Ivy & Commission Free Portfolios – June 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. My preference is to use adjusted data when evaluating signals.

Top 50 Trending Stocks

The current signals based on May 31st closing prices are below. As with last month, real estate and US equities continue to show strength while bonds and commodities are lagging.

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

Ivy June Adjusted

 

Ivy June Unadjusted

 

As an added bonus I created a “Commission-Free” Ivy Portfolio spreadsheet. This document tracks the 10 month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, 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.

For June FTSE EPRA/NAREIT Global Real Estate ex U.S. (IFGL) replaces Vanguard Global ex-U.S. Real Estate (VNQI) in the Fidelity commission free portfolio. VNQI was not commission free on the Fidelity platform while IFGL is currently a commission-free ETF on the Fidelity platform.

In addition, some of the other iShares symbols in the Fidelity portfolio have changed to reflect changes in the iShares “core” ETF product line. While these ETFs closely track the previous ETFs used in the Fidelity commission free platform, there could be some differences with the previous ETFs.

Below are the 10 month moving average signals (using adjusted price data) for the commission-free portfolios:

June Commission Free

 

June Commission Free2

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!

Tuesday Readings

I hope everyone had a safe and relaxing Memorial Weekend.

Below are a few articles I am reading this week

Precious Metals & Miners Start Bottoming Process – Chris Vermeulen

Hewlett-Packard Company: Cheap as Dirt – Turnkey Analyst

Rock, Paper, Scissors – John Hussman

Are We There Yet? & The Mother of All Painted-In Corners (pdf) John Mauldin

The World Turns Japanese – Satyajit Das

The Lure of Hedge Funds – Research Affiliates

You Can Be a Hedge Fund Investor. But Why Would You? Barry Ritholtz

Weekend Readings

Below are a handful of investments articles for your long holiday weekend:

Audio Interview – Banister & Swanson On Gold Stock Rally

Sector Rotation and Dual Momentum – Optimal Momentum

Faber: Payout ETFs Not All About Dividends – Index Universe

Tom Dorsey: ETF ‘Alchemy’ is the Future – Index Universe

Are Market Valuations too High? Turnkey Analyst

 What to do about REITS? Mebane Faber

Can Two Senators End Too Big to Fail? Barry Ritholtz

All Japan, All the Time – John Mauldin

Shareholder Yield Strategy: Beyond Dividends

Cambria Investment Management and Mebane Faber recently announced the Cambria Shareholder Yield ETF (SYLD). Faber outlines the Shareholder Yield strategy in his Shareholder Yield: A Better Approach to Dividend Investing.

The Shareholder Yield strategy is especially relevant today, with investors desperate for  yield in a low interest rate environment. The basic premise behind the strategy is that companies have three options for returning cash to shareholders – dividends, share buybacks, and paying down debt.

Dividends are the most widely understood method for companies to return cash to shareholders, but share buybacks and debt reduction are also methods for returning cash. Share buybacks increase the ownership stake of equity holders by reducing the number of outstanding shares. When a company pays down debt, it reduces its obligations to bondholders and shifts ownership to equity holders.  Tax policy can also influence how companies choose to return cash to shareholders – if dividends are taxed at a higher rate than capital gains, this creates incentives to return cash via buybacks and debt reduction.

Cambria’s fund fact sheet describes SYLD as “an actively managed fund that employs the manager’s quantitative algorithm to select U.S. listed companies that show strong characteristics in returning free cash flow to their shareholders. Specifically, SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets.”

Besides investing in SYLD there are other options for screening, testing and investing in a shareholder yield strategy.  I created a Shareholder Yield screen using Portfolio123 and backtested it to 1999. My Shareholder Yield screen attempts to closely mimic the one outlined by Faber and Cambria, but there will be differences since Cambria does not fully disclose their ranking methodology.

Shareholder YIeld can be defined in a simple equation as Dividend Yield + Net Buyback Yield + Net Debt Paydown Yield. The tests below use a custom ranking system to rank stocks based on these three factors.

The first test is a Shareholder Yield strategy on stocks in the S&P 500. The test purchased the top 20 stocks based on their Shareholder Yield and rebalanced every 8 weeks (4, 6, and 12 week rebalances also showed strong results). I assumed .25% in slippage to account for trading friction, dividends are included in the results, and the benchmark is SPY.

Results from 5, 10, and 14+ year (1/2/99-5/21/13) results are below:

Charts courtesy of Portfolio123

5year shareholder yield

 

10year shareholder yield

 

14year shareholder yield

The overall results are strong when compared to SPY. However, taxes and commissions could be an additional drag on returns and the max drawdown of the strategy could also be too much for some to handle.

