Ivy Portfolio March 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.

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The current signals based on February’s adjusted closing prices are below.  Only (DBC) (GSG) and (VWO) are below their moving averages.

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 March

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:



New Portfolio Tracker – Robust Asset Allocation

One of the primary goals of Scott’s Investments is to educate individual investors by creating and tracking relevant investment strategies. Some of the strategies are my own, while others like the Ivy Portfolio are inspired by others.

This week I added a new portfolio spreadsheet to my site, the Robust Asset Allocation (RAA) strategy.  The portfolio was inspired by a December article from Alpha Architect, an asset management firm who describes their mission as “empowering investors through education”. They currently offer their services via ETFs and managed accounts. They also have a very active blog and an abundance of free online resources for investors.

A December 2014 article from Alpha Architect, Our Robust Asset Allocation (RAA) Solution, makes a compelling argument for combining value, momentum, and risk management in a single portfolio.  The strategy is based on the premise that the momentum and value anomalies have been shown to outperform historically. In addition, risk management techniques via time series momentum and moving average rules have historically worked to reduce portfolio risk.  They also provided a follow-up article here with additional backtests.

So what does this mean in application? Invest in ETFs which provide exposure to value and momentum. Overlay a trend filter via 12 month price momentum and a 12 month simple moving average rule.  Below is an illustration from Alpha Architect:


Starting at the top left of the illustration, we allocate 15% of our portfolio to a domestic equity momentum ETF (“style” & “weight”).  However, before investing we must evaluate the “risk” profile of the ETF.

If the excess return of the ETF is greater than 0 (or the return on a risk-free asset like cash, which in today’s low rate environment is near 0) over the past 12 months, go long risky assets (“time-series momentum risk management rule”). Otherwise, go long alternative assets (T-bills/cash). In addition, if the current price of the ETF is greater than its 12 month simple moving average, go long risky assets (“moving average risk management rule”). Otherwise, go long alternative assets (T-bills/cash).  These signals are reviewed once each month.

If both of the risk management rules signal to go long risky asset – in our example the domestic momentum ETF – invest 15% in the ETF.  If one rule signals to go long risky asset while the other signals to go to cash,  we invest half, or 7.5%, in the ETF. If both signal to go to cash then we invest 0% in the ETF and hold cash in lieu of the ETF:


The Alpha Architect RAA article did not recommend specific value and momentum ETFs. I took the liberty of selecting ETFs which I believe represent these anomalies:

Equities Ticker Name
US Value PRF PowerShares FTSE RAFI US 1000
US Momentum PDP  PowerShares DWA Momentum Portfolio
International Value GVAL Cambria Global Value
International Momentum PIZ  PowerShares DWA Developed Markets Momentum Portfolio
Real Assets Ticker Name
Commodities DBC PowerShares DB Commodity Index Tracking Fund
Bonds Ticker Name
US Bonds BND Vanguard Total Bond Market
Risk-Free Ticker Name
Cash Money Market, or SHY/BIL

The RAA spreadsheet will track signals for these ETFS.  An allocation percent will be displayed for each ETF depending on the risk management signals. If the SMA signal says “invested” and the 12 month price momentum is positive we invest the full amount of the target allocation. If one risk management signal is positive and the other negative we invest half of the target allocation. If both signals are negative we invest the target allocation in cash:

RAA Spreadsheet

Note: GVAL will have 12 months of price history in early March. Until then, the 12 month momentum signal will show “N/A” on the spreadsheet.

There are new value ETFs (including one from Alpha Architect), fundamental Real-Estate and Bond ETFs and new commodity ETFs entering the market. As the ETF space matures and evolves, we may find better alternatives then the current ETFs in the portfolio.

The strategy has its limitations. Currently it has investors holding 32.5% cash.   This is certainly a viable position and will reduce portfolio volatility, part of the appeal of the strategy. However, more aggressive investors may seek to put cash balances to work in higher risk/higher return investments or to utilize leverage in order to achieve a targeted portfolio volatility.

Finally, it should be noted that tax loss harvesting is also a component of the original Alpha Architect RAA strategy.  It will not be tracked on my spreadsheet.

To access the RAA spreadsheet please go here.  While signals update daily, it is not an endorsement to frequently check signals.  The risk management filter is intended to be reviewed once per month, with an annual portfolio rebalance back to target allocations.

