Investment Reads

Below is my current investment reading list:

Assessing the Utility of Wall Street’s Annual Forecasts -Pragmatic Capitalism

Five Things Smart Beta Can’t Do For You – The Reformed Broker

It’s OK to be Confused – A Wealth of Common Sense

The Limits of Risky Asset Diversification – The Aleph Blog

How to Find the Closed-End Bargains – WSJ

Portfolio Diversification: Tweaking the Recipe and Expanding the Menu – PIMCO

From ETF.com:

Swedroe: Rising Rates Don’t Doom REITs
Swedroe: A Classic Factor Model Improves

From Alpha Architect:

Momentum Investing: Why Does Seasonality Matter for Momentum?
The Quantitative Momentum Investing Philosophy
Expanding the Efficient Frontier with Value and Momentum Strategies

GMO Quarterly Letter – GMO

Why Does Dual Momentum Outperform? Dual Momentum

From Meb Faber:

What is a Better Strategy – Invest in Berkshire, or Buffett’s Stock Picks?
Top Posts of 2015

Dual ETF Momentum Update

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.  Antonacci’s book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, also details Dual Momentum as a total portfolio strategy.

My Dual ETF Momentum 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 and the January 2015 Update.

Below are the four portfolios along with current signals:

DualDec

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.

Dividend Champion Portfolio December Update

The High Yield Dividend Champion Portfolio is a publicly tracked stock portfolio on Scott’s Investments.  Its goal is to capture quality high yield stocks with a history of raising dividends.

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.  Stocks from the Dividend Champion list are then ranked on yield, payout ratio, P/E, and 3 year dividend growth rate.

Stocks are sold on 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  are below and displayed in order of their overall ranking (figures are November month-end):

Name Symbol Yield Payout 3-yr P/E
Emerson Electric EMR 3.80 47.38 7.04 12.47
Wal-Mart Stores Inc. WMT 3.33 42.06 10.98 12.63
Archer Daniels Midland ADM 3.07 38.89 13.59 12.67
Helmerich & Payne Inc. HP 4.72 71.24 116.13 15.09
Eagle Financial Services EFSI 3.37 34.93 2.26 10.37
Questar Corp. STR 4.43 67.20 6.55 15.16
Target Corp. TGT 3.09 50.22 19.98 16.26
ExxonMobil Corp. XOM 3.58 61.73 13.43 17.26
Old Republic International ORI 3.90 54.01 1.41 13.84
Community Trust Banc. CTBI 3.38 48.63 1.60 14.39
Universal Corp. UVV 3.75 56.23 2.04 15.00
Weyco Group Inc. WEYS 2.92 44.94 5.43 15.40
T. Rowe Price Group TROW 2.73 46.12 12.38 16.88
Chevron Corp. CVX 4.69 93.04 10.86 19.85
Cincinnati Financial CINF 3.01 47.18 2.78 15.67

EFSI is not eligible for purchase due to its low liquidity.

There is turnover this month in two positions.  Tompkins Financial (TMP) has been a holding since August 2014. It will be sold for a capital gain of 40.91%.   Universal Health Realty Trust (UHT)has been a holding since April 2015 and will be sold for a capital loss of 7.29%.

The proceeds will be used to purchase (ADM) and (TGT).

The current portfolio is below:

Position Initial Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends
CVX 12/6/2012 $22,494.00 $19,035.76 -15.37%
EMR 8/4/2015 $21,097.00 $20,616.75 -2.28%
ORI 4/4/2014 $18,571.90 $21,480.20 15.66%
WMT 10/6/2015 $20,360.80 $18,755.00 -7.89%
ADM 12/7/2015 $24,432.90 $24,432.90 0.00%
CTBI 5/5/2014 $24,927.10 $24,504.26 -1.70%
XOM 4/5/2013 $17,445.96 $15,054.76 -13.71%
HP 10/6/2014 $21,555.66 $12,088.02 -43.92%
STR 3/6/2015 $19,608.00 $15,953.00 -18.64%
TGT 12/7/2015 $24,512.26 $24,512.26 0.00%

December Update – ETFReplay.com Portfolio

The ETFReplay.com Portfolio holdings have been updated for December 2015.  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 14 ETFs. These 14 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.

