Tag Archives: hyg

ETFReplay.com July Update

The ETFReplay.com Portfolio holdings have been updated for July 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 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
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

 

Bring Your Portfolio Into The 21st Century
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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 cash filter is in effect this month.  SHY is the highest rated ETF in the 6/3/3 system.  Therefore, all current holdings will be sold and the proceeds used to purchase SHY.

The top 5 ranked ETFs based on the 6/3/3 system as of 6/30/15 are below:

6mo/3mo/3mo
SHY Barclays Low Duration Treasury (2-yr)
EFA iShares MSCI EAFE
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
PCY PowerShares Emerging Mkts Bond (7-9yr)
VTI Vanguard Total U.S. Stock Market

 

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
EFA iShares MSCI EAFE
EEM iShares MSCI Emerging Markets
RWX SPDR DJ International Real Estate
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)

 

(VTI), a holding since September 2014 will be sold for a 5%+ gain and replaced by (EEM).  (TLT), a holding since September 2014 will be sold for a  1%+ gain and replaced by (HYG).

The updated holdings for each portfolio are below.

6/3/3 strategy:

Position Shares Avg Purchase Price Purchase Date Cost Basis Current Value Gain/Loss Excluding Dividends Percentage Gain/Loss Excluding Dividends
SHY 149 84.86 5/29/2015 & 6/30/15 $12,644.14 $12,644.14 $0.00 0.00%

 

Pure Momentum strategy:

Current Positions Position Shares Purchase Price Purchase Date Cost Basis Current Value Gain/Loss Excluding Dividends Percentage Gain/Loss Excluding Dividends
EEM 60 39.62 6/30/2015 $2,377.20 $2,377.20 $0.00 0.00%
RWX 64 43.99 4/2/2015 $2,815.36 $2,679.04 -$136.32 -4.84%
HYG 27 88.8 6/30/2015 $2,397.60 $2,397.60 $0.00 0.00%
EFA 39 66.51 4/30/2015 $2,593.89 $2,476.11 -$117.78 -4.54%

ETFReplay Portfolio for December

Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio.  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.

In addition, ETFs must be ranked above the cash 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 5 ranked ETFs as of 11/29/13 are below:

Top 50 Trending Stocks

6mo/3mo/3mo
HYG iShares iBoxx High-Yield Corp Bond
EFA iShares MSCI EAFE
VTI Vanguard MSCI Total U.S. Stock Market
RWX SPDR DJ International Real Estate
SHY Barclays Low Duration Treasury

Since cash (represented by SHY) is now the fifth highest rated ETF, anything rated above it qualifies for purchase. In October SHY was the third highest rated ETF and in November it was the fourth highest rated ETF.

For December the portfolio maintains positions in VTI, HYG and EFA. The portfolio held 25% cash in November, which is being allocated to RWX for December.

The strategy’s performance since inception is below, as is comparative performance of the SPDR S&P 500 ETF (SPY), iShares Growth Allocation (AOR), and the Permanent Portfolio (PRPFX):

ETFREPLAY

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ETFReplay Portfolio for November

Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. The strategy has been revised and improved for 2013 in order to make it simpler to follow.

I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.   I select only the top 4 ETFs out of a static basket of  ETFs and re-balance the portfolio monthly.

For 2013 the static basket of ETFs was reduced from 25 to 15. From this basket of 15, the top 4 are purchased each month. The portfolio will be re-balanced 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. I added the top 5 requirement in order to further limit turnover. ETFs will be ranked on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking).

In addition, ETFs must be ranked above the cash 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 5 ranked ETFs as of 10/31/13 are below:

 

VTI Vanguard MSCI Total U.S. Stock Market
HYG iShares iBoxx High-Yield Corp Bond
EFA iShares MSCI EAFE
SHY Barclays Low Duration Treasury
WIP SPDR Int’l Govt Infl-Protect Bond

Since cash (represented by SHY) is the fourth highest rated ETF, anything rated below it does not qualify for purchase. Last month SHY was the third highest rated ETF, so November is positioned less defensively than October.

For November the portfolio maintains positions in VTI and EFA, and keeps approximately 25% in cash. HYG will be purchased using October 31st’s closing price.  A more aggressive approach would disregard the cash filter. However, the objective of the portfolio is balance risk and reward while reducing drawdowns.

