Tag Archives: portfolio

Ivy Portfolio November Update

The Ivy Portfolio spreadsheets 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 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’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 or trade based on daily updates. 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. My preference is to use adjusted data when evaluating signals. The current signals based on October 30th’s adjusted closing prices are below. This month, the Vanguard Total Bond Market ETF (NYSEARCA: BND ), the Vanguard Total Stock Market ETF (NYSEARCA: VTI ) and the Vanguard REIT Index ETF (NYSEARCA: VNQ ) are above their respective moving averages, and the balance of the ETFs, the Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ), the Vanguard Small Cap ETF (NYSEARCA: VB ), the SPDR DJ International Real Estate ETF (NYSEARCA: RWX ), the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ), the PowerShares DB Commodity Index Tracking ETF (NYSEARCA: DBC ), the iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA: GSG ) and the iShares TIPS Bond ETF (NYSEARCA: TIP ) , are below their respective 10-month moving averages. 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: (click to enlarge) 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: (click to enlarge) (click to enlarge) Disclosure: None.

PDP: Gutsy Momentum Investing For People Braver Than Me

Summary This ETF has a high expense ratio but they are running an aggressive momentum strategy that requires higher costs. The sector allocation combined with a momentum strategy would be enough to put me on edge when I wanted to sleep. If an investor wants to follow momentum investing, this seems like a fine choice. For that investor, I would suggest grabbing some utilities to get a better balance. Investors should be seeking to improve their risk adjusted returns. I’m a big fan of using ETFs to achieve the risk adjusted returns relative to the portfolios that a normal investor can generate for themselves after trading costs. One of the funds that I’m researching is the PowerShares DWA Momentum Portfolio ETF (NYSEARCA: PDP ). I’ll be performing a substantial portion of my analysis along the lines of modern portfolio theory, so my goal is to find ways to minimize costs while achieving diversification to reduce my risk level. Expense Ratio The expense ratio is .63%. I tend to be very frugal with my expense ratios, so I’m less than thrilled with the expense ratio. Of course, portfolios that require more active involvement from managers are going to generally have higher ratios. The question becomes whether the managers will be able to regularly deliver enough performance to justify that higher ratio. Largest Holdings The following chart shows the largest holdings for the fund: The allocations here are fairly interesting, but you expect that momentum portfolios are going to end up having a very strange allocation. It’ll be interesting to see how the various momentum ETFs perform over a sample size of several years during which investors are well aware of the strategy. The presence of ETFs buying stocks based on the stock price having already appreciated seems like it could end up distorting the performance. If the strategy was highly successful, then I would expect whichever ETFs designed their systems to move first to be the winners in the game since their purchases would further drive up prices and encourage other ETFs to buy into the same funds. All around momentum investing is strange beast to me. I’m just a fundamental analysts at heart with a focus on finding the intrinsic value of a company and figure out which factors will be headwinds or tailwinds. Sectors The following chart breaks down the allocation by sector: The consumer discretionary sector has a fairly massive 31.8% weighting. My first thought here is that I would be scared to hold this ETF if this prolonged bull market turned into a bear market. I’m not convinced that we will see that kind of huge drop off in the economy in the next few years because low interest rates can do a great deal to keep market prices high, but I don’t think I have the risk tolerance for this sector allocation. Utilities That utility allocation is credibly low. For an investor opting to use momentum investing and an ETF like PDP for a major position in their portfolio, I would suggest looking to a low fee utility index to add some diversification to the portfolio as a whole. That is, of course, unless you prefer having more volatility in your portfolio. I know some investors are going to be thinking: “Utilities are sensitive to interest rate movements so I don’t want to hold them when interest rates are clearly moving higher.” There is certainly a correlation there. The utilities may suffer if rates increase, but I think they’ll stay low much longer than some investors believe. The macroeconomic environment just doesn’t provide the situation necessary for a sustained increase in rates. I’ve been positioning my portfolio to hold plenty of instruments that are sensitive to interest rates because I really don’t see any high probability paths for interest rates to move higher. An Interesting Option It would be interesting to see a momentum investing strategy that placed caps on sector weightings so that the portfolio wouldn’t end up this heavy on one sector. I have nothing against the consumer discretionary sector; I just prefer the consumer staples for my portfolio. I feel the sector is substantially stronger at resisting a sell off when the market is crashing. All sectors would be likely to fall, but I would expect fewer losses in consumer staples. Conclusion For investors that are interested in momentum investing, this is one option to get that technique into your portfolio. In my opinion the risk of using this strategy is compounded by the aggressive consumer discretionary allocation. In a prolonged bull market this fund should be a solid choice. I’m not predicting a bear market in the near future, but I’m also not willing to make a play that is this aggressive. I just don’t think I’d sleep as well with such an aggressive allocation. If investors opt to use this ETF, I’d suggest checking at least monthly on the sector allocations so the investor can modify their portfolio weights as desired. If investors don’t adjust their portfolio in response they may find themselves going massively overweight on individual sectors.

