Category Archives: Blog

June Investment Readings

Below are some of my favorite “non-Brexit” related investment articles from June:

Taking Stock of European Equities – A Wealth of Common Sense
Simplexity – The Irrelevant Investor
Pursuing the Right Goals – A Wealth of Common Sense
While You Were Worrying  – A Wealth of Common Sense
Behavior of the Experts – A Wealth of Common Sense
Unquantifiable Risk – A Wealth of Common Sense
Lessons From Losing Big – A Wealth of Common Sense
No One Knows What Will Happen – A Wealth of Common Sense

Sunday Brexit Reads

Below are articles from some of my favorite financial writers discussing Brexit:

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Get Ready For The Bull Market in Opinions – A Wealth of Common Sense

Dual ETF 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 May.

Below are the four portfolios along with current signals:

Return Data Provided by Finviz

Dual 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.

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.

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 May month-end):

Name Symbol Yield P/E 3-yr
Target Corp. TGT 3.26 13.00 17.84
Helmerich & Payne Inc. HP 4.50 62.40 114.15
AT&T Inc. T 4.90 17.40 2.22
Emerson Electric EMR 3.65 17.94 5.40
Old Republic International ORI 3.91 12.52 1.39
Altria Group Inc. MO 3.55 22.89 8.36
Eagle Financial Services EFSI 3.48 11.62 3.10
Questar Corp. STR 3.49 21.92 8.10
Universal Corp. UVV 3.88 15.67 2.00
Community Trust Banc. CTBI 3.44 13.41 2.25
ExxonMobil Corp. XOM 3.37 28.62 9.73
Consolidated Edison ED 3.66 19.03 2.42
HCP Inc. HCP 7.00 999.00 4.16
Chevron Corp. CVX 4.24 146.38 6.83
Eaton Vance Corp. EV 2.92 16.53 9.18
Archer Daniels Midland ADM 2.81 16.45 16.96
Weyco Group Inc. WEYS 3.05 17.23 6.18
T. Rowe Price Group TROW 2.80 16.47 15.21
Coca-Cola Company KO 3.14 26.87 8.97
Universal Health Realty Trust UHT 4.82 29.08 1.47
Wal-Mart Stores Inc. WMT 2.83 15.66 7.78
National Retail Properties NNN 3.84 39.08 3.11
Bowl America Class A BWL-A 4.77 39.61 1.78
Procter & Gamble Co. PG 3.30 27.10 5.99
Sonoco Products Co. SON 3.10 21.77 4.81

There is  turnover in one position for June.  Archer Daniels Midland (ADM) will be sold for a capital gain of 23.13% and original purchase date of 12/7/2015.  The proceeds will be used to purchase Target (TGT)   which is currently the top ranked stock on the list.

I will also a small portion of the ADM proceeds to rebalance the portfolio by purchasing additional shares of XOM and HP which are the two lowest weighted postilions in the portfolio.

The current portfolio is below:

Position Average Purchase Price Initial Purchase Date Current Value Percentage Gain/Loss Excluding Dividends
CVX 103.1835 12/6/2012 $21,941.70 -2.46%
EMR 49.64 8/4/2015 $22,227.50 5.36%
ORI 16.22 4/4/2014 $21,663.40 16.65%
EV 28.38 2/5/2016 $25,221.00 26.96%
TGT 68.65 6/3/2016 $26,842.15 0.00%
MO 58.14 1/7/2016 $26,120.00 12.32%
XOM 88.97307 4/5/2013 $18,387.20 -0.64%
HP 82.79467 10/6/2014 $18,107.32 -28.99%
STR 25.03 5/6/2016 $26,842.75 -0.24%
T 38.13 3/7/2016 $25,493.00 2.86%

Momentum Portfolio June 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
VNQ Vanguard MSCI U.S. REIT
RWX SPDR Dow Jones International Real Estate ETF
PCY PowerShares Emerging Markets Sovereign Debt Portfolio
Pure Momentum
GLD SPDR Gold Shares ETF
TLT iShares Barclays 20 Year Treasury Bond Fund
RWX SPDR Dow Jones International Real Estate ETF

 

The current portfolios are below:

Conservative Momentum

Conservative Momentum (6/3/3 strategy)
Current Positions Position Shares Avg Purchase Price Purchase Date Cost Basis Current Value
PCY 150 28.61 4/29/2016 $4,291.50 $4,258.50
VNQ 49 83.67 5/31/2016 $4,099.83 $4,102.77
RWX 100 41.72 5/31/2016 $4,172.00 $4,178.00

 

Pure Momentum

Pure Momentum (5 month momentum)
Current Positions Position Shares Purchase Price Purchase Date Cost Basis Current Value
GLD 27 118.64 2/29/2016 $3,203.28 $3,130.38
TLT 25 126.67 2/1/2016 $3,166.75 $3,260.50
RWX 79 42.36 4/29/2016 $3,346.44 $3,300.62

 

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

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 on Scott’s Investments 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 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 convenience.

