Weekend Reads

Below is my weekend investment reading list:

What a Great Time To Be An Investor! Meb Faber

Diversification Means Always Having to Say You’re Sorry – The Investor’s Paradox

This is an Investor’s Worst Nightmare – The Irrevelevant Investor


On Schwab’s Intelligent Portfolio launch from the NY Times, ETF.com,  The Reformed Broker, and Pragmatic Capitalism

Bridgewater’s Ray Dalio Explains the Power of Not Knowing in Institutional Investor

From Millennial Invest: Does Value Still Work? and The Grandpa vs Millennial Portfolio

Vanguard Inches Its Way Into the Liquid Alts Market – DailyAlts

Can a Quant Model Be Trusted? Systematic Relative Strength

Bernard Baruch’s 10 Rules of Investing – The Reformed Broker

Which Value Investing Metrics Should You Trust? Alpha Architect

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Dividend Stocks Provide Protection in Any Market
Tradeking Brokerage Review
Robinhood Brokerage Review
Read more on Investment Brokerage - National at Wikinvest

Dual 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 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:

Dual Momentum

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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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

Dividend Champion Portfolio March 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 February month-end):

Name Symbol Yield Payout P/E 3-yr
Helmerich & Payne Inc. HP 4.10 40.92 9.98 116.13
Chevron Corp. CVX 4.01 42.25 10.53 10.86
ExxonMobil Corp. XOM 3.12 36.08 11.57 13.43
Old Republic International ORI 4.88 51.75 10.60 1.41
Eagle Financial Services EFSI 3.36 38.65 11.51 2.26
Community Trust Banc. CTBI 3.68 48.19 13.11 1.60
Tompkins Financial Corp. TMP 3.23 48.14 14.89 4.99
Cincinnati Financial CINF 3.49 57.86 16.59 2.78
Consolidated Edison ED 4.12 61.47 14.93 1.64
Questar Corp. STR 3.59 65.12 18.12 6.55
Universal Corp. UVV 4.34 65.62 15.11 2.04
AFLAC Inc. AFL 2.51 24.00 9.58 6.36
WGL Holdings Inc. WGL 3.47 62.50 18.02 4.15
Weyco Group Inc. WEYS 2.82 46.63 16.53 5.43
Emerson Electric EMR 3.25 59.68 18.39 7.04

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

There is turnover in three positions for March. McDonalds (MCD) , a holding since January 2014, was sold for a capital gain of .61%.  Mercury General (MCY) , originally purchased September 2014, was sold for a capital gain of 7.09%.  AT&T (T) , a holding since March 2014 was sold for a capital gain of 3.53%.

The proceeds were used to purchase Cincinatti Financial (CINF) Consolidated Edison (ED) and Questar (STR).

The current portfolio is below:


Position Average Purchase Price Initial Purchase Date Percentage Gain/Loss Excluding Dividends Current Allocation
CVX 108.06 12/6/2012 -4.17% 7.51%
CINF 52.47 3/6/2015 0.00% 10.28%
ORI 16.22 4/4/2014 -8.26% 8.95%
ED 59.98 3/6/2015 0.00% 10.31%
TMP 44.46 8/6/2014 17.30% 11.76%
CTBI 36.55 5/5/2014 -11.87% 11.54%
XOM 89.01 4/5/2013 -3.80% 8.82%
HP 90.57 10/6/2014 -25.83% 8.40%
STR 22.8 3/6/2015 0.00% 10.30%
AFL 58.63 1/9/2015 6.02% 12.09%

I also have  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.

Investment Reading List

Below is my investment reading list from the past week, enjoy:

Best Opportunities Outside of North America

Meb Faber has a new ebook out for $2.99: Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies

Berkshire Hathaway Annual Letter with commentary by The Reformed Broker, Pragmatic Capitalism and Alpha Architect

From ETF.com: Jason Hsu on the Promise of Smart Beta,  & Embracing Negative Real Yields

Do the Right Thing: Consider Persistence and Reversion – Dual Momentum

Long-Term Thinking as a Contrarian Approach & Investor Behavior Following Large Gains & Losses – A Wealth of Common Sense

Alpha Architect – Market Valuations based on CAPE–A Deeper Dive & Timing Value and Momentum with Valuation-Spreads

Momentum vs. Mean Reversion – The Big Picture

Cash Cows of the Dow – Meb Faber

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2014-Q4 Performance Review
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RAA Follow-Up

Last week I announced the Robust Asset Allocation, or RAA, portfolio tracker which is inspired by Alpha Architect,

The original article cited by Alpha Architect used 7-10 Treasury Bonds for the bond holding. I chose a broad-based bond bond (BND) in lieu of a 7-10 year treasury ETF like the iShares 7-10 Year Treasury (IEF).

Also, the Alpha Architect article timing signals for both the value and momentum equity positions were based on the moving average of the underlying index. For US equities the S&P 500 TR Index was used and for international equities the EAFE TR Index.  I chose to use the moving average signal of the actual value and momentum ETFs.

ETFReplay.com March Update

The ETFReplay.com Portfolio holdings have been updated for March 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


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 top 5 ranked ETFs based on the 6/3/3 system as of 2/27/15 are below:

(LQD) iShares iBoxx Invest Grade Bond
(VNQ) Vanguard MSCI U.S. REIT
(TLT) iShares Barclays Long-Term Trsry
(VTI) Vanguard Total U.S. Stock Market
(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
VTI Vanguard Total U.S. Stock Market
LQD iShares iBoxx Invest Grade Bond


The top 4 ETFs are the same as last months, so there is also no turnover in the Pure Momentum system for March.