ETFReplay.com Portfolio Update

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

There is turnover in 1 of the 4 holdings in the 6/3/3 portfolio.  The top 5 ranked ETFs based on the 6/3/3 system as of 5/29/15 are below:

6mo/3mo/3mo
VTI Vanguard Total U.S. Stock Market
EFA iShares MSCI EAFE
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
SHY Barclays Low Duration Treasury (2-yr)
PCY PowerShares Emerging Mkts Bond (7-9yr)

 

The strategy is rotating out of SPDR DJ International Real Estate (RWX), a holding since the beginning of April.  RWX will be replaced by (SHY).

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
EFA iShares MSCI EAFE
VTI Vanguard Total U.S. Stock Market
RWX SPDR DJ International Real Estate
TLT iShares Barclays Long-Term Trsry

 

There is no turnover in the portfolio this month.

The updated holdings for each portfolio are below:

6/3/3 strategy:

Position Shares Purchase Price Purchase Date Cost Basis Current Value
EFA 47 66.51 4/30/2015 $3,125.97 $3,132.08
VTI 29 107.91 4/30/2015 $3,129.39 $3,169.99
HYG 35 90.99 4/30/2015 $3,184.65 $3,181.85
SHY 40 84.87 5/29/2015 $3,394.80 $3,394.00

 

Pure Momentum strategy:

Position Shares Purchase Price Purchase Date Cost Basis Current Value
TLT 20 116.27 9/30/2014 $2,325.40 $2,454.80
RWX 64 43.99 4/2/2015 $2,815.36 $2,782.72
VTI 22 101.24 9/30/2014 $2,227.28 $2,404.82
EFA 39 66.51 4/30/2015 $2,593.89 $2,598.96

Ivy Portfolio June 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 May 29th’s adjusted closing prices are below.  Last month (DBC) and (GSG) were below their moving averages.  As of the close May 29, (DBC) (GSG) (VNQ) 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 June

Ivy June 5

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

Memorial Weekend Reads

Have a safe and relaxing Memorial Day weekend, and please take a moment to honor those who have served in our Armed Forces.

Below is my investment reading list for the long weekend:

Value + Momentum: The Tortoise and the Hare – The Investor’s Field Guide

Swedroe: Diversify Globally To Limit Risk – ETF.com

2015 NAAIM Wagner Award Winning paper, Lumber: Worth It’s Weight in Gold: Offense and Defense in Active Portfolio Management , is now available for download.

Thoughts on Tobin’s (Useless) Q – Pragmatic Capitalism

Make Fewer Decisions – Above the Market

How Should I Tactically Allocate my Assets? – Alpha Architect

Q&A with Wes Gray on value and momentum – Abnormal Returns

James Montier has a new paper available on GMO‘s site, The Idolatry of Interest Rates, Part 1: Chasing Will-’o-the-Wisp , with Pragmatical Capitalism’s take here

The Search for Crisis Alpha: Weathering the Storm Using Relative Momentum – Newfound Research

Momentum AND Diversification: A powerful risk-adjusted combination – Newfound Research

Dual Momentum May 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

 

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

Weekend Reads

Below is my weekend investment reading list:

Investor Focused Market Analysis

From ETF.com:

Swedroe: Value Investing Facts And Fiction & More Value Facts And Fiction
A Personal Look At Schwab’s Robo Advisor

From the Reformed Broker:

How We Do Tactical
The Smart Questions Clients Ask

From Alpha Architect:

Value Investing Research: Simple Methods to Improve the Piotroski F-Score
International Value Investing: Looks Like a Reasonable Bet
A Unique Insider Trading Signal that Generates Alpha
The Most Important Decision When Selecting a Value Investing Fund
How Smart are “Smart Beta” ETFs?