The V20 Portfolio Week #4: New Position, And A Bumpy Road Ahead

Summary The V20 Portfolio underperformed the index. Weight has not shifted from MagicJack to Conn’s, although it could happen after Q3 earnings. Spirit Airlines was added to the portfolio. Oil companies could be on the radar in the future. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! Unfortunately it was another week of underperformance for the V20 Portfolio. Over the past week, the V20 Portfolio declined by 2.1% versus S&P 500’s minute gain of 0.17%. The biggest contributor to the decline was none other than Conn’s (NASDAQ: CONN ), the repeat offender. Its shares dropped from $23 on Monday to $19 at Friday’s close. Considering that the stock represented 28% of the V20 portfolio, a 17% decline definitely put a dent in our returns. Still No Shift In Portfolio Two weeks ago I mentioned that our position in MagicJack (NASDAQ: CALL ) was getting a bit bloated. You may be wondering, why did I not shift some of the weight to Conn’s. There are two reasons. The first one is that I don’t think the stock declined enough to warrant additional purchases. From the last purchase price of $23, the stock “only” declined by 21%. I say “only” because Conn’s has been so volatile that these movements don’t surprise me at all. As the company won’t have much news (other than sales releases) between now and Q3 earnings (December), the stock may continue to fluctuate wildly, meaning that there could be more headwinds for the stock over the short term. Secondly, MagicJack remains undervalued. Although it is not as attractive as before due to the substantial increase in share price (~40%) over the last little while, its Q3 earnings may serve as a strong catalyst for the market to push its shares to fair value. Considering that Q3 results are only a bit over a week away (November 9 th ), holding MagicJack still makes sense. That being said, if MagicJack appreciates substantially (20%+) without any change in fundamentals, then the weight should shift towards Conn’s as planned in the near future. New Position The new position is Spirit Airlines (NASDAQ: SAVE ) and you can read my analysis here . This investment is a rather unconventional one as value investors typically don’t like airlines. As Richard Branson puts it: “If you want to be a millionaire, start with a billion dollars and launch a new airline.” However, I think that the stock’s post-Q3 decline was completely unwarranted and the company still has a lot of growth potential as evident by its fleet expansion. One of the concerns was that the company’s revenue growth declined (driven by pricing pressure). It seems that investors underestimated competitive forces in the market and didn’t realize that if revenue growth stayed constant, the company would’ve earned 70% more than 2014, a quite unrealistic number in a competitive market. For that reason, I believe that what had transpired was very normal, hence the post-earnings crash provided an excellent opportunity for the V20 Portfolio to get some exposure to the airline industry. The Weeks Ahead Perion Network (NASDAQ: PERI ) will be releasing Q3 results on November 3rd. While not as significant as MagicJack, the stock still makes up a healthy chunk of the portfolio (> 10%), so I do expect some volatility on Tuesday. As mentioned earlier, MagicJack, which accounts for over 30% of the portfolio, is set to release Q3 results in less than two weeks. No matter the outcome, it will have a large impact on the overall portfolio. Unfortunately, high volatility is one of V20’s characteristics, an idea which I’ve emphasized since the beginning of this series . Because the V20 Portfolio now includes a fairly cyclical position (Spirit Airlines) that is prone to external shocks (i.e. oil), I will be looking at commodity investments that can offset movements in oil. I’ve debated about whether I should include oil stocks in the V20 Portfolio, as I’ve never considered them to be core holdings. However, now that Spirit Airlines exist in the portfolio, I believe some commodity exposure can be justified, as it can be treated as a hedge against the airline industry.