Ivy Portfolio spreadsheet. This tool uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages.

The Ivy Portfolio spreadsheet tracks the 5 and 10 ETF Portfolios listed in Faber’s book. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. When the security is trading above its 10 month simple moving average the positions is listed as “Invested”.

The spreadsheet’s signals update once daily (typically in the late evening) using dividend/split adjusted closing price from Yahoo Finance. The 10 month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price.  Even though the signals update daily, it is not an endorsement to check signals daily. It simply gives the spreadsheet more versatility for users to check at his or her leisure.

The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10 month simple moving average, using both adjusted and unadjusted data.

If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10 month SMA. This could also potentially impact whether an ETF is above or below its 10 month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach.

Top 50 Trending Stocks

The current signals based on February 28th closing prices are below.  Real estate and equities are leading while bonds and commodities are lagging and trading below their 10 month moving average.

The first table is based on adjusted historical data and the second table is based on unadjusted price data:

As an added bonus I created a “Commission-Free” Ivy Portfolio spreadsheet. This document tracks the 10 month moving averages for three different portfolios designed for TD Ameritrade, Fidelity, and Vanguard commission-free ETF offers.

Not all ETFs in each portfolio are commission free, as each broker limits the selection of commission-free ETFs and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply depending on each broker.

Below are the 10 month moving average signals for the commission-free portfolios:

If you enjoy these tools, please consider making a donation on the home page of Scott’s Investments using the Paypal link in the upper-right corner!

ETFReplay.com Portfolio – March Update

Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. The strategy has been revised and improved for 2013 in order to make it simpler to follow.

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 select only the top 4 ETFs out of a static basket of  ETFs and re-balance the portfolio monthly. Previously, the static basket of ETFs was 25. This number of ETFs creates a high degree of turnover and also creates cross-over among ETFs that have a high correlations. For example, if you are only purchasing 4 ETFs each month and 2 or 3 of the ETFs are highly correlated, there is little benefit in holding more than 1 of the ETFs.

For 2013 the static basket of ETFs has been reduced to 15. From this basket of 15, the top 4 will be selected each month. The portfolio will be re-balanced at the beginning of each month. When a holding drops out of the top 5 ETFs it will be sold and replaced with the next highest ranked ETF. I added the top 5 requirement in order to further limit turnover. ETFs will be ranked on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking).

In addition, ETFs must be ranked above the cash ETF SHY in order to be included in the portfolio, similar to the absolute momentum strategy I profiled here. This modification could help reduce drawdowns during periods of high volatility and/or negative market conditions (see 2008-2009).

The top 5 ranked ETFs as of 2/28/13 are below:

RWX SPDR DJ International Real Estate
VTI Vanguard MSCI Total U.S. Stock Market
VNQ Vanguard MSCI U.S. REIT
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
EFA iShares MSCI EAFE

The position in iShares MSCI Emerging Markets (EEM) was closed for a loss of 2.57% (excluding dividends) and SPDR International Government Inflation Protected Bond (WIP) for a loss of 1.71% (excluding dividends). These positions were replaced by Vanguard MSCI Total US Stock Market (VTI) and Vanguard MSCI U.S. REIT (VNQ).

The four current positions are below:

 

Position Shares Purchase Price Purchase Date
RWX 70 40.74 10/31/2012
EFA 49 58.98 1/31/2013
VTI 36 78.24 2/28/2013
VNQ 40 69.09 2/28/2013

 

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Gold – Quarterly Update

AlphaClone posted a fourth quarter 2012  summary of institutional activity in Gold (GLD). Quarter over quarter activity shows an overall decrease in institutional holdings of GLD:

However, as Alphaclone notes there are some very prominent funds with positions in GLD:

For those interested in potential applications of institutional holdings see my tests and post from 2010 here.

