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


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:


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 – Portfolio

The Portfolio holdings have been updated for December 2015.  I previously detailed here and here how an investor can use 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 – 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:

PCY PowerShares Emerging Mkts Bond
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
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%