Tag Archives: mebane faber

Tuesday Readings

Below is my reading list for tonight. If you are new to the site, I typically post investment and market-related articles of interest once per week:

The S&P 500 is Plagued with Divergences

Asset Allocation Strategies & Just Go Halfsies – Mebane Faber

The Correlation Conundrum – The Capital Speculator

A Lost Generation & The Blip  – John Mauldin

Is Risk Parity an Effective Asset Allocation Tool? Empiritrage

Why Past Performance of a Conventional (60-40) Portfolio Is NOT Indicative of Future Performance – Jackass Investing

Market Valuation Overview – Doug Short

First Trust Managed-Futures ETF Is Live & Global X ‘Cheap’  MLP ETF Goes Live – Index Universe

 

More on this topic (What's this?)
S&P 2100 Acts As Price Magnet
S&P In Short-term Correction
Read more on Asset Allocation, S&P 500 (SPX) at Wikinvest

Shareholder Yield Strategy: Beyond Dividends

Cambria Investment Management and Mebane Faber recently announced the Cambria Shareholder Yield ETF (SYLD). Faber outlines the Shareholder Yield strategy in his Shareholder Yield: A Better Approach to Dividend Investing.

The Shareholder Yield strategy is especially relevant today, with investors desperate for  yield in a low interest rate environment. The basic premise behind the strategy is that companies have three options for returning cash to shareholders – dividends, share buybacks, and paying down debt.

Dividends are the most widely understood method for companies to return cash to shareholders, but share buybacks and debt reduction are also methods for returning cash. Share buybacks increase the ownership stake of equity holders by reducing the number of outstanding shares. When a company pays down debt, it reduces its obligations to bondholders and shifts ownership to equity holders.  Tax policy can also influence how companies choose to return cash to shareholders – if dividends are taxed at a higher rate than capital gains, this creates incentives to return cash via buybacks and debt reduction.

Cambria’s fund fact sheet describes SYLD as “an actively managed fund that employs the manager’s quantitative algorithm to select U.S. listed companies that show strong characteristics in returning free cash flow to their shareholders. Specifically, SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets.”

Besides investing in SYLD there are other options for screening, testing and investing in a shareholder yield strategy.  I created a Shareholder Yield screen using Portfolio123 and backtested it to 1999. My Shareholder Yield screen attempts to closely mimic the one outlined by Faber and Cambria, but there will be differences since Cambria does not fully disclose their ranking methodology.

Shareholder YIeld can be defined in a simple equation as Dividend Yield + Net Buyback Yield + Net Debt Paydown Yield. The tests below use a custom ranking system to rank stocks based on these three factors.

The first test is a Shareholder Yield strategy on stocks in the S&P 500. The test purchased the top 20 stocks based on their Shareholder Yield and rebalanced every 8 weeks (4, 6, and 12 week rebalances also showed strong results). I assumed .25% in slippage to account for trading friction, dividends are included in the results, and the benchmark is SPY.

Results from 5, 10, and 14+ year (1/2/99-5/21/13) results are below:

Charts courtesy of Portfolio123

5year shareholder yield

 

10year shareholder yield

 

14year shareholder yield

The overall results are strong when compared to SPY. However, taxes and commissions could be an additional drag on returns and the max drawdown of the strategy could also be too much for some to handle.

I am a fan of sacrificing some overall return for lower volatility and drawdown. The next test uses the same parameters as above with one added market timing filter. Stocks were only purchased on the rebalance date (every 8 weeks) if the benchmark (SPY) was trading above its 200 day simple moving average on the rebalance date. Positions were held for 8 weeks regardless of whether SPY dropped above/below the 200 day moving average between rebalance dates.

The 5, 10, and 14+ year results are below:

Charts courtesy of Portfolio123

5year shareholder yield timing10year shareholder yield timing

14year shareholder yield timing

Drawdowns were reduced as was total returns. An 8 week rebalance period reduces turnover, but it increases the likelihood that SPY could make a fairly significant move above/below its moving average between rebalance dates. This simple timing strategy may not be optimal, but is intended to show the potential for reducing portfolio drawdowns by employing some simple techniques.

