ETFREPLAY.COM Portfolio for January

The ETFReplay.com Portfolio holdings have been updated for January 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 15 ETFs. These 15 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.

Starting in 2015 the basket of 15 ETFs will be reduced to 14 in order to further simplify the strategy.  PowerShares DB Agricultural Commodities (DBA) has been removed. 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

 

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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 4 ranked ETFs based on the 6/3/3 system as of 12/31/14 are below:

6mo/3mo/3mo
TLT iShares Barclays Long-Term Trsry
LQD iShares iBoxx Invest Grade Bond
VNQ Vanguard MSCI U.S. REIT
SHY Barclays Low Duration Treasury

 

For January 50% of our current position in SHY will be sold and the proceeds used to purchase VNQ. The strategy continues to hold TLT, LQD, and a reduced position in SHY.

Beginning in 2014 we track both the 6/3/3 strategy (same system as 2013) as well as the pure momentum system, which will rank the same basket of 15 (now 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
VNQ Vanguard MSCI U.S. REIT
VTI Vanguard Total U.S. Stock Market
LQD iShares iBoxx Invest Grade Bond

 

The 6 month momentum system maintains positions in TLT, VNQ, and VTI. PCY will be sold and the proceeds used to purchase LQD.

Below is a 2 year equity curve for the conservative strategy:

etfreplay conservative

Below is a 1 year equity curve for the aggressive strategy:

etfreplay aggressive

Ivy Portfolio Year End 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.

**Google docs is currently not updating data properly so please use caution when viewing data on any of my spreadsheets. It appears to be an issue affecting many Google Doc users. I have manually updated moving average data through 12/31/14**

**1/1/15 Update: I have replaced the Google Docs Ivy and Commission Free portfolio with a new spreadsheet which has resolved the issue. Please update any bookmarks or links to the newest spreadsheets found here: http://www.scottsinvestments.com/ivy-commission-free-portfolios/

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 December’s adjusted closing prices are below. The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz. However, this data is not currently importing properly so is not included in the screenshot below:

Ivy Portfolio

 

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

 

Many of you have asked for return data of the Ivy strategy.  Below is data for a 10 month moving average system using the Ivy 10  and Ivy 5 portfolio tracked on my site. The test was conducted using ETFReplay.com, so while signals should match mine the returns listed below are strictly hypothetical. The backtest will invest in the chosen ETFs on the close of the LAST DAY of the period. The test was run 2010-2014 and returns have been underwhelming compared to a traditional balanced mutual fund:

Ivy 10

2010-2014

 

Ivy 5

Ivy 5