GLD remains below its 200 day moving average and there is a clear downward sloping channel, as shown by the Finviz chart below, but GLD did find a bid last week at $152:

From a relative strength perspective GLD is trailing two other major asset classes, US Equities and US Bonds (both long-term Treasuries and Aggregate Bonds). I used ETF Replay to test a relative strength system which went long the one ETF with the highest 6 month relative strength among GLD, SPDR S&P 500 (SPY), iShares Barclays 20+ Treasury (TLT) and iShares Barclays Aggregate Bond (AGG), rebalanced monthly. GLD is currently ranked 4th among the 4 ETFs based on 6 month relative strength (TLT is a close third):

For a contrarian perspective, David Banister of The Market Trend Forecast  predicted a cyclical low in Gold for February 2013 in this article, although gold did surpass his low target price for February. A chart from the article below:

 

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Weekend Reads

Below are some excellent articles for the weekend ahead. Also, I will be writing an update on new features with the All-Weather ETF portfolio next week. Stay tuned!

Gold and Silver Nearing Long-Term Support – Chris Vermeulen

James Montier has a new piece available at GMO (free registration required), Hyperinflation, Hysteria, and False Memories

200 Day Versus 10 Month Moving Averages – Barry Ritholtz

The Holy Grail for Monitoring Your Portfolio – The Capital Speculator

Whatever It Takes & Scrambling for Returns (pdf) John Mauldin

Global Value – Mebane Faber & Prabhat Dalmia

Momentum, Momentum, Momentum – Empiritrage

Balanced Portfolios: Keeping It Real – Advisor Perspectives

The Siren’s Song of the Unfinished Half-Cycle – John Hussman

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Weekend Reads

Below are articles I am catching up on this weekend:

The Biggest Financial Asset in Your Portfolio is You – NY Times

The Importance of Excel – The Baseline Scenario

The Most Difficult Environment for Generating Income in 140 Years – The Idea Farm

The Best Performing Trendfollowing Fund Is… World Beta

Reflections on Overconfidence – Turnkey Analyst

Bridgewater Bets on Stocks – Bloomberg

Investing in a Low-Growth World (pdf) & How Not to Run a Pension (pdf) & 2013 Investment Themes (pdf) John Mauldin

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Momentum Follow-Up

I received several good questions on the Dual ETF Momentum tool.

It is important to reiterate that the spreadsheet is not meant as an “optimal” portfolio or investment advice. It is a live, in-sample replication of the dual portfolios and strategy featured in Gary Antonacci’s academic paper.

He has been kind enough to follow my posts on the dual momentum strategy and he noted “as I’ve mentioned on both my website and blog, that I don’t think what I have in my paper is an ideal portfolio. I used those particular assets to support the points I was making in my paper. The BMI and GBMI indices represent a more appropriate investing portfolio, in my opinion. They also contain proprietary enhancements to the methodology.”

The BMI and GBMI are proprietary indices and licensed to professionals. However, Anotonacci has a new paper and book coming out later this year. The strategies featured in both will be geared towards the general public and I will be sure to post a follow-up when they are available!

 

Dual ETF Momentum Tool (New!)

Last December I posted multiple “Dual Momentum” tests that were inspired by a paper written by Gary Antonacci and available on Optimal Momentum. I received positive feedback from the first two articles (they are available here and here) so I have launched a new “Dual ETF Momentum” spreadsheet.

The spreadsheet is available on Scott’s Investment’s here. The objective of the spreadsheet is to track four pairs of ETFs and to present an “Invested” signal for the ETF in each pair with the highest relative 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 bill ETF (a “cash” filter). 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 the cash ETF. This is the absolute momentum filter which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns.

The selection of each pair of ETFs was intended to stay as true as possible to Antonacci’s article, which was based on indices, not ETFs. However, there are several other ETFs which could be easily substituted for the ones listed on the spreadsheet.

As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs. 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. Also, the dual momentum strategy has historically had relatively low turnover.

Below are the five portfolios along with current signals. If you enjoy these types of tools and articles, please also consider making a donation via the Paypal link on the homepage of Scott’s Investments:

Dual Momentum Return data courtesy of Finviz
Equity Representative ETF Quarterly % Total Returns Half Year % Total Returns 1 Year % Total Returns Signal (based on 1 year returns)
US Equities VTI 10.27 10.86 15.08 Invested
International Equities VEU 9.42 12.95 9.27
Cash SHY 0.09 0.14 0.3
Credit Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
High Yield Bond HYG 2.89 4.45 8.8 Invested
Interm Credit Bond CIU 0.02 1.58 5.11
Cash SHY 0.09 0.14 0.3
Real-Estate Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Equity REIT VNQ 7.86 6.1 13.5
Mortgage REIT REM 10.58 10.58 22.46 Invested
Cash SHY 0.09 0.14 0.3
Economic Stress Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Gold GLD -2.96 3.38 -4.79
Long-term Treasuries TLT -4.94 -5.93 3.2 Invested
Cash SHY 0.09 0.14 0.3
TD Ameritrade Commission Free
Equity Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
US Equities VTI 10.27 10.86 15.08 Invested
International Equities VEU 9.42 12.95 9.27
Cash SHY 0.09 0.14 0.3
Credit Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
High Yield Bond JNK 2.61 4.6 8.91 Invested
Interm Credit Bond CIU 0.02 1.58 5.11
Cash SHY 0.09 0.14 0.3
Real-Estate Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Equity REIT VNQ 7.86 6.1 13.5
Mortgage REIT** REM 10.58 10.58 22.46 Invested
Cash SHY 0.09 0.14 0.3
Economic Stress Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Gold** GLD -2.96 3.38 -4.79
Long-term Treasuries TLT -4.94 -5.93 3.2 Invested
Cash SHY 0.14 0.3
**COMMISSIONS APPLY. NO VIABLE COMMISSION FREE ETF AVAILABLE FROM  BROKER
Vanguard Commission Free
Equity Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
US Equities VTI 10.27 10.86 15.08 Invested
International Equities VEU 9.42 12.95 9.27
Cash VGSH 0.1 0.18 0.36
Credit Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
High Yield Bond** JNK 2.61 4.6 8.91 Invested
Interm Credit Bond BND -1.33 -0.68 1.88
Cash VGSH 0.1 0.18 0.36
Real-Estate Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Equity REIT VNQ 7.86 6.1 13.5
Mortgage REIT** REM 10.58 10.58 22.46 Invested
Cash VGSH 0.1 0.18 0.36
Economic Stress Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Gold** GLD -2.96 3.38 -4.79
Long-term Treasuries VGLT -4.28 -4.67 3.41 Invested
Cash VGSH 0.1 0.18 0.36
**COMMISSIONS APPLY. NO VIABLE COMMISSION FREE ETF AVAILABLE FROM  BROKER
Schwab Commission Free
Equity Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
US Equities SCHB 10.13 10.82 15.09 Invested
International Equities SCHF 9.66 13.9 10.58
Cash SCHO 0.09 0.13 0.19
Credit Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
High Yield Bond PHB 1.64 3.67 7.8 Invested
Interm Credit Bond SCHZ -0.72 -0.4 2.34
Cash SCHO 0.09 0.13 0.19
Real-Estate Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Equity REIT RWO 6.82 8.1 17.47
Mortgage REIT** REM 10.58 10.58 22.46 Invested
Cash SCHO 0.09 0.13 0.19
Economic Stress Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Gold SGOL -2.99 3.36 -4.8
Long-term Treasuries TLO -4.59 -5.18 3.14 Invested
Cash SCHO 0.09 0.13 0.19
**COMMISSIONS APPLY. NO VIABLE COMMISSION FREE ETF AVAILABLE FROM  BROKER
Fidelity Commission Free
Equity Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
US Equities IWV 10.21 10.83 14.96 Invested
International Equities ACWX 8.69 11.55 7.9
Cash** SHY 0.09 0.14 0.3
Credit Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
High Yield Bond HYG 2.89 4.45 8.8 Invested
Interm Credit Bond LQD -1.11 1.08 6.38
Cash** SHY 0.09 0.14 0.3
Real-Estate Risk Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Equity REIT IYR 7.77 6.82 14.43
Mortgage REIT** REM 10.58 10.58 22.46 Invested
Cash** SHY 0.09 0.14 0.3
Economic Stress Representative ETF Quarterly % Returns Half Year % Returns 1 Year % Returns Signal (based on 1 year returns)
Gold** GLD -2.96 3.38 -4.79
Long-term Treasuries** TLT -4.94 -5.93 3.2 Invested
Cash** SHY 0.09 0.14 0.3
**COMMISSIONS APPLY. NO VIABLE COMMISSION FREE ETF AVAILABLE FROM  BROKER
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Mid-Week Reads

I am waaaay behind on my reading, so some of the article below may be a few days old. Nevertheless, by posting what I read each week I keep myself honest, forcing me to keep (or catch) up on investment news and ideas.

