ETFReplay.com Portfolio for October

The ETFReplay.com Portfolio holdings have been updated for October 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.

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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 9/30/14 are below:

6mo/3mo/3mo
LQD iShares iBoxx Invest Grade Bond
TLT iShares Barclays Long-Term Trsry
PCY PowerShares Emerging Mkts Bond
VTI Vanguard Total U.S. Stock Market
SHY Barclays Low Duration Treasury

The portfolio maintains positions in TLT for October. Vanguard MSCI U.S. REIT (VNQ) was sold for a gain of 1.58% and a purchase date of 2/28/14.  iShares MSCI Emerging Markets (EEM) was sold for a loss of 5.67% and a purchase date of 8/1/14.  SPDR DJ International Real Estate (RWX) was sold for a loss of 6.21% and purchase date of 5/30/14.  The proceeds were used to purchase LQD, PCY, and VTI.

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
VTI Vanguard Total U.S. Stock Market
PCY PowerShares Emerging Mkts Bond
VNQ Vanguard MSCI U.S. REIT
LQD iShares iBoxx Invest Grade Bond

The 6 month momentum system maintains positions in PCY and VNQ. EEM was sold for a loss of 5.67% and a purchase date of 8/1/14. RWX was sold for a loss of 5.61% and a purchase date of 8/1/14. The proceeds were used to purchase TLT and VTI.