Ivy & Commission Free ETF Portfolios – August 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”. I typically write an update at the end of the month but I am writing this month’s update a day early. However, the flexibility of the spreadsheet allows users to check signals at  his or her leisure.

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 July’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 August

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:



Mid-Week Investment Reads

Below is an investment reading list for this week.  I will be updating the moving average Ivy and Commission Free portfolios a day early. The ETF Replay update will be posted this weekend.

Pragmatic Capitalism: Benjamin Graham: Father of the Efficient Market Hypothesis?

Another Complementary Factor Model – Humble Student of the Markets

 The Fed’s Prisoner Dilemma – Pension Partners

What if You Were the World’s Greatest Trader? Barry Ritholtz

Unlearning from Peter Bernstein – Pragmatic Capitalism

 A Simulation Study on Simple Moving Average Rules – Alpha Architect

American Funds ETF Filing a Very Big Deal – ETF.com

All Things Charlie Munger – ValueWalk

Investment Reading List

Below is my weekly investment reading list:

GMO Quarterly Letter (but see also Swedroe: Debunking Grantham’s Concerns)

A Hands-On Lesson in Return Forecasting Models – Alpha Architect

 Data Rich, Information Poor – TraderFeed

ETF.com: Small Value Returns PersistentBogle May Be Right About ETFs

 Ride Winners and Cut Losers. Period. Alpha Architect

Worried about a Crash? Backtests Using Shiller PE to Time The Market (1926 to 2014) Greenbackd

Gestaltu: Valuation Based Equity Market Forecasts: Q2 2014

Dual Momentum ETF Portfolio for July

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 ETF Signal based on 1 year returns Signal based on average returns
US Equities VTI Invested Invested
International Equities VEU
Cash SHY
Credit Risk 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 ETF Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ Invested
Mortgage REIT REM Invested
Cash SHY
Economic Stress 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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How to Spot a Genuine Momentum Stock
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More Sales Momentum For euNetworks in Q2
Read more on Momentum at Wikinvest

Weekend Investment Reading List

Below is a list of investment and personal finance articles I am reading this weekend:

Can You Time the Market Without Crying? Attain Capital

Universal Lessons From Every Investment Discipline – Pragmatic Capitalism

Track Records are Rubbish – Gestaltu

Poverty Matters for Capitalists (pdf) – John Mauldin

Investor Behavior: The Final Frontier – Millenial Invest

From ETF.com, The Moneyball of Quality Investing, A Close Look at Value and Momentum, and How to Protect Us From Ourselves

Misconceptions About Dow Theory – Dynamic Hedge

7 Market Myths That Make Investors Poorer – Marketwatch

In Search of the Perfect Portfolio – A Wealth of Common Sense

One Big Idea – PIMCO

CSS Analytics: What Factors Drive the Performance of Momentum Strategies? Part 2 


High Yield Dividend Champion – July Update

The High Yield Dividend Champion stock portfolio has been updated for July. 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 96%.  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.

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 backtested results were posted in the June update.

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 turnover in one position this month.  Tompkins Financial (TMP) was sold for a capital loss of 3.93% and original purchase date of 1/3/2014. The proceeds were used to purchase First Financial Corp (THFF), which yielded 3.04% at the end of June.

The top 15 stocks based on my ranking methodology are below and displayed in order of their overall ranking (figures are June month-end):

Name Symbol Yield
Old Republic International ORI 4.41
Chevron Corp. CVX 3.28
Universal Corp. UVV 3.69
AT&T Inc. T 5.20
Tompkins Financial Corp. TMP 3.32
Eagle Financial Services EFSI 3.22
ExxonMobil Corp. XOM 2.74
Community Trust Banc. CTBI 3.40
McDonald’s Corp. MCD 3.22
First Financial Corp. THFF 3.04
Target Corp. TGT 3.59
Wal-Mart Stores Inc. WMT 2.56
Consolidated Edison ED 4.36
Weyco Group Inc. WEYS 2.77
Altria Group Inc. MO 4.58

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 20.74%
MCD 1/3/2014 3.76%
ORI 4/4/2014 1.79%
UVV 4/5/2012 19.65%
TGT 2/5/2014 8.93%
CTBI 5/5/2014 -5.09%
XOM 4/5/2013 15.32%
MO 3/5/2013 23.04%
T 3/6/2014 11.38%
THFF 7/7/2014 0.00%

Investment Articles for the Long Weekend

Below is a list of investment articles to get you through a long holiday weekend.  Happy 4th of July!

On the Importance of Proper Fund Evaluation & Proper Benchmarking – Pragmatic Capitalism

Never Buy Expensive Stocks. Period. Alpha Architect

Faber: Why Market-Cap Weighting Falls Short – Morningstar

Top 50 Trending Stocks

Is the Stock Market Cheap? Advisor Perspectives

How Diversification Smooths Investment Cycles – Pragmatic Capitalism

The problem with positive thinking: an excerpt from Investing Psychology – Abnormal Returns

We are All Factor Investors – Millennial Invest

What Factors Drive the Performance of Momentum Strategies? (Part 1) – CSS Analytics

A Cheat Sheet for Understanding the Different Schools of Economics – Pragmatic Capitalism

Performance of Value During Market Drawdowns (June 1951 to December 2013) – Greenbackd

When Correlations Lie – Bloomberg

From ETF.com: A Multi-Factored Approach to Smart Beta

More on this topic (What's this?) Read more on Investment at Wikinvest

ETFReplay.com Portfolio for July

The ETFReplay.com Portfolio holdings have been updated for July 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 6/30/14 are below:

RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond
TLT iShares Barclays Long-Term Trsry
WIP SPDR Int’l Govt Infl-Protect Bond

The portfolio maintains positions in VNQ, RWX, and PCY for June. LQD was sold for a gain of 1.98% after purchasing it originally on 3/31/14.  The proceeds were used to purchase TLT.

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
TLT iShares Barclays Long-Term Trsry
DBA PowerShares DB Agricultural Commodities
RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond

The 6 month momentum system maintains all positions for July – VNQ, TLT, PCY, and DBA.

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Core ETF Report
US Market ETF Trading Map
Read more on Exchange Traded Fund (ETF) at Wikinvest