I am a fan of sacrificing some overall return for lower volatility and drawdown. The next test uses the same parameters as above with one added market timing filter. Stocks were only purchased on the rebalance date (every 8 weeks) if the benchmark (SPY) was trading above its 200 day simple moving average on the rebalance date. Positions were held for 8 weeks regardless of whether SPY dropped above/below the 200 day moving average between rebalance dates.

The 5, 10, and 14+ year results are below:

Charts courtesy of Portfolio123

5year shareholder yield timing10year shareholder yield timing

14year shareholder yield timing

Drawdowns were reduced as was total returns. An 8 week rebalance period reduces turnover, but it increases the likelihood that SPY could make a fairly significant move above/below its moving average between rebalance dates. This simple timing strategy may not be optimal, but is intended to show the potential for reducing portfolio drawdowns by employing some simple techniques.

What happens when we take share buybacks and debt reduction out of the equation and simply purchase the top 20 highest dividend yielding stocks in the S&P 500 every 8 weeks? In other words, are we accomplishing anything in the results above by screening for share repurchases and debt reduction?

The results of a high dividend yield strategy:

Charts courtesy of Portfolio123

5year high yield10year high yield14year high yield

The high yield strategy performed well compared to SPY, but under-performed both on a total and risk-adjusted basis in the 5, 10, and 14 year tests when compared to a Shareholder Yield strategy.

Cambria’s commitment to a Shareholder Yield ETF, the historical results outlined in Shareholder Yield: A Better Approach to Dividend Investing (and elsewhere on the web), and the results of the tests using Portfolio123  indicate that a shareholder yield strategy is worth our attention.

Trend Trading Apple & Lululemon

Below are two new trading videos on Apple (AAPL) and Lululemon (LULU), courtesy of Adam Hewison / Marketclub. The videos are free to watch and highlight some of the trading tools available at Marketclub:

Has Apple Lost Its Way?

 

In a recent Bloomberg news poll, 71% of investors believe Apple has become less innovative. Has Apple lost its way? In today’s short five minute video, I will be examining Apple stock (NASDAQ:AAPL) and investigating what drives the price.

 

Watch this short video here.

 

We’ll look to see what pushed Apple’s stock price over $700 and what caused Apple to crash below $400 in such a short period of time.

 

For more information on the tools I use in this video, click here to visit MarketClub.

 

Is LULU a Lemon of a Stock?

 

Today I am going to share with you one of my favorite technical tools and how to use this tool to successfully navigate the ups and downs of Lululemon Athletica Inc. (NASDAQ:LULU).

 

Click here to watch the video!

 

Just recently, there has been a great deal of controversy about this company. You might recall the problem they had with their see-through workout pants. It turns out their workout pants were just a little bit too sheer for everyone’s comfort. The company also got sued by a pension fund for giving executives big bonuses on the eve of the recall of their too sheer workout pants.

 

In this video, we will be diving into Lululemon (NASDAQ:LULU) using a technical tool that is readily available to you and one that is very easy to use and understand. This short video is just five minutes in duration and will help you understand the key element of this simple tool. It is a tool I have used successfully for many years in both stocks and other markets. Like any technical tool, it is not perfect and not guaranteed to make you money, however this technical tool comes as close to perfection as you can get.

 

Watch the video here.

Tuesday Readings

Are Stocks Cheap? The Fed Thinks So – Turnkey Analyst

Satyajit Das: Why the Currency Wars Matter

Skills, Education, and Employment (pdf) – John Mauldin

How to Construct a Low-Cost Conservative Portfolio – Geoff Considine

Closing Arguments – John Hussman

There Will Be Haircuts – Bill Gross, & New Normal…Morphing – Mohamed El-Erian

Cambria Funds announces Shareholder Yield ETF (symbol SYLD)

Powershares launches fundamentally-weighted emerging markets debt ETF (symbol PFEM)

Dual ETF Momentum – May Update

In February I announced a new “Dual ETF Momentum” spreadsheet. The idea was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.

The spreadsheet is available on Scott’s Investment’s here. The objective of the spreadsheet is to track four pairs of ETFs and provide 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.

I have added an “average” return signal for each ETF 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.

Below are the four portfolios along with current signals. As you can see, the 12-month and 3-6-12 signals are the same with the exception of the Real-Estate risk portfolio. REM has  higher 12-month returns than VNQ; however, VNQ has higher 3/6/12 returns than REM.