The 14 ETFs are listed below:

Symbol Name
RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond
WIP SPDR Int’l Govt Infl-Protect Bond
EFA iShares MSCI EAFE
HYG iShares iBoxx High-Yield Corp Bond
EEM iShares MSCI Emerging Markets
LQD iShares iBoxx Invest Grade Bond
VNQ Vanguard MSCI U.S. REIT
TIP iShares Barclays TIPS
VTI Vanguard MSCI Total U.S. Stock Market
DBC PowerShares DB Commodity Index
GLD SPDR Gold Shares
TLT iShares Barclays Long-Term Trsry
SHY iShares Barclays 1-3 Year Treasry Bnd Fd

 

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

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 cash filter had been in effect since July 2015 but this month four new positions will be added.

The top 5 ranked ETFs based on the 6/3/3 system as of 11/30/15 are below:

6mo/3mo/3mo
PCY PowerShares Emerging Mkts Bond
VNQ Vanguard MSCI U.S. REIT
LQD iShares iBoxx Invest Grade Bond
TLT iShares Barclays Long-Term Trsry
SHY Barclays Low Duration Treasury (2-yr)

 

Thus, the portfolio will purchase PCY, VNQ, LQD, and TLT.

In 2014 I introduced a pure momentum system, which ranks the same basket of 14 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 are purchased each month. The portfolio and rankings are posted on the same spreadsheet as the 6/3/3 strategy.

The top 4 six month momentum ETFs are below:

6 month Momentum
TLT iShares Barclays Long-Term Trsry
VNQ Vanguard MSCI U.S. REIT
PCY PowerShares Emerging Mkts Bond
LQD iShares iBoxx Invest Grade Bond

 

This month (SHY) will be sold and the proceeds used to purchase (LQD).

The updated holdings for the pure momentum portfolio is below:

Position Purchase Price Purchase Date Percentage Gain/Loss Excluding Dividends
PCY 27.65 8/31/2015 0.94%
LQD 115.91 11/30/2015 0.00%
VNQ 79.89 10/30/2015 -0.63%
TLT 122.74 10/30/2015 -1.05%

Ivy Portfolio December Update

The Ivy Portfolio spreadsheet 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 both 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 November 30th’s adjusted closing prices are below.    This month   (VTI) and (VNQ) are above their moving average and the balance of the ETFs, (VEU) (VB) (RWX) (VWO) (DBC) (GSG) (BND) and (TIP), are below their 10 month moving average.

The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz. The return data is useful for those interested in overlaying a momentum strategy with the 10 month SMA strategy:

Ivy Dec

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

Investment Readings

Below is my mid-week investment reading list:

To be great, you must first learn to be good – The Reformed Broker

Reeling In Small-Cap Alpha & Black Ice: Low Volatility Investing in Theory and Practice – Research Affiliates

Gold Miners Are a Trade, Not an Investment – Bloomberg View

What Interest Rates Can Teach Us About Behavioral Biases – A Wealth of Common Sense

What Looks ‘Good and Cheap’ Today? Morningstar

From Meb Faber Research:

On Coal Stock Valuations
The Trinity Portfolio

ETF.com – Swedroe: Valuation Metrics In Perspective

From Alpha Architect:

The World’s Longest Trend-Following Backtest
Beware of Target Date Funds – Their Aim May be Way Off
Which Asset Allocation Weights Work the Best?

Dual ETF Momentum November Update

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.  Antonacci’s book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, also details Dual Momentum as a total portfolio strategy.

My Dual ETF Momentum 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 and the January 2015 Update.

Below are the four portfolios along with current signals:

DualNov

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.

Dividend Champion Portfolio November Update

The High Yield Dividend Champion Portfolio is a publicly tracked stock portfolio on Scott’s Investments.  Its goal is to capture quality high yield stocks with a history of raising dividends.

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.  Stocks from the Dividend Champion list are then ranked on yield, payout ratio, P/E, and 3 year dividend growth rate.

