Ivy & Commission Free ETF Portfolios – July Update

Scott’s Investments provides a daily Ivy Portfolio spreadsheet to track the 10 month moving average signals for two 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 or trade based on daily updates. 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.

In addition, the spreadsheet now ranks each ETF based on the average of its quarterly, half year, and annual returns. This information can be used to create relative momentum portfolios combined with moving average signals.

Top 50 Trending Stocks

The current signals based on June’s closing prices are below.  As with last month, equities and REITs continue to show strength although strength is dispersed broadly, with all 10 ETFs above their 10 month moving average.

The table is based on adjusted historical data (unadjusted price data is also available on the spreadsheet). Adjusted data is my preferred method for averaging prices; however, if you use a charting or financial site which uses unadjusted prices you may see moving average signals which differ:

Ivy July

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:

Free July

 

Free July 2

Monday Reads

Below is a Monday investment reading list:

Invest in Countries Starting Bull Markets – AlgoTrades

From Abnormal Returns – Financial Bloggers Wisdom: Advice for Novice Investors & Reading Lists

From ETF.com – The Problem With Index Funds Part 1 and Part 2.

Shiller’s CAPE: Is It Really Just B.S. and Is There a Better Measure?  – STA Wealth Management

Active Management Required – Above the Market

The Losing Bet on Climate Change – Bloomberg

The Combination Metric Backtest and Comparison of Value Deciles (1951 to 2013) – Greenbackd

Tuesday Investment Reads

 Solar Energy Sector ETF Breaking Out – How to Trade It

A Critique of John Hussman’s Chart of Estimated Future Equity Returns & Who’s Afraid of 1929? – Philosophical Economics

From ETF.com: Swedroe: Go International to Be Diversified & Int’l Diversification is Free

Can Market Valuations Be Effective Market-Timing Signals? & Time to Protect Your Stock Market Gains? Alpha Architect

This sector has changed the world as we know it…What it is and how to trade it – FREE INO.com Special Report – Click Here

VIX Below 12! McClellan Financial Publications

If You Used Valuation, You Would Be Out of Stocks Since 1993 – Meb Faber Research

I’d Choose Emerging Markets, Wouldn’t You? Research Affiliates

Curate Your Personal Investment Resources – The Big Picture

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Dual Momentum ETF Portfolio for June

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.

The spreadsheet is available here and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual 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.

An “average” return signal for each ETF is also available 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.

Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12″).  The test results were posted in the 2013 Year in Review.

Below are the four portfolios along with current signals:

Return data courtesy of Finviz
Equity Representative ETF Signal based on 1 year returns Signal based on average returns
US Equities VTI Invested Invested
International Equities VEU
Cash SHY
Credit Risk Representative ETF Signal based on 1 year returns Signal based on average returns
High Yield Bond HYG Invested Invested
Interm Credit Bond CIU
Cash SHY
Real-Estate Risk Representative ETF Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ Invested Invested
Mortgage REIT REM
Cash SHY
Economic Stress Representative ETF Signal based on 1 year returns Signal based on average returns
Gold GLD
Long-term Treasuries TLT Invested Invested
Cash SHY

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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Monday Investment Articles

Below are investment articles on my reading list:

Two Ways to Improve the Momentum Strategy – Millennial Invest

Is the Stock Market Cheap? Doug Short

Investors Plagued by ‘Continuous Partial Attention’ – The Reformed Broker

Should You Use an Automated Investment Service? – Pragmatic Capitalism; see also Mebane Faber on The WealthFront and Betterment Allocations

Momentum Strategies and Universe Selection – CSS Analytics

A Counter Trend Indicator: Profit from Trend Followers’ Weakness – Following the Trend

From ETF.com:

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High Yield Dividend Champion – June Update

The High Yield Dividend Champion stock portfolio has been updated for June. The portfolio is tracked publicly as a continuous hypothetical portfolio with a starting balance of $100,000 on Scott’s Investments.

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.

To date the portfolio is up over 94%.  I mentioned in the 2013 year in review that valuation of high yield stocks was a concern. In January’s update I noted that “I have lowered my expectations for future returns of US equities and high yield stocks.”

I added a valuation filter to the portfolio starting in 2014 in an attempt to mitigate concerns over valuation.  We still begin with the Dividend Champion list, which is first sorted by yield and the lowest 50% yielding stocks are eliminated. Eliminating the lowest yielding stocks ensures only stocks with a relatively “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 price-earnings (P/E) ratio.  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.