The strategy’s performance since inception is below, as is comparative performance of the SPDR S&P 500 ETF (SPY), iShares Growth Allocation (AOR), and the Permanent Portfolio (PRPFX):

etfreplay

Dual ETF Momentum Portfolio – June Update & Backtests

In February I announced a new “Dual ETF Momentum” spreadsheet. The idea was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.

The spreadsheet is available on Scott’s Investment’s here. The objective of the spreadsheet is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative 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 bill ETF (a “cash” filter). 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 the cash ETF. This is the absolute momentum filter which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns.

I have added an “average” return signal for each ETF 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.

Below are the four portfolios along with current signals.

Return data courtesy of Finviz
Equity  ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
US Equities VTI 15.67 Invested Invested
International Equities VEU 7.68
Cash SHY 0.04
Credit Risk  ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
High Yield Bond HYG 3.41 Invested Invested
Interm Credit Bond CIU 0.38
Cash SHY 0.04
Real-Estate Risk  ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ 6.51 Invested Invested
Mortgage REIT REM -1.37
Cash SHY 0.04
Economic Stress  ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
Gold GLD -15.55
Long-term Treasuries TLT -4.95
Cash SHY 0.04 Invested Invested

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.

Using Portfolio123 I backtested a similar strategy using the same portfolios and combined momentum score used above. However, to simplify the screen I did not require an ETF to be ranked above the combined return of SHY; rather, an ETF simply needed the average of its 13 week/26 week/52 week total return to be greater than 0% (the “absolute” momentum filter). Also, the portfolio re-balanced every 4 weeks as opposed to the end of each month.  No considerations were made for taxes or commissions. The test time period was 5/1/08 – 6/10/13 and the benchmark is SPY:

dual momentum test2

A four year test period is short by historical standards but the test is limited to the trading history of ETFs within the portfolio. A more robust, index-based test of the dual momentum strategy can be found on Optimal Momentum.

If you enjoy these free tools, please consider making a donation on the home page of Scott’s Investments using the Paypal link in the upper-right corner!

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ETFReplay Portfolio for June

Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. The strategy has been revised and improved for 2013 in order to make it simpler to follow.

I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.   I select only the top 4 ETFs out of a static basket of  ETFs and re-balance the portfolio monthly. Previously, the static basket of ETFs was 25. This number of ETFs creates a high degree of turnover and also creates cross-over among ETFs that have a high correlations. For example, if you are only purchasing 4 ETFs each month and 2 or 3 of the ETFs are highly correlated, there is little benefit in holding more than 1 of the ETFs.

For 2013 the static basket of ETFs was reduced to 15. From this basket of 15, the top 4 will be selected each month. The portfolio will be re-balanced 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. I added the top 5 requirement in order to further limit turnover. ETFs will be ranked on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking).

In addition, ETFs must be ranked above the cash 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).

The top 5 ranked ETFs as of 5/31/13 are below:

VTI Vanguard MSCI Total U.S. Stock Market
SHY Barclays Low Duration Treasury (2-yr)
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
VNQ Vanguard MSCI U.S. REIT
EFA iShares MSCI EAFE

For June the strategy is moving to 75% cash. This will be the first time in 2013 that the absolute momentum filter has come into play and the first time since 2009 the strategy has less than 2 non-cash ETFs.  Since SHY is the second highest rated ETF, anything ranked below it will not be held.  The balance of the portfolio will continue to hold VTI since it is the highest rated ETF.

VNQ was sold for a gain of 2.4% and purchase date of 2/28/13, HYG for a loss of 1.52% and purchase date of 3/28/13, and RWX for a gain of .93% and purchase date of 10/31/12 (individual returns exclude any dividends).

The absolute momentum filter comes as somewhat of a surprise this month, although volatility increased in several asset classes in May. Time will tell if this conservative rotation helps reduce drawdowns or is a false signal.

 

ETFReplay Portfolio for May

Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. The strategy has been revised and improved for 2013 in order to make it simpler to follow.

I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.   I select only the top 4 ETFs out of a static basket of  ETFs and re-balance the portfolio monthly. Previously, the static basket of ETFs was 25. This number of ETFs creates a high degree of turnover and also creates cross-over among ETFs that have a high correlations. For example, if you are only purchasing 4 ETFs each month and 2 or 3 of the ETFs are highly correlated, there is little benefit in holding more than 1 of the ETFs.

