Ivy Portfolio July 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 June 30th’s adjusted closing prices are below.   As of the close May 29, (DBC) (GSG) (VNQ) and (TIP) were below their 10 month moving average.  This month those 4 ETFs remain below their moving average. In addition, (BND) (RWX) (TIP) and (VWO) are now also 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:



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:

Commfree1 Commfree2

Backtesting – A Cautionary Example

My previous article detailed backtest results for the ETFReplay.com portfolio. Aggregate, risk-adjusted results since 2004 were impressive when compared to a 60/40 Vanguard mutual fund.  However, results over the past 2-3 years lagged the benchmark.

The test below was conducted using Portfolio123 (“P123”).  It uses a similar ranking system to the ETFReplay 6/3/3 system but has a few seemingly “minor” differences:

  • The P123 begins with a similar basket of ETFs, the only difference is the P123 system ranks 15 ETFs instead of 14, with Powershares DB Agriculture (DBA) as the extra ETF.
  • The starting date for the P123 test is 12/10/03, which differs from the ETFReplay start date of 1/1/2004.
  • The P123 system rebalances every 4 weeks,  instead of at the end of each month.
  • The ETFReplay test assumes equal holdings each month (i.e. rebalancing back to equal weight each month at no cost) while P123 lets positions run so holdings may become unbalanced over time.
  • The P123 test uses the next days closing price of each ETF for the transaction price, compared to the ETFReplay system which uses the same days closing price when each ETF is ranked.
  • Finally, and perhaps most importantly, the P123 test accounts for slippage with each transaction, which reduces returns.  The slippage for each transaction is calculated based on the average trading volume for each ETF.  This is a conservative method for calculating ETF slippage.

After accounting for these differences, we see the P123 test shows significantly lower results (as an aside, the benchmark for this test was the SPY):

Tables and charts courtesy of Portfolio123

P123 slippage

P123 slippage3

P123 slippage2


However, if we assume zero slippage results improve dramatically.  Total and annualized return are significantly higher yet we still see different returns and risk metrics than the ETFReplay test. This can be attributed to a slightly different pool of ETFs, and different rebalancing dates/methodology:

P123 no slippage

P123 no slippage 2 P123 no slippage 3

The point of this exercise is not to disparage backtests or historical results.  Rather, it shows the importance of considering trading costs as well as how changes in test parameters can impact results.

Focus on making your tests robust. Run them through multiple time frames with different assumptions and be mindful of data-mining.  Finally, be conscious of trading costs and fees!  Many brokers now offer commission free ETFs, but taxes and trading slippage can take a big bite out of returns.



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Core ETF Report
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New Backtests for ETFReplay Portfolio

I am frequently asked about various strategy and portfolio performance metrics and backtests. A reader recently asked if there are any current backtests for the ETFReplay 6/3/3 Portfolio so I decided now is the appropriate time to provide updated results.

The strategy background is available here and is updated monthly on Scott’s Investments, including a real-time  simulated portfolio spreadsheet here.

The ETFReplay portfolio is also provided free to subscribers of Portfolio123, simply search “ETFReplay” in the Ready-to-Go Portfolio section.

The backtested results below are hypothetical and do not account for commissions or taxes, so real results would be lower.

The first test was conducted using ETFReplay.com , the initial inspiration for the portfolio. The backtest invests in the Screener’s picks on the close of the first day of the next period.  Picks are updated monthly and the top 4 ETFs are purchased/held.  ETF must also be ranked about a short-term treasury ETF (SHY) in order to qualify for purchase.

This test is nearly identical to the 6/3/3 system I update each month with the exception that the test does not require ETFs drop out of the top 5 before being sold. This was a qualification I added to the strategy to limit turnover.

The benchmark for the test is VBINX (Vanguard 60-40 Mutual Fund):

etfreplay1 etfreplay2

The strategy has performed well in total, but has lagged a 60/40 benchmark in the last 3+ years.