Credit Supernova! Bill Gross

Jeremy Grantham’s Quarterly Newsletter is out, available at GMOs website.

Ray Dalio in the news from Bloomberg and The Reformed Broker

A Reluctant Bear’s Guide to the Universe – John Hussman

Market Valuation Overview – Doug Short

The Good, the Bad, and the Greek (Risks) & Prisoner of the Bureaucracy (pdf) – John Mauldin

No, Mr. Bond, I Expect You to Die – Grant William via John Mauldin

Ivy Update, Ultra Long Trends, & My #1 Read of the Year – Mebane Faber’s Idea Farm

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High Yield Dividend Champion Portfolio for February

In December 2010, I created a screen/hypothetical portfolio called the “High Yield Dividend Champion Portfolio.” The screen is tracked publicly as a continuous hypothetical portfolio with a starting balance of $100,000 on Scott’s Investments (see the right hand column for a link to the spreadsheet).

Like many of the screens, strategies, and portfolios I track and prefer, the High Yield Dividend Champion Portfolio uses a small number of historically relevant ideas to create a simple, yet powerful investment plan. As I previously detailed, “Some studies have shown that the, highest yielding, low payout stocks perform better over time than stocks with higher payouts and lower yields.”

The High Yield Dividend Champion Portfolio attempts to capture the best high yield, low payout stocks with a history of raising dividends. There are numerous ways to gauge the “best” high yield/low payout stocks. The screening process for this portfolio starts with the “Dividend Champions” as compiled by DRIP Investing. The list is comprised of stocks that have increased their dividend payout for at least 25 consecutive years.

Last month I announced some changes to the ranking system. The changes were not due to poor performance – the strategy has returned over 46% in the past two-plus years:

We still begin with the Dividend Champion list. The  list is first sorted by yield and the lowest 50% yielding stocks are eliminated.

The remaining stocks are then assigned a rank based on their yield (the higher the yield the higher the rank), payout ratio (the lower the payout ratio the higher the rank), 3 year dividend growth rate, and 5/10 year Dividend Acceleration/Deceleration (5-year average increase divided by 10-year average increase).  Extra weight is given to yield and payout ratio rankings.

The top 10 stocks based on the new ranking system make the portfolio. Stocks will be sold at the re-balance date (generally around the 5th of the month) when they drop out of the top 15 (to limit turnover) and are replaced with the next highest rated stock.

This month there are three new positions. Tompkins Financial (TMP) was sold for a gain of 2.82% (excluding dividends) with an original purchase date of 8/5/2011. Community Trust Bancorp (CTBI) was sold for a gain of 22.55% (excluding dividends) with an original purchase date of 4/6/2011.  Questar (STR) was sold for a gain of 10.92% (excluding dividends) and was just purchased on 1/7/2013.

Proceeds from the sale were used to purchase 599 shares of 1st Source (SRCE), 269 shares of American States Water Company (AWR) and 156 shares of Air Products & Chemicals (APD). Eagle Financial Services (EFSI) was actually ranked higher than SRCE; however, given the low trading volume of EFSI I have decided to exclude it from the list going forward.

The top 15 stocks based on the new ranking methodology are below and displayed in order of their ranking:

Name Symbol Trend Yield
Chevron Corp. CVX Here 3.13
Diebold Inc. DBD Here 3.87
Universal Health Realty Trust UHT Here 4.50
WGL Holdings Inc. WGL Here 3.82
Universal Corp. UVV Here 3.68
Genuine Parts Co. GPC Here 2.91
Walgreen Company WAG Here 2.75
Air Products & Chem. APD Here 2.93
American States Water AWR Here 2.81
Eagle Financial Services EFSI Here 3.38
1st Source Corp. SRCE Here 3.01
Procter & Gamble Co. PG Here 2.99
California Water Service CWT Here 3.28
Weyco Group Inc. WEYS Here 2.99
UGI Corp. UGI Here 3.06

All returns exclude commissions and taxes and are hypothetical. Real results will differ