Ivy & Commission Free Portfolios – August 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 July 31st closing prices are below. As with recent months, developed equities and US REITS remain the strongest asset classes.

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



I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. 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.

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




ETFReplay Portfolio for August

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.

For 2013 the static basket of ETFs was reduced from 25 to 15. From this basket of 15, the top 4 are purchased 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), but it could also reduce total returns by allocating to cash in lieu of an asset class.

The top 5 ranked ETFs as of 7/31/13 are below:

VTI Vanguard MSCI Total U.S. Stock Market
SHY Barclays Low Duration Treasury
HYG iShares iBoxx High-Yield Corp Bond
LQD iShares iBoxx Invest Grade Bond

This is little changed compared to last two months. Since cash is the second highest rated ETF, anything rated below it does not qualify for purchase. This is a defensive allocation, as a result of recent volatility and negative performance in a variety of equity, commodity and bond markets.

For August the portfolio remains allocated to cash and US equities. A more aggressive approach would disregard the cash filter. However, the objective of the portfolio is balance risk and reward while reducing drawdowns.

The strategy’s performance since inception is below, as is comparative performance of the SPDR S&P 500 ETF (SPY), a balanced allocation ETF, the iShares Growth Allocation (AOR), and the Permanent Portfolio (PRPFX):


Tuesday Readings

Below is my  investment reading list for this week:

GMO’s 2Q 2013 Letter is now available on GMO’s site.

Where Have All the Cowboys Gone? The Reformed Broker

Indexing 2.0 (aka Better Indexing) – Mebane Faber

Any Bonds Today? & The Mirror Cracks  – John Mauldin

Rising Interest Rates Will Soon Make Needed Infrastructure Repairs More Costly – Barry Ritholtz

 Momentum Has Serious Mojo! Turnkey Analyst; see also The World’s Longest Backtest – Optimal Momentum

From IndexUniverse: Swedroe: An ETN Credit-Risk Reality Check;  Arnott: Emerging Markets Look Attractive

MarketClub Summer Special

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Graham Value Stock Portfolio Update

In January 2012 I announced a new portfolio, a Benjamin Graham “inspired” value stock portfolio.  The purpose of the hypothetical portfolio is to track returns for a portfolio of 15 stocks selected based on a variety of valuation metrics.

I originally intended to update the portfolio monthly; however, in the spirit of creating a lower turnover, value-driven portfolio it is now updated approximately once per quarter. I have also added an additional criteria to limit turnover in the portfolio (see below). The Graham portfolio is an attempt to add a value strategy to Scott’s Investments, which is otherwise focused on momentum, trend, income and market timing strategies.

The criteria used to select the stocks are listed below.  The tool used to perform the screen and backtests are courtesy of  Portfolio123 (“P123″).

The actual screen factors are below:

  • Liquidity filter: No OTC Stocks
  • Market capitalization > $100 million
  • Eliminate companies classified in the Miscellaneous Financial Services Industry, most of which are investment companies and funds and not the kind of stocks this all-star tended to seek
  • Current ratio must be at least 1.5
  • Long-term debt must be no higher than 10% above working capital
  • EPS must be above breakeven in each of the last four quarters and in each of the last five annual periods
  • Trailing 12 month EPS most be above EPS in the latest annual period
  • EPS in the latest annual period must be above EPS in the prior year and five years ago
  • The company must have paid common dividends in the last 12 months

The ranking system used as a basis for selecting the top 15 based among those stocks that pass the Graham screen are below:

  • Valuation – 60% of total
  • Trailing 12 month P/E (15% of this category)
  • Price-to-Book (15% of this category)
  • Price-to-Tangible Book Value (35% of this category)
  • Operating P/E, defined as Market Capitalization divided by Business Income, which is Sales minus Cost of Goods sold minus Selling, General & Administrative Expense and omits unusual items (35% of this category)
  • Earnings – 40% of total
  • 5-year EPS Growth Rate (50% of this category)
  • EPS Stability, defined as the standard deviation of EPS over the past 16 quarters, lower being better (50% of this category)

I began tracking this portfolio real-time on January 13th, 2012.  As of this writing the portfolio is up 24.79% (including dividends) since inception.