More on this topic (What's this?)
Optimizing Your Asset Allocation
2014-Q4 Performance Review
Read more on Asset Allocation at Wikinvest

Monday Readings

Below is my short-list of investment related articles for this week:

Algorithmic Trading Forecast for SP500 Index

From ETF.com: Swedroe: A Factor Focused Book To Read

From Pragmatic Capitalism:
Beware the Macro Value Trap
The History of the Global Equity Portfolio

Two free investment tools recently launched by Alpha Architect:
How-To-Guide: Asset Allocation Backtesting Tool
How-To-Guide: DIY Investing Tool

The Reformed Broker:
The Biggest Threat To Your Portfolio
Nine Surprising Things Jesse Livermore Said 
Why Active Management Fell Off a Cliff – Perhaps Permanently

Janitor to Multimillionaire? Not In This Market – Philosophical Economics

Improving on the correlation benefits of managed futures – Futures Magazine

Does Rebalancing Add Value? Newfound

Risk Management Always Matters – A Wealth of Common Sense

Sunday Reads

Below are my favorite investment articles from the past week:

The Only Basic Financial Advice You’ll Ever Need – Pragmatic Capitalism

The Big Lesson From a Bet With Warren Buffett – Pragmatic Capitalism

The Problem With Intuitive Investing – A Wealth of Common Sense

From Alpha Architect:

What You Don’t Know Can’t Hurt You? Attain Capital

The “Best House in a Bad Neighborhood”… The Reformed Broker

josh’s awesome investment mix – The Reformed Broker

Currency-Hedged Everything: HEFA’s Big Day – ETF.com

Dual Momentum Portfolio 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 has a new book out, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk. If you want to see how he applies Dual Momentum to a portfolio strategy I encourage you to read the book.

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:

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
Interm Credit Bond CIU Invested
Cash SHY
Real-Estate Risk Representative ETF Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ Invested Invested
Mortgage REIT REM
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.

More on this topic (What's this?)
How to Spot a Genuine Momentum Stock
More Sales Momentum For euNetworks in Q2
Infinera Maintained Its Momentum Through Q2
Read more on Momentum at Wikinvest

Sunday Investment Reads

On 60/40 Investing:

From Alpha Architect:

GMO Quarterly Letter: Ditch the Good, Buy the Bad and the Ugly

A Dozen Things I’ve Learned from Joel Greenblatt about Value Investing – 25iq

There’s Diversity in Value – Research Affiliates

From Meb Faber: Everything Old is New Again & Why Don’t Asset Management Companies Hedge Their Biggest Risk?

High Yield Dividend Champion February 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 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  are below and displayed in order of their overall ranking (figures are January month-end):

Name Symbol Yield Payout P/E 3-yr DGR
Helmerich & Payne Inc. HP 4.62 42.64 9.23 116.13
Chevron Corp. CVX 4.17 39.41 9.44 10.86
ExxonMobil Corp. XOM 3.16 34.72 11.00 13.43
Old Republic International ORI 5.20 51.05 9.82 1.41
AT&T Inc. T 5.71 57.67 10.10 2.27
Eagle Financial Services EFSI 3.44 41.88 12.17 2.26
Tompkins Financial Corp. TMP 3.28 46.67 14.24 4.99
Community Trust Banc. CTBI 3.80 47.24 12.43 1.60
AFLAC Inc. AFL 2.73 24.45 8.95 6.36
First Financial Corp. THFF 3.02 38.89 12.86 1.41
Emerson Electric EMR 3.30 61.64 18.67 7.04
Eaton Vance Corp. EV 2.48 40.65 16.36 7.62
McDonald’s Corp. MCD 3.68 70.54 19.18 9.04
Weyco Group Inc. WEYS 2.81 46.63 16.58 5.43
Mercury General Corp. MCY 4.32 63.33 14.65 0.72
Consolidated Edison ED 3.75 61.47 16.38 1.64

As previously stated EFSI is not purchased due to its low liquidity.

For February there is no turnover in the portfolio.  The current portfolio is below:


Position Average Purchase Price Initial Purchase Date Percentage Gain/Loss Excluding Dividends
CVX 108.06 12/6/2012 1.16%
MCD 96.54 1/3/2014 -2.28%
ORI 16.22 4/4/2014 -9.19%
MCY 50.75 9/5/2014 18.27%
TMP 44.46 8/6/2014 19.52%
CTBI 36.55 5/5/2014 -10.53%
XOM 89.01 4/5/2013 3.76%
HP 90.57 10/6/2014 -25.94%
T 32.34 3/6/2014 6.80%
AFL 58.63 1/9/2015 4.01%

I 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.

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Is time spent learning dividend investing worth it?
7 Higher Yield Dividend Growth Stocks
7 Years Dividend Growth Investor
Read more on Dividend Investing at Wikinvest

ETFReplay.com Portfolio Update

The ETFReplay.com Portfolio holdings have been updated for February 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
HYG iShares iBoxx High-Yield Corp Bond
EEM iShares MSCI Emerging Markets
LQD iShares iBoxx Invest Grade Bond
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


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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 1/31/15 are below:

LQD iShares iBoxx Invest Grade Bond
TLT iShares Barclays Long-Term Trsry
TIP iShares Barclays TIPS
SHY Barclays Low Duration Treasury


Since all of the current holdings are still ranked in the top 5 there is no turnover this month.

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 will be purchased each month. The portfolio and rankings will be 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
LQD iShares iBoxx Invest Grade Bond
VTI Vanguard Total U.S. Stock Market


The top 4 ETFs are the same as last months, so there is no turnover for February.