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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.

The current signals based on May 31st’s adjusted closing prices are below.    This month no ETF is below its  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

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:

Ivyfree

Updated Dual Momentum Test

I frequently get asked for updated tests on various strategies. Using Portfolio123 I ran a backtest on a Dual Momentum strategy from 1/1/2007 – 5/25/2016. The strategy is updated on Scott’s Investments monthly, the most recent update is here.

The strategy invests equally in one ETF from each of four baskets of ETFs/cash:

  1. Equities – VTI, EFA, or Cash
  2. Credit Risk – CIU, HYG, or Cash
  3. Real Estate Risk – VNQ, REM, or Cash
  4. Economic Stress – GLD, TLT, or Cash

The backtest below ranks each ETF on 12 month momentum and purchased the ETF with the highest 12 month momentum.  The 12 month return of the ETF must also be positive in order for it to be purchased, otherwise cash is held.

Re-ranking every 4 weeks results in the following return statistics.  No reduction is made for commissions or taxes:

DUALS

Dual

dual2

Monday Reads

Below is a list of investment articles I have been reading the past week:

A Wealth of Common Sense:

Dual ETF 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’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:

Return Data Provided by Finviz

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.

Dividend Champion Portfolio – May 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.  Payout ratio will no longer be a factor.  The modification has a relatively low impact to 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 April month-end):

Name Symbol Yield P/E 3-yr
Helmerich & Payne Inc. HP 4.16 30.75 114.15
AT&T Inc. T 4.95 17.18 2.22
Emerson Electric EMR 3.48 14.57 5.40
Altria Group Inc. MO 3.60 23.49 8.36
Old Republic International ORI 4.06 12.66 1.39
Questar Corp. STR 3.51 21.25 8.10
Archer Daniels Midland ADM 3.00 13.36 16.96
Eagle Financial Services EFSI 3.43 11.83 3.10
Eaton Vance Corp. EV 3.07 15.70 9.18
Universal Corp. UVV 3.89 15.63 2.00
ExxonMobil Corp. XOM 3.39 22.96 9.73
Chevron Corp. CVX 4.19 41.71 6.83
Community Trust Banc. CTBI 3.46 13.33 2.25
Wal-Mart Stores Inc. WMT 2.99 14.63 7.78
HCP Inc. HCP 6.80 999.00 4.16
Consolidated Edison ED 3.59 18.37 2.42
T. Rowe Price Group TROW 2.87 16.16 15.21
Target Corp. TGT 2.82 15.06 17.84
MDU Resources MDU 3.74 26.05 2.90
Bowl America Class A BWL-A 4.74 31.22 1.78
Universal Health Realty Trust UHT 4.73 30.67 1.47
Sonoco Products Co. SON 3.16 19.22 4.81
National Retail Properties NNN 3.98 38.73 3.11
Coca-Cola Company KO 3.13 26.99 8.97
Procter & Gamble Co. PG 3.34 26.44 5.99

There is  turnover in one position for May.  T Rowe Price Group (TROW) will be sold for a gain of 3.49% and replaced with Questar (STR).

The current portfolio is below:

Position Shares Average Purchase Price Initial Purchase Date Percentage Gain/Loss Excluding Dividends
CVX 218 103.1835 12/6/2012 -1.27%
EMR 425 49.64 8/4/2015 7.37%
ORI 1145 16.22 4/4/2014 15.66%
EV 700 28.38 2/5/2016 20.33%
ADM 690 35.41 12/7/2015 7.88%
MO 400 58.14 1/7/2016 8.20%
XOM 196 89.01 4/5/2013 -0.58%
HP 258 87.4457 10/6/2014 -30.60%
STR 1075 25.03 5/6/2016 0.00%
T 650 38.13 3/7/2016 2.23%