Tag Archives: vti

Dual ETF Momentum February 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 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. “Risk-Off” is the current theme among all four portfolios: 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. Disclosure: None

2016 Investment Strategy With ETFs Part 1

ETFs are transforming. According to PWC (2013) exchange traded funds have benefitted over 20 years from massive growth due to their fine advantages for investors. By August (2013) it is reported that global ETF assets stood at $2.2 trillion in assets. This two part series will look at how the ETF industry has been changing and what this means for investors. As PWC explains: Evolving and proliferating as the attracted new users, ETFs went from a single vehicle providing exposure to large cap US equities to thousands of products representing a dizzying range of asset classes and strategies. What is an ETF? Understanding this change is helpful for investors, but before progressing further, it is helpful to understand what an ETF is. Mitch Tuchman (2013) writing for Forbes does a good job of explaining this. He explains that an ETF is a type of an index fund because it has the same goal. The goal of the ETF is: To provide investors with a benchmark return at minimal cost. There is one very important difference between ETFs and index funds. Index funds are expensive to trade, but ETFs have the advantage of being traded commission free in many cases. It is explained that not all ETFs work in the way that they copy index funds, so some caution needs to be taken during the selection process. It is argued that the flexibility of an ETF with its low trading cost, along with the performance of an index fund is likely to be best achieved by utilizing the biggest and best known ETFs on the market. These are the ones that have proven ability to meet widely understood benchmarks and which have a good track record showing that they can achieve their goals. Source: The next generation of ETFs, PWC ETF as a disruptor As PWC points out, ETFs have been an important disruptor and it is estimated that they are going to continue to grow at tremendous rates. They have been popular because they are low cost, offer tax efficiency, liquidity, transparency and intra-day pricing. As of August 2013, it is reported that there were 5,000 ETFs and exchange traded products (ETPs) worldwide. This has been threefold increase since the financial crisis. The USA is the biggest market for ETFs, and 70% of global ETF assets are found there. Europe comprises the second biggest market, but has only a quarter of the assets found in the USA are found there. Meanwhile, ETFs are growing extremely rapidly in Asia. One of the most important trends in this area has been the advent of actively managed funds. There have been a number of barriers to this development, but actively managed ETFs account for $13.8 billion in the USA alone. ETFs are not only launching at a very fast rate, but are also closing down very quickly. There were 117 ETF fund closures in the six months to the middle of 2013. It is argued that ETFs are moving from a situation of security selection to asset selection, and this change is especially noticeable in large, liquid markets. Indeed, ETFs in the USA have had a big effect on displacing mutual funds. Popularity has been driven by the ability to produce specific exposure. (click to enlarge) Source: ETFs: $3 Trillion is Nice, but $6 Trillion is Better In the past institutional investors showed a lot of interest in ETFs, but this has been changing to some degree, in regard to how these are seen and used. The reason for institutional investors using ETFs at the outset was for transition management, but at the current time these are viewed as long term holdings, as core allocation vehicles. By 2012, nearly 3,400 institutional investors spread across 50 different countries held ETFs or ETPs, which is double the number that used ETFs seven years ago. In addition to this, 90% of institutional investors are planning to at least maintain, if not increase their level of ETF investments in 2013. Investment advisors and hedge funds comprised 90% of institutional investments in ETFs, with the largest holdings mostly being among large global financial institutions. ETFs have not been a huge success in the retirement market, though it is explained that this is not a big surprise as mutual funds already have low cost share classes that are good for retirement plans. Also the retirement market is not as interested in tax efficiency. Nonetheless it is projected that this sector could grow, particularly in the annuity market. Lower costs are driving this change. Top ETFs for 2016 As suggested by Forbes, the best ETFs to invest in 2016 are as follows: 1. Vanguard Total Stock Market (NYSEARCA: VTI ) 2. Schwab US Broad Market (NYSEARCA: SCHB ) 3. Schwab US Large-Cap (NYSEARCA: SCHX ) 4. Schwab US Small Cap (NYSEARCA: SCHA ) 5. iShares Russel 2000 (NYSEARCA: IWM ) 6. Vanguard Extended Market (NYSEARCA: VXF ) 7. Vanguard FTSE Developed Market (NYSEARCA: VEA ) 8. Vanguard Total International Stock (NASDAQ: VXUS ) 9. iShares Core US Aggregated Bond (NYSEARCA: AGG ) 10. Schwab US Aggregated Bond (NYSEARCA: SCHZ )

Ivy Portfolio December Update

The Ivy Portfolio spreadsheet 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 November 30th’s adjusted closing prices are below. This month Vanguard Total Stock Market ETF (NYSEARCA: VTI ) and Vanguard REIT Index ETF (NYSEARCA: VNQ ) are above their moving average 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 ), the Vanguard Total Bond Market ETF (NYSEARCA: BND ), and the iShares TIPS Bond ETF (NYSEARCA: TIP ) , are below their 10-month moving average. 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) Disclosures: None.