For 2013 the static basket of ETFs was reduced to 15. From this basket of 15, the top 4 will be selected each month. The portfolio will be re-balanced 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. I added the top 5 requirement in order to further limit turnover. ETFs will be ranked on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking).

In addition, ETFs must be ranked above the cash 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).

The top 5 ranked ETFs as of 4/30/13 are below:

VNQ –  Vanguard MSCI U.S. REIT
RWX – SPDR DJ International Real Estate
HYG – iShares iBoxx High-Yield Corp Bond
VTI – Vanguard MSCI Total U.S. Stock Market
LQD – iShares iBoxx Invest Grade Bond

For May there are no transactions, which is typically a good sign month to month. Current positions maintaining strength tend to equate to higher returns and lower transaction fees.

The four current positions are below:

Position Purchase Price Purchase Date Percentage Gain/Loss Excluding Dividends
RWX 40.74 10/31/2012 13.18%
HYG 94.35 3/28/2013 1.59%
VTI 78.24 2/28/2013 5.14%
VNQ 69.09 2/28/2013 8.96%

The portfolio is up over 22% since inception, which currently lags the S&P 500 (via the SPY ETF) on a nominal return basis. However, you can see the potential benefit during periods of equity pullbacks (of which we have had very few the past couple of years!) when the portfolio outperformed in 2011. It has also slightly outpaced a 60/40 balanced ETF and the Permanent Portfolio:

may etfreplay

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ETFReplay Portfolio for April

Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. The strategy has been revised and improved for 2013 in order to make it simpler to follow.

I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.   I select only the top 4 ETFs out of a static basket of  ETFs and re-balance the portfolio monthly. Previously, the static basket of ETFs was 25. This number of ETFs creates a high degree of turnover and also creates cross-over among ETFs that have a high correlations. For example, if you are only purchasing 4 ETFs each month and 2 or 3 of the ETFs are highly correlated, there is little benefit in holding more than 1 of the ETFs.

For 2013 the static basket of ETFs was reduced to 15. From this basket of 15, the top 4 will be selected each month. The portfolio will be re-balanced 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. I added the top 5 requirement in order to further limit turnover. ETFs will be ranked on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking).

In addition, ETFs must be ranked above the cash 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).

The top 5 ranked ETFs as of 3/28/13 are below:

VTI – Vanguard MSCI Total U.S. Stock Market
HYG – iShares iBoxx High-Yield Corp Bond
RWX – SPDR DJ International Real Estate
VNQ – Vanguard MSCI U.S. REIT
LQD – iShares iBoxx Invest Grade Bond

For April the position iniShares MSCI EAFE (EFA) was closed for no gain/loss (excluding dividends). It was replaced by HYG, which is now ranked second on the list.

The four current positions are below:

Position Purchase Price Purchase Date Percentage Gain/Loss Excluding Dividends
RWX 40.74 10/31/2012 5.57%
HYG 94.35 3/28/2013 0.00%
VTI 78.24 2/28/2013 3.39%
VNQ 69.09 2/28/2013 2.08%

The portfolio is currently lagging the S&P 500 (via the SPY ETF) on a nominal basis since inception. However, you can see the potential benefit during periods of equity pullbacks (of which we have had very few the past couple of years!) when the portfolio outperformed in 2011:

 

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All-Season ETF Portfolio: Minimum Correlation Allocation

In January I launched an “All-Season ETF Portfolio”. The portfolio began with a static allocation based on a simplistic and unleveraged interpretation of Ray Dalio and Bridgwater Associates “All-Weather” investment strategy. The proposed static allocation is below:

Name Symbol Static Allocation
Vanguard Total Stock Market VTI 18.75%
 PowerShares DB Commodity Index Tracking Fund DBC 7.25%
SPDR Gold Trust GLD 7.25%
 iShares iBoxx $ High Yield Corporate Bond Fund HYG 6.50%
iShares Emerging Markets USD Bond ETF EMB 14.50%
iShares Barclays TIPS Bond Fund TIP 20.75%
iShares Barclays 20+ Year Treasury Bond ETF TLT 12.50%
iShares Barclays Aggregate Bond Fund AGG 12.50%

The proposed allocation is not intended as a one-size-fits-all allocation model, but it does serve as a framework for further study and is based on having allocation to the four different market environments espoused by Bridgewater (full paper here):

