September Investment Readings

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Below is my investment reading list for September.  You can also view it as a webpage here:

 

 

Dual Momentum September 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 May.

Below are the four portfolios along with current signals:

Return Data Provided by Finviz

dual-september

The Dual ETF Momentum 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 – September 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.

I made one change to the screen methodology for 2016 in order to further simplify the process. Stocks from the Dividend Champion list were previously ranked on yield, payout ratio, P/E, and 3 year dividend growth rate.

In 2016 stocks are ranked on yield, P/E and 3 year dividend growth rate but payout ratio is no longer a factor.  The modification has a relatively low impact on screen results.

Stocks will still be 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 25 stocks using the new method  are below and displayed in order of their overall ranking (figures are from the end of August):

Name Symbol Yield P/E 3-yr
Target Corp. TGT 3.42 13.63 17.84
AT&T Inc. T 4.70 17.62 2.22
Helmerich & Payne Inc. HP 4.63 999.00 114.15
Altria Group Inc. MO 3.69 22.95 8.36
Emerson Electric EMR 3.61 18.95 5.40
T. Rowe Price Group TROW 3.11 16.80 15.21
Old Republic International ORI 3.90 12.57 1.39
Questar Corp. STR 3.52 22.53 8.10
Eagle Financial Services EFSI 3.37 10.75 3.10
Weyco Group Inc. WEYS 3.29 17.01 6.18
Computer Services Inc. CSVI 3.01 18.54 21.05
Community Trust Banc. CTBI 3.47 13.96 2.25
Consolidated Edison ED 3.56 19.39 2.42
HCP Inc. HCP 5.85 999.00 4.16
Universal Corp. UVV 3.52 18.46 2.00
Chevron Corp. CVX 4.26 999.00 6.83
ExxonMobil Corp. XOM 3.44 34.58 9.73
Coca-Cola Company KO 3.22 24.96 8.97
MDU Resources MDU 3.18 15.31 2.90
WGL Holdings Inc. WGL 3.10 17.70 4.80
Archer Daniels Midland ADM 2.74 17.72 16.96
Bowl America Class A BWL-A 4.72 40.06 1.78
Wal-Mart Stores Inc. WMT 2.80 15.36 7.78
National Retail Properties NNN 3.63 42.82 3.11
Vectren Corp. VVC 3.27 21.83 3.11

There is no turnover in positions for this month.  The current portfolio is below.  A note on CSVI, which was purchased last month.  It is small cap ($521M market cap) and thinly traded stock (average 3 month volume of 3040 shares per day) :

Position Shares Average Purchase Price Initial Purchase Date Percentage Gain/Loss Excluding Dividends
CTBI 630 33.9 7/5/2016 9.85%
EMR 425 49.64 8/4/2015 6.41%
ORI 1145 16.22 4/4/2014 17.32%
CSVI 634 39.2 8/5/2016 -5.10%
TGT 391 68.65 6/3/2016 1.18%
MO 400 58.14 1/7/2016 14.21%
TROW 300 71.35 7/5/2016 -3.52%
HP 341 80.9 10/6/2014 -22.27%
STR 1075 25.03 5/6/2016 -0.04%
T 650 38.13 3/7/2016 8.03%

 

The current equity curve for the portfolio is below (through 9/8/16):

champ

Momentum Portfolios September Update

In 2011 Scott’s Investments began tracking a momentum portfolio which ranks a basket of ETFs based on price momentum and volatility.  In 2014 I also introduced a pure momentum system, which ranks the same basket of ETFs based solely on 6 month price momentum. The first portfolio was previously called the “ETFReplay.com Portfolio” but at the beginning of 2016 was renamed “Conservative Momentum Portfolio” (or “6/3/3 strategy”) to reflect some changes in the portfolio and tracking methodology for both portfolios detailed below.

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In previous years the Conservative Momentum Portfolio  began with a static basket of 14 ETFs.  The basket of 14 ETFs has been reduced to 10 ETFs. This change was made in order to further simplify the portfolio. The 10 ETFs are listed below:

RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond
EFA iShares MSCI EAFE
EEM iShares MSCI Emerging Markets
VNQ Vanguard MSCI U.S. REIT
TIP iShares Barclays TIPS
VTI Vanguard MSCI Total U.S. Stock Market
GLD SPDR Gold Shares
TLT iShares Barclays Long-Term Trsry
SHY iShares Barclays 1-3 Year Treasry Bnd Fd

 

The ETFs are still ranked by 6 month total returns (weighted 40%), 3 month total returns (weighted 30%), and 3 month price volatility (weighted 30%). The top 3 are purchased  at the beginning of each month and if a holding drops out of the top 3 at the next month’s rebalance it will be replaced. Previously, the portfolio purchased the top 4 ETFs and only sold when a holding dropped out of the top 5. In addition, ETFs previously had to be ranked above the cash-like ETF (SHY) in order to be included in the portfolio. This requirement has been removed, so the top 3 ETFs will be held regardless of proximity to SHY.

Pure Momentum System

The pure momentum system previously ranked  ETFs based solely on 6 month price momentum.  For 2015 the strategy now ranks ETFs based on 5 month price momentum. There is no cash filter in the pure momentum system, volatility ranking, or requirement to limit turnover. Previously the strategy bought the top 4 ETFs each month – going forward the top 3 ETFs will be purchased. The portfolio and rankings are posted on the same spreadsheet as the 6/3/3 strategy.

The portfolio names dropped “ETFreplay.com” because the strategies can be tracked on multiple website.  ETFReplay.com is still an excellent choice for tracking and backtesting the strategies detailed. However, a formidable free option for backtesting these strategies has emerged at Portfolio Visualizer.

The current top 3 ETFs are listed below for each strategy:

Conservative Momentum
PCY PowerShares Emerging Markets Sovereign Debt Portfolio
VNQ Vanguard MSCI U.S. REIT
EEM iShares MSCI Emerging Markets
Pure Momentum
EEM iShares MSCI Emerging Markets
PCY PowerShares Emerging Markets Sovereign Debt Portfolio
TLT iShares Barclays 20 Year Treasury Bond Fund

 

The current portfolios are below:

Conservative Momentum

Position Shares Avg Purchase Price Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends
PCY 148 30.16 7/29/2016 $4,463.68 $4,525.84 1.39%
VNQ 49 83.67 5/31/2016 $4,099.83 $4,359.53 6.33%
EEM 118 36.53 8/31/2016 $4,310.54 $4,310.54 0.00%

 

Pure Momentum

Position Shares Purchase Price Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends
PCY 113 30.58 8/31/2016 $3,455.54 $3,455.54 0.00%
EEM 98 34.36 6/30/2016 $3,367.28 $3,579.94 6.32%
TLT 24 139.87 8/31/2016 $3,356.88 $3,356.88 0.00%

 

Current positions can be viewed on Scott’s Investments here.