Return data courtesy of Finviz
Equity ETF Average of 3/6/12 Returns Signal based on 1 year returns Signal based on average returns
US Equities VTI 16.72 Invested Invested
International Equities VEU 13.06
Cash SHY 0.17
Credit Risk ETF Average of 3/6/12 Returns Signal based on 1 year returns Signal based on average returns
High Yield Bond HYG 7.67 Invested Invested
Interm Credit Bond CIU 2.28
Cash SHY 0.17
Real-Estate Risk ETF Average of 3/6/12 Returns Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ 17.17 Invested
Mortgage REIT REM 14.43 Invested
Cash SHY 0.17
Economic Stress ETF Average of 3/6/12 Returns Signal based on 1 year returns Signal based on average returns
Gold GLD -13.42
Long-term Treasuries TLT 0.46 Invested Invested
Cash SHY 0.17

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. Also, the dual momentum strategy has historically had relatively low turnover.

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

Tuesday Readings

If you are looking for a great read, take a moment to click the banner at the top of the page for CXO Advisory Group. They provide some of the best, objective investment analysis on the web.

Is the Stock Market Cheap? Doug Short

The QE Sandpile and Debt, Growth, and the Austerity Debate (pdf) John Mauldin

Aligning Market Exposure With the Expected Return/Risk Profile – John Hussman

Trillion $ Mistake – Mebane Faber

Looking for Equity Income? Try Shareholder Yield – Schwab.com

Tactical Asset Allocation During Cheap Markets – Turnkey Analyst

May High Yield Dividend Champion Portfolio

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.

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 rank 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.

In January I announced some changes to the ranking system. The changes were not due to poor performance – the strategy has returned over 60% since late 2010.

We still begin with the Dividend Champion list. The list is first sorted by yield and the lowest 50% yielding stocks are eliminated. Eliminating the lowest yielding stocks ensures only stocks with a “high” yield make the portfolio.

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 is one new position. UGI Corp (UGI) was sold for a gain of 12.2% (excluding dividends) and an original purchase date of 3/5/13.

Proceeds from the sales were used to purchase Tompkins Financial Corp (TMP). TMP yields 3.64% with a payout ratio of 62%.

(Weekly chart courtesy of Finviz)

 

 

 

 

 

 

(Chart courtesy of Portfolio123)

tmp

The top 17 stocks based on my ranking methodology are below and displayed in order of their overall ranking (figures are April month-end):

Name Symbol Yield Payout 5/10 A/D* 3-yr DGR
Chevron Corp. CVX 3.28 30.23 0.956 9.7
Air Products & Chem. APD 3.27 57.14 0.937 11.8
ExxonMobil Corp. XOM 2.83 26.01 1.081 9.5
Altria Group Inc. MO 4.82 81.48 1.251 8.7
WGL Holdings Inc. WGL 3.63 61.09 1.347 2.9
California Water Service CWT 3.19 54.70 1.407 2.2
Genuine Parts Co. GPC 2.82 51.93 1.170 6.8
Northwest Natural Gas NWN 4.09 81.98 1.245 3.8
Tompkins Financial Corp. TMP 3.64 62.04 0.843 5.7
Leggett & Platt Inc. LEG 3.60 69.05 1.153 3.8
Universal Corp. UVV 3.48 43.01 0.585 2.1
Procter & Gamble Co. PG 3.13 60.60 0.942 8.7
Emerson Electric EMR 2.95 58.57 1.083 6.7
Clorox Company CLX 2.97 59.81 0.910 8.9
Community Trust Banc. CTBI 3.64 43.75 0.410 1.2
UGI Corp. UGI 2.76 59.79 1.147 10.5
Questar Corp. STR 2.68 57.14 1.035 9.6

The current portfolio is below:

Position Purchase Date Percentage Gain/Loss Excluding Dividends
CVX 12/6/2012 16.01%
WGL 12/6/2012 15.51%
GPC 1/7/2013 17.48%
UVV 4/5/2012 26.41%
CWT 4/5/2013 2.08%
APD 2/5/2013 2.64%
XOM 4/5/2013 1.13%
MO 3/5/2013 6.63%
TMP 5/3/2013 0.00%
NWN 4/5/2013 -0.75%

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

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

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Ivy & Commission Free Portfolios – May 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 April 30th closing prices are below. As with last month, real estate and US equities continue to show strength while commodities are lagging.

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

ivyadjusted ivy unadjusted

As an added bonus I created a “Commission-Free” Ivy Portfolio spreadsheet. This document tracks the 10 month moving averages forfour (up from three last month!) different portfolios designed for TD Ameritrade, Fidelity Charles Schwab, 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:

commissionfree1 commissionfree2

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!