Stocks are sold on 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  are below and displayed in order of their overall ranking (figures are October month-end):

Name Symbol
Helmerich & Payne Inc. HP
Wal-Mart Stores Inc. WMT
Emerson Electric EMR
ExxonMobil Corp. XOM
Eagle Financial Services EFSI
Chevron Corp. CVX
Universal Health Realty Trust UHT
Community Trust Banc. CTBI
Tompkins Financial Corp. TMP
Questar Corp. STR
Cincinnati Financial CINF
Target Corp. TGT
Old Republic International ORI
Universal Corp. UVV
T. Rowe Price Group TROW

EFSI is not eligible for purchase due to its low liquidity.

There is no turnover this month. The current portfolio is below:

Position Average Purchase Price Initial Purchase Date Percentage Gain/Loss Excluding Dividends Current Allocation
CVX 103.1835 12/6/2012 -10.58% 10.37%
EMR 49.64 8/4/2015 -2.66% 10.59%
ORI 16.22 4/4/2014 14.00% 10.91%
WMT 65.68 10/6/2015 -10.92% 9.35%
TMP 44.46 8/6/2014 28.70% 12.65%
CTBI 36.55 5/5/2014 -3.28% 12.43%
XOM 89.01 4/5/2013 -7.92% 8.28%
HP 90.57 10/6/2014 -35.42% 7.18%
STR 22.8 3/6/2015 -17.81% 8.31%
UHT 55.27 4/8/2015 -13.61% 9.80%

November Update – ETFReplay.com Portfolio

The ETFReplay.com Portfolio holdings have been updated for November 2015.  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 14 ETFs. These 14 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.

The 14 ETFs are listed below:

Symbol Name
RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond
WIP SPDR Int’l Govt Infl-Protect Bond
EFA iShares MSCI EAFE
HYG iShares iBoxx High-Yield Corp Bond
EEM iShares MSCI Emerging Markets
LQD iShares iBoxx Invest Grade Bond
VNQ Vanguard MSCI U.S. REIT
TIP iShares Barclays TIPS
VTI Vanguard MSCI Total U.S. Stock Market
DBC PowerShares DB Commodity Index
GLD SPDR Gold Shares
TLT iShares Barclays Long-Term Trsry
SHY iShares Barclays 1-3 Year Treasry Bnd Fd

 

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

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 cash filter is in effect this month, the same as the previous four months.  SHY is the highest rated ETF in the 6/3/3 system.  Therefore, SHY will continue to be the sole holding in the portfolio.

The top 5 ranked ETFs based on the 6/3/3 system as of 10/30/15 are below:

6mo/3mo/3mo
SHY Barclays Low Duration Treasury (2-yr)
PCY PowerShares Emerging Mkts Bond
LQD iShares iBoxx Invest Grade Bond
VNQ Vanguard MSCI U.S. REIT
TLT iShares Barclays Long-Term Trsry

 

In 2014 I introduced a pure momentum system, which ranks the same basket of 14 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 are purchased each month. The portfolio and rankings are posted on the same spreadsheet as the 6/3/3 strategy.

The top 4 six month momentum ETFs are below:

6 month Momentum
VNQ Vanguard MSCI U.S. REIT
TLT iShares Barclays Long-Term Trsry
SHY Barclays Low Duration Treasury (2-yr)
PCY PowerShares Emerging Mkts Bond

 

(TIP), a holding for 2 months, will be sold for a loss of -.56%.  (LQD), a holding for 1 month, will be sold for a gain of .28%. The proceeds will be used to purchase (VNQ) and (TLT).

The updated holdings for the pure momentum portfolio is below:

Position Shares Purchase Price Purchase Date
PCY 85 27.65 8/31/2015
SHY 29 84.86 7/31/2015
VNQ 30 79.89 10/30/2015
TLT 19 122.74 10/30/2015

Ivy Portfolio November Update

The Ivy Portfolio spreadsheet 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 both 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 October 30th’s adjusted closing prices are below.    This month  (BND), (VTI) and (VNQ) are above their moving average and the balance of the ETFs, (VEU) (VB) (RWX) (VWO) (DBC) (GSG) and (TIP), are below their 10 month moving average.

The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz. The return data is useful for those interested in overlaying a momentum strategy with the 10 month SMA strategy:

Ivy November

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:

ETF1

etf2