What happens when we take share buybacks and debt reduction out of the equation and simply purchase the top 20 highest dividend yielding stocks in the S&P 500 every 8 weeks? In other words, are we accomplishing anything in the results above by screening for share repurchases and debt reduction?

The results of a high dividend yield strategy:

Charts courtesy of Portfolio123

5year high yield10year high yield14year high yield

The high yield strategy performed well compared to SPY, but under-performed both on a total and risk-adjusted basis in the 5, 10, and 14 year tests when compared to a Shareholder Yield strategy.

Cambria’s commitment to a Shareholder Yield ETF, the historical results outlined in Shareholder Yield: A Better Approach to Dividend Investing (and elsewhere on the web), and the results of the tests using Portfolio123  indicate that a shareholder yield strategy is worth our attention.

Monday Readings

Below are some articles I am reading this week:

How to Trade POMO Manipulation – Chris Vermeulen

Rational Temperance – Bill Gross

Dean Williams: Maybe you’re “Trying Too Hard” – Turnkey Analyst

Pinocchio Traders – Barry Ritholtz

ETF Insider – The Idea Farm

How to Protect Your Portfolio – Geoff Considine

Buy High, Sell Higher? & Quant Backtester – Mebane Faber

The Healthcare Blues (pdf) – John Mauldin

Is the Stock Market Cheap? Doug Short

Out on a Limb – John Hussman

Below is a free webinar from MarketFly:

Secrets to Optimizing Your Morning Income Stream: Veteran day trader and four time recipient of the Forbes’ Best of the Web award, Mr. Jea Yu, invites you to a 3 part live webinar series showing you how to create a consistent morning profit. This is an exclusive, one-time webinar series and will not be replayed or recorded for the general public.

Ivy Portfolio – March Update

Early in 2012  Scott’s Investments added a daily Ivy Portfolio spreadsheet. This tool uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the 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 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. 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.

Top 50 Trending Stocks

The current signals based on February 28th closing prices are below.  Real estate and equities are leading while bonds and commodities are lagging and trading below their 10 month moving average.

The first table is based on adjusted historical data and the second table is based on unadjusted price data:

As an added bonus I created a “Commission-Free” Ivy Portfolio spreadsheet. This document tracks the 10 month moving averages for three different portfolios designed for TD Ameritrade, Fidelity, 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 for the commission-free portfolios:

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

Ivy Portfolio Month-End Update

Early in 2012  Scott’s Investments added a daily Ivy Portfolio spreadsheet. This tool uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the 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 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 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. It simply gives the spreadsheet more versatility for user’s to check at their 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.

Top 50 Trending Stocks

I do not track these portfolios as hypothetical portfolios like I do with other portfolios on the site but do periodically backtest the strategy. For the most recent test results, please view December’s update.

The current signals based on January 31st closing prices are below.  International and domestic equities are leading, while bonds are lagging and trading below their 10 month moving average.

The first table is based on adjusted historical data and the second table is based on unadjusted price data:

 

Ivy Portfolio Update

Early in 2012  Scott’s Investments added a daily Ivy Portfolio spreadsheet. This tool uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the 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.

This month’s update is a trading day early (markets will be open on the 31st) than a typical end of month update.  It also comes at a time when the long-term moving average strategy has struggled and is under scrutiny. John Hussman notes that since 2009 the S&P 500 Index has actually performed better when below its 200 day moving average than when it has been above the 200 day moving average.  He also notes the recent performance is contrary to the longer-term success of a moving average strategy:

“…since 2010, the S&P 500 has gained just 1.5% annually when it has been above its 200-day moving average, versus a striking 46.3% annual return when it has been below. Needless to say, this pattern is not necessarily indicative of how the S&P 500 will behave in the future, and is in fact contrary to the historical pattern”

Hussman focuses on one index, the S&P 500. With hundreds of markets to trade, some will follow the historical trend while others, like the S&P 500 may buck the trend for months, years, or perhaps forever. The key is not to focus or trade one market with one strategy – the S&P 500 is not the market but rather one index among many, and its asset class (US equities) one among many.

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 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. It simply gives the spreadsheet more versatility for user’s to check at their leisure.

Now you can follow me on Stocktwits and Twitter!

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.