The Pure Momentum ETFReplay Portfolio was added to my monthly updates in 2014.  It purchases 4 ETFs each month based on 6 month returns, and has no cash filter.  Backtested returns are below:

pure momentum pure momentum2

We see similarly strong early results, with returns lagging versus the 60/40 benchmark the past 2+ years.


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Core ETF Report
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Mid-Week Investment Articles

Below is my weekly investment reading list:

Alpha Architect:

Basic Factor Analysis: Simple Tools to Understand What Drives Performance
The Power of Term-Term Compounding: Evidence from Ben Franklin’s Trusts


Swedroe: Momentum Across Time & Asset Classes
Swedroe: A Must-Read For Serious Investors

Research Affiliates:

Calling the Turns: Why Market Timing Is So Hard
The Market for “Lemons”: A Lesson for Dividend Investors

Time for a Fire Drill – The Big Picture

Global Tactical Asset Allocation: Just the Facts – Gestaltu

Should A Robot Be Managing CalPERS Portfolio? Meb Faber Research

Risk Parity Is Even Better Than We Thought – AQR

Pants on Fire: 10 Big Lies in the Financial Services Industry – Above the Market

Out of Sample or Out of This World? Pragmatic Capitalism

Mother Nature designed you to be a bad investor – Jim O’Shaughnessy

Dual Momentum June 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:

Dual Momentum June

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
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Infinera Maintained Its Momentum Through Q2
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Dividend Champion Portfolio June 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 May month-end):

Name Symbol Yield Payout P/E 3-yr
Helmerich & Payne Inc. HP 3.77 42.24 11.21 116.13
Chevron Corp. CVX 4.16 46.83 11.27 10.86
ExxonMobil Corp. XOM 3.43 43.84 12.79 13.43
Eagle Financial Services EFSI 3.46 38.28 11.05 2.26
Community Trust Banc. CTBI 3.66 47.43 12.95 1.60
Tompkins Financial Corp. TMP 3.29 48.41 14.70 4.99
Universal Health Realty Trust UHT 5.30 63.98 12.07 1.29
Cincinnati Financial CINF 3.64 54.12 14.88 2.78
Wal-Mart Stores Inc. WMT 2.64 40.08 15.19 10.98
Emerson Electric EMR 3.12 49.47 15.87 7.04
Questar Corp. STR 3.70 65.63 17.73 6.55
Old Republic International ORI 4.79 66.07 13.80 1.41
Universal Corp. UVV 4.04 65.62 16.24 2.04
Weyco Group Inc. WEYS 2.86 44.69 15.65 5.43
SJW Corp. SJW 2.59 28.68 11.07 2.82

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

As with last month 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 -6.13%
CINF 52.47 3/6/2015 -3.64%
ORI 16.22 4/4/2014 -6.35%
UVV 47.3 4/8/2015 11.14%
TMP 44.46 8/6/2014 16.04%
CTBI 36.55 5/5/2014 -9.47%
XOM 89.01 4/5/2013 -5.36%
HP 90.57 10/6/2014 -20.30%
STR 22.8 3/6/2015 -4.69%
UHT 55.27 4/8/2015 -13.61%

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


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

Mid-Week Reads

Below is my investment reading list for this week:

Top 50 Trending Stocks

From Pragmatic Capitalism:

Being a Good Loser is Essential to Becoming a Good Investor
Why The Efficient Market Hypothesis is Useless

From ETF.com:

Swedroe: Avoid The Recency Pitfall
Swedroe: Risk-Managed Momentum Outperforms
Tom Dorsey: ‘Smart Beta’ Is ETF Alchemy

From Alpha Architect:

Basic Factor Analysis: Simple Tools to Understand What Drives Performance
Did Ben Graham Value Investing Work in the Recent Bull Market?

From Meb Faber Research:

10 Bearish Charts, 1 Bullish Chart
Very Reasonable Advice

What If Everything Is Overvalued? A Wealth of Common Sense

Dual Momentum for non-US Investors – Dual Momentum

The Billion Dollar Club – The Reformed Broker

Is it now smart to be dumb? The Investor’s Field Guide

The Maleficent 7 – Above the Market