Portfolio – March Update

Among the more popular portfolios on Scott’s Investments has been the 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 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
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)

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


More on this topic (What's this?)
Core ETF Report
Stocks and ETFs Still Snoozing
Read more on Exchange Traded Fund (ETF) at Wikinvest

3 thoughts on “ Portfolio – March Update”

  1. Scott,

    The original, super simple, ETF replay that you mentioned at the beginning of your research into (consisting of SPY, GLD, and SHY) has an impressive performance. It’s even better if rebalanced weekly.

    Since I’m not a member of, I can’t calculate the CAGR for this system, but I imagine that it’s very good (the weekly version returns over 236% since the inception of GLD). Could you tell me if the CAGR for your current system is better than for the basic system? If not, why did you switch to your current system?

    1. My main concern with the SPY/GLD/SHY test is the time frame available for testing encompasses a bull market in gold. When GLD enters a longer term bear market, the strategy could suffer. By choosing from more ETFs I am also hoping to diversify the strategy in the long run and limit volatility and drawdowns by holding more than 1 ETF.

  2. I see your point. But, if you substitute QQQ or VWO for SPY (these are a few of the options available to non-subscribers), the results (for monthly rebalancing) are even better than GLD. VWO is somewhat correlated to SPY, but QQQ is very strongly correlated, meaning that, at least for the QQQ, SPY, SHY test, one is basically just using to time the market.

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