Ivy & Commission Free ETF Portfolios – October 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.

Bring Your Portfolio Into The 21st Century
Free Access – INO.com Special Report

The current signals based on September’s adjusted closing prices are below. The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz. Ranks are provided for each ETF based on the average of these three returns. This data may come in useful when overlaying a momentum strategy with a moving average filter:

Ivy October 2014

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:

Commission Free October

 

Commission Free October2

Monday Reads

Below is a Monday-night investment reading list:

The Power of Back Testing Investment Strategies – Jim O’Shaughnessy

“Do we need to fire Pimco?” The Reformed Broker

I Really Want to Crush the Efficient Market Hypothesis….Pragmatic Capitalism

Michael Lewis on The Secret Goldman Sachs Tapes –  Bloomberg Views

Financial Media Wakeup Call: The Big Disconnect – The Reformed Broker

Mixing Momentum and Value: A Winning Combination? Alpha Architect (they also recently beta launched some new tools)

From ETF.com:

Sunday Readings

Below is a list of articles I’m reading today:

How The Most Successful People Manage Their Time – Business Insider

The Bull Market is Over for Much of the Stock Market – TraderFeed

The Education of a Value Investor – Farnam Street

Three Things I Think I Think & What’s the Safest Investment Strategy? – Pragmatic Capitalism

Searching for Deep Value Stocks – Millennial Invest

From Alpha Architect:

From ETF.com:

 

 

Weekend Reads

Below is my weekend investment reading list:

Value and Momentum Revisited – Optimal Momentum

Pragmatic Capitalism on The “Allocation Matters Most Hypothesis”

Research Affiliates – True Grit: The Durable Low Volatility Effect

Be Humble, Become Wealthy – The Psy-Fi Blog

 How and why to build a bond ladder – Fidelity

More on CAPE… Mebane Faber

From ETF.com:

Dual Momentum ETF Portfolio for September

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
Mortgage REIT REM Invested
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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High Yield Dividend Champion Portfolio – September Update

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

There is turnover in one position this month.  Universal (UVV) has been a long-term holding but was sold for a capital gain of 12.42% and an original purchase date of 4/5/2012. The proceeds were used to purchase Mercury Insurance (MCY), which currently yields 4.85%.

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 93% including dividends.  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.

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

Name Symbol Yield
Chevron Corp. CVX 3.31
Tompkins Financial Corp. TMP 3.49
Old Republic International ORI 4.76
AT&T Inc. T 5.26
Eagle Financial Services EFSI 3.21
ExxonMobil Corp. XOM 2.77
McDonald’s Corp. MCD 3.46
Community Trust Banc. CTBI 3.38
Mercury General Corp. MCY 4.80
First Financial Corp. THFF 3.03
Wal-Mart Stores Inc. WMT 2.54
Helmerich & Payne Inc. HP 2.62
Consolidated Edison ED 4.35
Weyco Group Inc. WEYS 2.82
Altria Group Inc. MO 4.83

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 Current Allocation
CVX 12/6/2012 17.90% 9.07%
MCD 1/3/2014 -3.59% 8.02%
ORI 4/4/2014 -7.83% 8.83%
MCY 9/5/2014 0.00% 9.27%
TMP 8/6/2014 2.56% 10.09%
CTBI 5/5/2014 -3.01% 12.47%
XOM 4/5/2013 11.52% 10.03%
MO 3/5/2013 25.26% 10.05%
T 3/6/2014 8.69% 12.02%
THFF 7/7/2014 1.78% 9.82%
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Weekend Reads

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

James Clear on The Physics of Productivity: Newton’s Laws of Getting Stuff Done

A Global Passive Benchmark with ETFs and Factor Tilts – Advisor Perspectives

Attain Capital asks Trade Commodities instead of ‘Invest’ in them?

A Surprising Way to time Value and Momentum: Updated Analysis – Alpha Architect

Is the Stock Market Cheap? Doug Short

A longer piece from Philosophic Economics asking Why is the Shiller CAPE So High?

Narrative Myth – Baron Asset Management

 Open Season For Closed-End Funds – Finalternatives

From ETF.com – Why ETF Price/Earnings Ratios Lie; Swedroe: The Mystery Of Momentum

Patrick O’Shaughnessy tells us Why You Should Ignore Expert Predictions About The Stock Market

and Jim O’Shaughnessy gives valuable lessons on Behavioral Economics here, here, here and here.

Read ‘Em and Reap: Smart People for Investors to Follow – Jason Zweig, WSJ

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Core ETF Report
Well, a pictures worth a thousand words
Read more on Commodities, Productivity, Exchange Traded Fund (ETF) at Wikinvest

ETFReplay.com Portfolio for September

The ETFReplay.com Portfolio holdings have been updated for September 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 of 8/29/14 are below:

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

The portfolio maintains positions in VNQ, RWX, and EEM for September. PCY was sold for a gain of 0.65% after purchasing it originally on 5/30/14. 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
EEM iShares MSCI Emerging Markets
RWX SPDR DJ International Real Estate
VNQ Vanguard MSCI U.S. REIT
TLT iShares Barclays Long-Term Trsry
PCY PowerShares Emerging Mkts Bond

The 6 month momentum system maintains all of its positions – EEM, PCY, RWX, and VNQ – for September.

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Ivy & Commission Free ETF Portfolios – September 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 August’s closing prices are below. 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

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:

Free1

 

free2