MarketClub Holiday Special

I do not track these portfolios as hypothetical portfolios like I do with other portfolios on the site but do periodically backtest the strategy. For the most recent test results, please view last month’s update.

The current signals based on November 30th’s closing prices are below.  International equities and international real estate are the strongest sector in terms of their percent above their 10 month moving average.  Commodities and US REITs are the weakest sectors.

The first table is based on adjusted historical data and the second table is based on unadjusted price data:

Ivy Portfolio for December

Early in 2012  Scott’s Investments added a daily Ivy Portfolio spreadsheet. This tool uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the 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 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 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. It simply gives the spreadsheet more versatility for user’s to check at their leisure.

Now you can follow me on Stocktwits and Twitter!

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.

I do not track these portfolios as hypothetical portfolios like I do with other portfolios on the site. However, I will periodically post backtest results on the strategy. Below are updated backtest results for the Ivy Portfolio using ETFReplay.com.

ETF Replay has added some new features including the ability to use mutual funds as benchmarks. Bench-marking against a balance fund such as the Vanguard Balanced Fund (VBINX) provides a more accurate assessment of a strategy’s performance against a mixed stock/bond asset allocation strategy. Thus, the tests below are compared to the performance of VBINX instead of the benchmark I have used in the past, the SPDR S&P 500 ETF (SPY).

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The backtest results for the Ivy 5 Portfolio since 2007 and 10 month simple moving average with a monthly update are charted below. For the backtests, iShares Barclays Aggregate Bond (AGG) was used in lieu of BND and iShares MSCI EAFE (EFA) was used in lieu of VEU because they have longer trading histories:

The Ivy 10 Portfolio, using a 10 month moving average and updated monthly has performed as follows since 2008 and is compared to VBINX. Again, AGG and EFA were used in the backtests. A starting date of 2008 was used in the first chart because only 8 of the 10 ETFs in the list were available at the start of 2007. The second charts shows the performance since 2007

The strategy’s strength is avoiding significant drawdowns during periods of market turbulence, such as 2008. During periods of strong uptrending equity markets it has the potential to under-perform a benchmark like VBINX or SPY.  ”Choppy” markets, in which markets are trend-less can also reduce the strategy’s returns as securities bounce above and below long-term moving averages without establishing a trend.

The current signals based on November 30th’s closing prices are below.  International equities and international real estate are the strongest sector in terms of their percent above their 10 month moving average.  Commodities and US REITs are the weakest sectors.

The first table is based on adjusted historical data and the second table is based on unadjusted price data:

Mid-Week Readings

Lopsided Risks – John Hussman

 Meaning of 200-Day Average’s Violation – Mark Hulbert

Central Bank Insurance and Four More Years (pdf) – John Mauldin

When Quants Tell Stories – Felix Salmon

The Global Market Portfolio – Mebane Faber

The Green Book – The Idea Farm

Sheila Bair for Treasury Secretary – Forbes

Weekend Research & Readings

Posting has been lighter than normal of late.  I have been exploring some new ideas which take time that could otherwise be used for articles. Needless to say I am still reading quite a bit, below is my recent reading list:

Nasdaq Proposes ETF Trading System – ETF Trends

iShares Launches 4 New Core Funds – Index Universe

Memo to Central Banks: You’re Debasing More Than Our Currency (pdf)

Sector CAPE – Mebane Faber / World Beta

The Perils of the Fiscal Cliff (pdf) John Mauldin

See also the following research papers: Global CAPE Model Optimization & Momentum Strategies in Futures Markets and Trend-Following Funds (hat tip Faber) & Counter-Trend Trading (via The Idea Farm)

Tuesday Investment Links

Below are some investment related articles I am reading this week:

Option Strategy to Trade Google Earnings – JW Jones

Passed Pawns – John Hussman

Is David Rosenberg Right About Utilities? – Geoff Considine

Out of Office Reply – The Reformed Broker

Fading into the refi boom horizon? FT Alphaville

Why Are You Underperforming? Why Are You Outperforming? Mebane Faber

Mebane Faber’s most recent weekly Idea Farm post with lots of great data from CXO Advisory

John Mauldin Economic Singularity (pdf) and A Little Chronic Deflation (pdf)