The portfolio has been hampered by big drawdowns in a handful of names, which the quantitative rules continue to define as undervalued. These are excellent examples of the challenges in value investing – a stock could be defined as under-valued for a good reason, and may remain so for a significant period of time, perhaps years or forever if the company has experienced a permanent and material change in operations (a “value trap”). On the other hand, under-valued stocks may lag longer than investors wish, but patient, longer-term investors who aptly select value stocks can be rewarded in the long-run.

A real-world application of this portfolio could also utilize stop losses in order to prevent large drawdowns in single positions. However, for the purposes of tracking the portfolio results, all positions are bought and held until rebalancing.

In July 2012 I added a rule to limit portfolio turnover – stocks will only be sold when they drop out of the top 20 in Graham Value screen.  Thus, a stock could theoretically drop to the 20th ranking but remain in the 15 stock portfolio if it is a current holding.

Small cap and less liquid equities appearing frequently on the list. This makes for a potentially more volatile, higher beta list of equities and also led to some early drawdowns in the portfolio. The screen excludes stocks with a market cap less than $100 million.

Below are 5 and 10 year backtest results for this screen (with the $100 million market cap requirement) using a quarterly rebalance and .50% slippage to help account for bid/ask spreads and commission costs. The backtest also includes the rule to sell a stock only when it dropped out of the top 20 in the list:

5 year graham

10 Year Graham

The top 20 stocks based on the screen criteria are listed below:

Ticker Name Rank MktCap
HFC HollyFrontier Corp 89.28 8653.64
CF CF Industries Holdings Inc 88.4 11226.55
JOY Joy Global Inc 86.97 5481.05
WDC Western Digital Corp 85.4 16241.12
AGI Alamos Gold Inc 85.09 1709.35
TESS TESSCO Technologies Inc 82.82 246.43
AAPL Apple Inc 82.47 401833.78
WMK Weis Markets Inc. 81.4 1318.81
NATR Nature’s Sunshine Products Inc 80.59 281.76
HP Helmerich & Payne Inc. 80.21 6943.93
RGLD Royal Gold Inc 77.37 2745.85
GOLD Randgold Resources Ltd 77.29 5959.55
SCVL Shoe Carnival Inc 76.59 525.18
SCL Stepan Co 76.26 1302.87
UNF UniFirst Corp 74.51 1932.32
CUB Cubic Corp 74.07 1382.52
MRTN Marten Transport Ltd 73.29 584.68
IPAR Inter Parfums Inc 72.22 1033.43
UVV Universal Corp 71.67 1435.42
SWM Schweitzer-Mauduit Intl Inc 70.57 1669.15

Two stocks are being sold in this update:

Symbol Name Purchase Date % Gain/Loss
KNM Konami Corp 1/15/2013 10.72%
AGU Agrium Inc. 4/15/2013 -1.62%

The two new additions are Royal Gold Inc (RGLD) and Randgold Resources Ltd (GOLD). Given the sell-off in gold and gold miners since late 2012, it should come as little surprise that we see two miners added to the portfolio.

The current portfolio as of today’s close. Of note is the continued inclusion of Apple (AAPL) and Western Digital (WDC):

Symbol Name Purchase Price Purchase Date Percentage Gain/Loss
WDC Western Digital 44.84 1/15/2013 51.40%
AGI Alamos Gold Inc 10.34 4/15/2013 32.21%
HFC HollyFrontier Corp 45.9 4/15/2013 -7.89%
MRTN Marten Transport Ltd 18.79 4/15/2013 -6.12%
NATR Nature’s Sunshine Products Inc 14.09 4/15/2013 29.17%
HP Helmerich & Payne Inc. 44.41 7/17/2012 44.88%
RGLD Royal Gold Inc 45.42 7/16/2013 0.00%
JOY Joy Global Inc 52.71 4/15/2013 -1.01%
CUB Cubic Corp 41.74 4/15/2013 23.38%
SWM Schweitzer-Mauduit Intl Inc 33.61 10/15/2012 57.39%
WMK Weis Markets Inc. 38.69 1/15/2013 26.44%
GOLD Randgold Resources Ltd 69.01 7/16/2013 0.00%
AAPL Apple Inc 419.85 4/15/2013 2.47%
TESS TESSCO Technologies Inc 21.04 7/17/2012 44.53%
CF CF Industries Holdings Inc 217.01 1/15/2013 -16.52%

Dual ETF Momentum Portfolio – July 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 ETF (a “cash” filter) in the form of iShares Barclays 1-3 Treasury Bond ETF (SHY). 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 SHY. 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.

