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|
|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|
|Real-Estate Risk||ETF||Average of Quarterly/Half/Full Year % Returns||Signal based on 1 year returns||Signal based on average returns|
|Economic Stress||ETF||Average of Quarterly/Half/Full Year % Returns||Signal based on 1 year returns||Signal based on average returns|
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:
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.
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