I backtested the static allocation using ETFReplay.com – it outperformed the Vanguard 60-40 (VBINX) mutual fund since 2008 on both a total and risk-adjusted basis. The All-Season portfolio has a sharpe ratio of .67 and max drawdown of -21.5% versus a sharpe of.25 and max drawdown of -34.4% for VBINX. Positions were rebalanced annually:

Last week I introduced a basic risk-parity allocation tool for the All-Season ETF portfolio. The risk parity allocation uses the trailing 20-day volatility of the adjusted closing prices of each ETF to calculate a risk-based allocation. The risk parity allocation as of Friday’s close is below:

Name Symbol Risk Parity Weighting (unleveraged)
Vanguard Total Stock Market VTI 5.17%
 PowerShares DB Commodity Index Tracking Fund DBC 7.22%
SPDR Gold Trust GLD 4.32%
 iShares iBoxx $ High Yield Corporate Bond Fund HYG 22.44%
iShares Emerging Markets USD Bond ETF EMB 12.57%
iShares Barclays TIPS Bond Fund TIP 15.62%
iShares Barclays 20+ Year Treasury Bond ETF TLT 5.41%
iShares Barclays Aggregate Bond Fund AGG 27.25%

The All-Season ETF portfolio risk-parity allocation has performed relatively well since 2008, also outperforming VBINX by a wide margin. Risk-parity posted a sharpe ratio of .82 and max drawdown of -16.8%. Positions were rebalanced quarterly:

When researching the All-Weather portfolio I came across David Varadi’s work at CSS Analytics. Varadi, along with Michael Kapler, Corey Rittenhouse, and Henry Bee,  published a paper in September 2012, “The Minimum Correlation Algorithm: A Practical Diversification Tool”.  In the paper they introduce two heuristic algorithms for effective portfolio diversification and passive investment management, which they conclude “is an excellent alternative to Risk Parity, Minimum Variance and Maximum Diversification.”

Their algorithm, in my own words, is an alternative asset allocation model which makes intuitive sense. It uses both the historical volatility and correlation of securities in a portfolio to determine asset allocation. Securities with low correlations and volatility relative to the other securities in the portfolio receive higher weightings. The result is a portfolio allocation which changes over time to reflect the evolving volatility and correlations of the securities in the portfolio.

I was happily surprised to discover David freely provides a downloadable “Mincorr spreadsheet” on his site. The spreadsheet uses the algorithms presented in the paper and allows users to calculate their own minimum correlation allocations.

50 Top Stocks

After downloading the spreadsheet from CSS Analytics, I tweaked it to incorporate eight securities (this took a little more time than anticipated). I then created a template to download daily price data to calculate trailing correlations and volatility for the eight securities in the All-Season portfolio (this took a lot more time than anticipated). Finally, I used the Mincorr spreadsheet framework to calculate a daily “minimum correlation” allocation for the eight securities in the All-Season ETF portfolio and I provide the results on the All-Season ETF spreadsheet.

Backtesting this strategy is more difficult than a simple risk-parity or static asset allocation model. The most comprehensive tests are available in the The Minimum Correlation Algorithm paper, which has tests dating to 1980 for a variety of portfolios. The authors of the paper were kind enough to help me run some tests for the All-Season ETF portfolio. The tests are available in the pdf here: minn corr backtests, with tests being run from December 2007 – February 2013. The “min.corr.excel” results used a formula close to the calculation on my All-Season spreadsheet.

The current Minimum Correlation allocations are below:

Name Symbol Minimum Correlation Weightings
Vanguard Total Stock Market VTI 6.71%
 PowerShares DB Commodity Index Tracking Fund DBC 8.86%
SPDR Gold Trust GLD 3.37%
 iShares iBoxx $ High Yield Corporate Bond Fund HYG 29.37%
iShares Emerging Markets USD Bond ETF EMB 9.76%
iShares Barclays TIPS Bond Fund TIP 14.01%
iShares Barclays 20+ Year Treasury Bond ETF TLT 4.71%
iShares Barclays Aggregate Bond Fund AGG 23.21%

Note: my minimum correlation formula differs slightly from the method in the The Minimum Correlation Algorithm in that I use a 20-day historical volatility & correlation versus the 60-day range used in the paper. Using a shorter time period allows the spreadsheet to load quicker, but I may change the 20-day look-back period in the future.

