Tag Archives: etfs

Dual ETF Momentum March 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 the iShares Barclays 1-3 Treasury Bond ETF (NYSEARCA: 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 Click to enlarge 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. Disclosures: None

How To Bake A Highly Deficient Cake

What happens when you leave out a key ingredient in the recipe for baking a cake? We won’t keep you in suspense. What you get is a highly deficient cake, but how it is highly deficient can tell you quite a lot about what the omitted ingredient contributes to a competently executed cake! At Bristol Science Centre, Nerys and David illustrate what we can learn by baking four different cakes – one batch with all the ingredients the basic recipe calls for, then other batches where either the margarine, eggs or baking powder has been excluded from the recipe. The following video illustrates how the resulting cakes baked with a single missing ingredient differ from a proper cake baked with all the ingredients. The same principle applies to data analysis. For instance, if a set of economic data omits the contributions of one particular sector of the economy, and that sector turns out to contribute a large share to the performance of the overall economy, the analysis produced using such data that excludes the omitted sector’s contribution will be highly deficient, because the data itself is not adequately representative of the economy being analyzed. Much like what happens when you bake a cake without one ingredient and compare it with a cake baked with all of them, the deficiency becomes very evident when you compare the results of the deficient analysis with the results of analysis performed with data that does not omit the missing sector’s contributions. If a professional baker omitted an ingredient in a cake recipe, then their competence would certainly be at issue. If they weren’t aware that the ingredient was missing, it might all be chalked up to simple ignorance on their part – the kind of mistake that many of us all make from time to time, that we acknowledge, learn from and do not repeat. But if they were aware of the deficiency and then went on to claim that the results of their deficient recipe were just the same as a properly baked cake, then their integrity would certainly also be at issue. We wonder how many people would continue to buy the “cakes” of such a highly deficient professional baker!

Coal ETF On The Mend: Will The Momentum Last?

The dark days of coal suddenly lit up with coal ETF, the Market Vectors Coal ETF (NYSEARCA: KOL ), adding about 25% so far this year. In just the last one month, the fund advanced 27.5%, while it scooped up about 17% returns in the last five trading sessions (as of March 7, 2016). Investors should note that coal has long been a beaten-down commodity due to the growing popularity of the alternative energy space and soft global industry fundamentals. Global warming and high fuel emission issues as well as new and advanced technologies are making clean power more usable, curbing the demand for black diamond and hurting the profitability of coal producers. Notably, coal producer Peabody Energy Corporation (NYSE: BTU ) incurred losses in the last five quarters. Another coal miner, Arch Coal (NYSE: ACI ) filed for bankruptcy and was delisted from the stock market. What’s Behind the Shifting Wind? However, shares of coal-producing companies have lately been turning around. The renewed optimism in the oil patch may have acted as a jump pad for the entire energy sector. Plus, China’s intention to lay off about 20% workers in the coal industry to shift to a cleaner energy base led to a likely deceleration in supplies. Peabody too is aggressively implementing cost-saving initiatives, and has cut back on production and restructured its organization via lay-offs. The job cut will result in considerable cost savings every year. Peabody shares were up 82.3% in the last five trading sessions (as of March 7, 2016) Coming to CONSOL Energy Inc. (NYSE: CNX ), the rise in shares looks more sensible, as the company has been shifting its focus to natural gas from the more struggling coal space. This diversified energy producer is well placed to cash in on any pickup in commodity prices that we are witnessing at the current level. CNX was up 35.4% in the last five trading sessions (see all Energy ETFs here ). Having said all, the coal ETF is an amazing value play. Even after the recent spurt, KOL trades at a P/E (TTM) of 14 times, versus the Energy Select Sector SPDR ETF ‘s (NYSEARCA: XLE ) P/E (TTM) of 24 times. Quite understandably, investors do not want to lose out on any moment to make some quick gains out of this undervalued coal ETF. Can the Momentum be Sustained? The road ahead for these companies is anything but smooth, as the Clean Power Plan is sure to pose challenges. Not only in the U.S., the drive to lower carbon emissions and moderate the planet’s warming is rising globally. These have been thwarting the demand for coal in the U.S. The picture is almost the same in China. So forget being solid, the medium-term outlook for coal can easily be called soft. KOL in Focus Even then, the ETF targeting the global coal industry is making the most of the opportunity in its hand. KOL tracks the Market Vectors Global Coal Index. Holding 26 securities in its basket, the fund is concentrated on the top 10 holdings at about 60% of total assets. It has a Chinese focus accounting for 27% of the portfolio, while the U.S., Australia and Canada round off the next three spots with double-digit weights each. The fund has amassed $47.1 million in its asset base and trades in average daily volume of 71,000 shares. Its expense ratio comes in at 0.59%. KOL has a Zacks ETF Rank of 5 or “Strong Sell” rating with a High risk outlook. Original Post