Using Portfolio123 I backtested a similar strategy using the same portfolios and combined momentum score used above. You can view the backtest results in last month’s update.

Below are the four portfolios along with current signals.

Return data courtesy of Finviz
Equity Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
US Equities VTI 16.62 Invested Invested
International Equities VEU 7.09
Cash SHY 0.02
Credit Risk Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
High Yield Bond HYG 2.86 Invested Invested
Interm Credit Bond CIU -1
Cash SHY 0.02
Real-Estate Risk Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ 6.19 Invested Invested
Mortgage REIT REM -8.35
Cash SHY 0.02
Economic Stress Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
Gold GLD -19.9
Long-term Treasuries TLT -10.6
Cash SHY 0.02 Invested Invested

Equity REITs are trumping Mortgage REITs by a wide margin, as is US equities versus international equities. High Yield bonds have a slight advantage over cash and “Economic Stress”, in the form of GLD and TLT, is lagging cash by a significant margin.

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.


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Mid-Week Reads

Below are a few investment articles I’m reading this week:

Bill Bernstein: Be Open to New Factor Tilts – IndexUniverse

John Mauldin (pdf): How Gold Lost Its Luster, How the All-Weather Fund Got Wet, and Other Just-So Stories & Bad Omens

Global Cape: Europe Cheap, USA Dear – The Big Picture

 Satyajit Das on Central Banks: Loose Lips Sink Economies – Minyanville

 Dynamic Asset Allocation for Practitioners Part 2: Risk Adjusted Momentum – GestaltU

July 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 62% 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 turnover in two positions. Genuine Parts Company (GPC) was a holding since 1/7/13 and was sold for a gain over 27% (excluding dividends).  Tompkins Financial (TMP) was a holding since 5/3/13 and was sold for a gain over 13%.

The two new positions are Helmerich & Payne Inc. (HP) and American States Water (AWR).  As of the end of June HP yielded 3.2% with a 35.5% payout ratio and AWR yielded 3.02% with a payout ratio of 54.4%.

(Charts courtesy of Portfolio123)




The top 19 stocks based on my ranking methodology are below and displayed in order of their overall ranking (figures are June month-end):

Name Symbol Yield
Helmerich & Payne Inc. HP 3.20
Chevron Corp. CVX 3.38
WGL Holdings Inc. WGL 3.89
Altria Group Inc. MO 5.03
American States Water AWR 3.02
UGI Corp. UGI 2.89
ExxonMobil Corp. XOM 2.79
Leggett & Platt Inc. LEG 3.73
Air Products & Chem. APD 3.10
Northwest Natural Gas NWN 4.28
California Water Service CWT 3.28
Clorox Company CLX 3.42
Universal Corp. UVV 3.46
Piedmont Natural Gas PNY 3.68
Procter & Gamble Co. PG 3.13
Sonoco Products Co. SON 3.59
Tompkins Financial Corp. TMP 3.36
Questar Corp. STR 3.02
Emerson Electric EMR 3.01

The current portfolio is below:

Position Purchase Price Purchase Date Percentage Gain/Loss Excluding Dividends
CVX 106.45 12/6/2012 13.21%
WGL 38.61 12/6/2012 10.64%
HP 65.48 7/5/2013 0.00%
UVV 45.55 4/5/2012 27.00%
CWT 19.74 4/5/2013 -0.46%
APD 87.49 2/5/2013 5.02%
XOM 89.01 4/5/2013 2.88%
MO 34.24 3/5/2013 3.65%
AWR 54.5 7/5/2013 0.00%
NWN 44.24 4/5/2013 -4.50%

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!

The portfolio performance is below:

dividend champion

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Tuesday Readings

Below are some investment articles for a short holiday week:

Leading Sectors, Cycles and Momentum Point To Drop This Week – The Gold and Oil Guy

Is the Stock Market Cheap? & Market Valuation, Inflation and Treasury Yields – Doug Short

The Tipping Point – Bill Gross

All of the Above – John Hussman

Swedroe: Taking on the Lies About Active – Index Universe

This Country is Different (pdf) – John Mauldin