ETFReplay.com Portfolio for December

The ETFReplay.com Portfolio holdings have been updated for December 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-like 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 11/28/14 are below:

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

Since SHY is ranked higher than VNQ and PCY, only TLT and LQD will be held over from November. PCY and VTI will be sold and the proceeds used to purchase SHY, which is a close proxy for cash.

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

The 6 month momentum system maintains all of its current positions for December – TLT, PCY, VTI, and VNQ.