How Much International Diversification is Necessary? A Wealth of Common Sense

The Trouble With Factors – Humble Student of the Markets

A Guide to Creating Your Own Hedge Fund – Econompic Data

Schwab vs. WealthFront vs. Betterment – Mebane Faber

 

Dividend Champion Portfolio 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 April month-end):

Name Symbol Yield Payout P/E 3-yr
Chevron Corp. CVX 3.85 42.25 10.96 10.86
Helmerich & Payne Inc. HP 3.53 42.18 11.96 116.13
ExxonMobil Corp. XOM 3.34 38.47 11.51 13.43
Old Republic International ORI 4.84 51.75 10.69 1.41
Eagle Financial Services EFSI 3.33 38.28 11.51 2.26
Community Trust Banc. CTBI 3.74 47.43 12.68 1.60
Tompkins Financial Corp. TMP 3.22 48.55 15.07 4.99
Universal Health Realty Trust UHT 5.11 63.82 12.48 1.29
Cincinnati Financial CINF 3.63 57.86 15.92 2.78
Questar Corp. STR 3.58 65.12 18.17 6.55
Universal Corp. UVV 4.42 65.62 14.84 2.04
Sonoco Products Co. SON 3.13 52.43 16.74 3.36
SJW Corp. SJW 2.67 30.71 11.52 2.82
Johnson & Johnson JNJ 3.02 53.67 17.75 7.05
WGL Holdings Inc. WGL 3.36 62.50 18.58 4.15

 

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

There is no turnover in positions for May.

The current portfolio is below:

Position Average Purchase Price Initial Purchase Date Percentage Gain/Loss Excluding Dividends
CVX 108.06 12/6/2012 -0.10%
CINF 52.47 3/6/2015 -3.20%
ORI 16.22 4/4/2014 -6.78%
UVV 47.3 4/8/2015 0.49%
TMP 44.46 8/6/2014 14.24%
CTBI 36.55 5/5/2014 -12.12%
XOM 89.01 4/5/2013 -0.92%
HP 90.57 10/6/2014 -13.71%
STR 22.8 3/6/2015 0.70%
UHT 55.27 4/8/2015 -15.78%

The equity curve for the portfolio (green) and two benchmarks is below:

Portfolio

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 are below.  Backtests are from 1/2/99 – 5/6/15 and include a variable slippage assumption (based on liquidity of stocks purchased) to help account for trading slippage:

397365_90303

stats

Once on Portfolio123 search for ‘Scott’s Dividend Champ Portfolio Hedged’ in the Ready-to-Go section.

ETFReplay.com Portfolio May Update

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

There is turnover in 3 of the 4 holdings in the 6/3/3 portfolio.  The top 5 ranked ETFs based on the 6/3/3 system as of 4/30/15 are below:

6mo/3mo/3mo
EFA iShares MSCI EAFE
VTI Vanguard Total U.S. Stock Market
RWX SPDR DJ International Real Estate
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
EEM iShares MSCI Emerging Markets

 

The strategy is rotating out of bond ETFs (TLT) and (LQD), holdings since August and September 2014, respectively.  In addition, the strategy is selling (VNQ), a holdindg since the beginning of the year.  The three new additions are (VTI) , (EFA) , and (HYG).

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
EFA iShares MSCI EAFE
VTI Vanguard Total U.S. Stock Market
RWX SPDR DJ International Real Estate

 

(VNQ), a holding since Feburary 2014 will be sold for a 12%+ gain and replaced by (EFA).

The updated holdings for each portfolio are below:

6/3/3 strategy:

Position Shares Purchase Price Purchase Date Cost Basis Current Value
EFA 47 66.51 4/30/2015 $3,125.97 $3,125.97
VTI 29 107.91 4/30/2015 $3,129.39 $3,129.39
HYG 35 90.99 4/30/2015 $3,184.65 $3,184.65
RWX 78 43.99 4/2/2015 $3,431.22 $3,457.74

 

Pure Momentum strategy:

Position Shares Purchase Price Purchase Date Cost Basis Current Value
TLT 20 116.27 9/30/2014 $2,325.40 $2,519.00
RWX 64 43.99 4/2/2015 $2,815.36 $2,837.12
VTI 22 101.24 9/30/2014 $2,227.28 $2,374.02
EFA 39 66.51 4/30/2015 $2,593.89 $2,593.89