Any errors or omissions in my Min Corr calculation are my own. I have done my best to review and scrub the data, but I make no warranties. As my programming knowledge evolves I hope to post additional minimum correlation backtests.

Past performance is no guarantee of future results. To learn more about the Minimum Correlation algorithm please take a few minutes to visit CSS Analytics.

If you enjoy these free tools, please consider making a donation on the home page of Scott’s Investments using the Paypal link in the upper-right corner!

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All-Season Portfolio: Risk Parity Allocation

Earlier this year I launched an “All-Season” ETF Portfolio. The initial launch of the portfolio provided a static allocation to 8 ETFs.  I have added two dynamic allocations to the All-Season portfolio spreadsheet.

The first is an unleveraged risk-parity asset allocation. The allocations for each ETF are updated daily based on the trailing 20-day volatility of each ETF as calculated using adjusted closing prices. The allocation to each ETF is calculated by taking the inverse of its trailing 20-day volatility and then calculating the percent each ETF contributes to the sum of all the inverse volatilities (for an example of the calculation please visit the spreadsheet). Bottom line: the lower trailing volatility an ETF has relative to the other ETFs in the portfolio, the higher its allocation.

The allocations as of last Friday’s close are below. The 20-day volatility is listed along with the static allocation I proposed in January. While the allocations update daily, I do not personally check the allocations daily nor do I endorse checking allocations daily. The spreadsheet and calculations were created to allow for maximum flexibility; hence, the daily updates:

 

Name Symbol Original Static Allocation Historic 20-Day Volatility of ETF Risk Parity Weighting
Vanguard Total Stock Market VTI 18.75% 12.85% 5.11%
 PowerShares DB Commodity Index Tracking Fund DBC 7.25% 7.01% 9.38%
SPDR Gold Trust GLD 7.25% 14.23% 4.62%
 iShares iBoxx $ High Yield Corporate Bond Fund HYG 6.50% 3.60% 18.27%
iShares Emerging Markets USD Bond ETF EMB 14.50% 4.44% 14.80%
iShares Barclays TIPS Bond Fund TIP 20.75% 4.51% 14.57%
iShares Barclays 20+ Year Treasury Bond ETF TLT 12.50% 12.42% 5.29%
iShares Barclays Aggregate Bond Fund AGG 12.50% 2.35% 27.96%

Stay tuned this week for details on the second dynamic allocation tool, the “minimum correlation” weightings!

If you enjoy these free tools, please consider making a donation on the home page of Scott’s Investments using the Paypal link in the upper-right corner!

ETFReplay.com Portfolio – March Update

Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. The strategy has been revised and improved for 2013 in order to make it simpler to follow.

I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.   I select only the top 4 ETFs out of a static basket of  ETFs and re-balance the portfolio monthly. Previously, the static basket of ETFs was 25. This number of ETFs creates a high degree of turnover and also creates cross-over among ETFs that have a high correlations. For example, if you are only purchasing 4 ETFs each month and 2 or 3 of the ETFs are highly correlated, there is little benefit in holding more than 1 of the ETFs.

For 2013 the static basket of ETFs has been reduced to 15. From this basket of 15, the top 4 will be selected each month. The portfolio will be re-balanced 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. I added the top 5 requirement in order to further limit turnover. ETFs will be ranked on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking).

In addition, ETFs must be ranked above the cash 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).

The top 5 ranked ETFs as of 2/28/13 are below:

RWX SPDR DJ International Real Estate
VTI Vanguard MSCI Total U.S. Stock Market
VNQ Vanguard MSCI U.S. REIT
HYG iShares iBoxx High-Yield Corp Bond (4-5yr)
EFA iShares MSCI EAFE

The position in iShares MSCI Emerging Markets (EEM) was closed for a loss of 2.57% (excluding dividends) and SPDR International Government Inflation Protected Bond (WIP) for a loss of 1.71% (excluding dividends). These positions were replaced by Vanguard MSCI Total US Stock Market (VTI) and Vanguard MSCI U.S. REIT (VNQ).

The four current positions are below:

 

Position Shares Purchase Price Purchase Date
RWX 70 40.74 10/31/2012
EFA 49 58.98 1/31/2013
VTI 36 78.24 2/28/2013
VNQ 40 69.09 2/28/2013

 

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Core ETF Report
Stocks and ETFs Still Snoozing
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