There is no portfolio turnover this month, so all positions will be held until next month. The top 15 stocks based on my ranking methodology are below and displayed in order of their overall ranking (figures are May month-end):

 

Name Symbol Yield Payout 3-yr P/E
Old Republic International ORI 4.27 35.96 1.43 8.42
Chevron Corp. CVX 3.49 41.67 11.15 11.96
Universal Corp. UVV 3.81 38.86 2.08 10.20
AT&T Inc. T 5.19 53.64 2.33 10.34
Eagle Financial Services EFSI 3.30 38.58 3.27 11.68
Tompkins Financial Corp. TMP 3.47 45.71 5.03 13.19
Community Trust Banc. CTBI 3.73 47.41 1.49 12.71
ExxonMobil Corp. XOM 2.75 37.35 12.24 13.60
McDonald’s Corp. MCD 3.19 58.80 11.35 18.41
Consolidated Edison ED 4.58 60.14 1.11 13.13
Target Corp. TGT 3.03 58.11 23.44 19.18
AFLAC Inc. AFL 2.42 22.95 7.60 9.49
First Financial Corp. THFF 3.05 41.18 1.80 13.50
Wal-Mart Stores Inc. WMT 2.50 39.83 15.27 15.93
Altria Group Inc. MO 4.62 88.89 8.23 19.24

As previously stated EFSI is not purchased due to its low liquidity.

The current portfolio is below:

Position Initial Purchase Date Percentage Gain/Loss Excluding Dividends
CVX 12/6/2012 14.31%
MCD 1/3/2014 6.12%
ORI 4/4/2014 4.38%
UVV 4/5/2012 15.92%
TGT 2/5/2014 4.39%
CTBI 5/5/2014 -2.82%
XOM 4/5/2013 12.96%
MO 3/5/2013 19.20%
T 3/6/2014 8.53%
TMP 1/3/2014 -5.84%

I have also created a second portfolio using similar metrics as the High Yield Dividend Champion portfolio. The primary difference is it only requires 10 years of dividend increases and it also hedges the portfolio during unfavorable market conditions. Hedging requires margin, but the portfolio can also be implemented without the hedge.

The portfolio is available on Portfolio123, and the backtested results are below. Backtests are from 1/2/99 – 6/6/14 and include a variable slippage assumption (based on liquidity of stocks purchased) to help account for trading slippage. The first table is the hedged version, the second table is the unhedged version:

champ

champ2

Once on Portfolio123 search for ‘Scott’s Dividend Champ Portfolio (Hedged)’ in the Ready-to-Go section.

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ETFReplay.com Portfolio for June

The ETFReplay.com Portfolio holdings have been updated for June 2014.  I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.

The portfolio begins with a static basket of 15 ETFs. These 15 ETFs are ranked by 6 month total returns (weighted 40%), 3 month total returns (weighted 30%), and 3 month price volatility (weighted 30%). The top 4 are purchased  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.

Start Algo Trading Here

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 based on the 6/3/3 system as off 5/30/14 are below:

6mo/3mo/3mo
PCY PowerShares Emerging Mkts Bond
VNQ Vanguard MSCI U.S. REIT
RWX SPDR DJ International Real Estate
TLT iShares Barclays Long-Term Trsry
LQD iShares iBoxx Invest Grade Bond

The portfolio maintains positions in  VNQ, and LQD for the month of June. DBA was sold for a gain of 1.24% after purchasing it originally on 2/28/14.  VTI was sold for a gain of 2.14% and purchase date of 4/30/14. The proceeds were used to purchase RWX and PCY.

Beginning in 2014 we track both the 6/3/3 strategy (same system as 2013) as well as the pure momentum system, which will rank the same basket of 15 ETFs based solely on 6 month price momentum. There is no cash filter in the pure momentum system, volatility ranking, or requirement to limit turnover – the top 4 ETFs based on price momentum will be purchased each month. The portfolio and rankings will be posted on the same spreadsheet as the 6/3/3 strategy.

The top 5 six month momentum ETFs are below:

6 month Momentum
VNQ Vanguard MSCI U.S. REIT
DBA PowerShares DB Agricultural Commodities
TLT iShares Barclays Long-Term Trsry
PCY PowerShares Emerging Mkts Bond
RWX SPDR DJ International Real Estate

For June the portfolio maintains positions in TLT, VNQ and DBA. VTI was sold for a gain of 3.86% and purchase date of 12/31/13. Proceeds were used to purchase PCY.

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Ivy & Commission Free ETF Portfolios – June Update

Scott’s Investments provides a daily Ivy Portfolio spreadsheet to track the 10 month moving average signals for two 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 or trade based on daily updates. 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.

In addition, the spreadsheet now ranks each ETF based on the average of its quarterly, half year, and annual returns. This information can be used to create relative momentum portfolios combined with moving average signals.

Top 50 Trending Stocks

The current signals based on May’s closing prices are below.  As with last month, equities and REITs continue to show strength although strength is dispersed broadly, with all 10 ETFs above their 10 month moving average.

The table is based on adjusted historical data (unadjusted price data is also available on the spreadsheet). Adjusted data is my preferred method for averaging prices; however, if you use a charting or financial site which uses unadjusted prices you may see moving average signals which differ:

Ivy June

 

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:

Comm Free June

 

Comm Free June2