We have updated the the monthly asset class momentum winners and associated performance data at Momentum Strategy.
We have updated the quarterly asset class value allocations and associated performance data at Value Strategy.
We have updated the Trading Calendar to incorporate data for March 2015.
The home page and “Momentum Strategy” now show preliminary asset class momentum strategy positions for April 2015. Differences in past returns among the top places are large enough that they are unlikely to change by the close.
The home page and “Value Strategy” now show preliminary asset class value strategy allocations for the second quarter of 2015. These allocations may shift slightly before final, but the Best Value is very unlikely to change.
Are the “Simple Asset Class ETF Value Strategy” (SACEVS) and the “Simple Asset Class ETF Momentum Strategy” (SACEMS) mutually diversifying. To check, we relate quarterly returns for the SACEVS Best Value and the SACEMS Top 1 exchange-traded fund (ETF) selections and look at the performance of an equally weighted portfolio of these two strategies (50-50). Using quarterly gross returns for SACEVS Best Value and SACEMS Top 1 during January 2003 through December 2014, we find that: Keep Reading
Does the seasonal change marked by the Easter holiday, with the U.S. stock market closed on the preceding Good Friday, tend to produce anomalous returns? To investigate, we analyze the historical behavior of the S&P 500 Index before and after the holiday. Using daily closing levels of the S&P 500 index for 1950-2014 (65 events), we find that: Keep Reading
“Simple Asset Class ETF Value Strategy” finds that investors may be able to exploit relative valuation of the term risk premium, the credit (default) risk premium and the equity risk premium via exchange-traded funds (ETF). However, the backtesting period is limited by available histories for ETFs and for the series used to estimate risk premiums. To construct a longer test, we make the following substitutions for potential holdings (selected for length of available samples):
To enable estimation of risk premiums over a longer history, we also substitute:
We retain quarterly average yields for Moody’s Seasoned Baa Corporate Bonds for calculation of the credit risk premium. As with ETFs, we consider two alternative strategies for exploiting premium undervaluation: Best Value, which picks the most undervalued premium; and, Weighted, which weights all undervalued premiums according to degree of undervaluation. Based on the assets considered, the principal benchmark is a quarterly rebalanced portfolio of 60% stocks and 40% U.S. Treasuries (60-40 VWUSX-VFIIX). Using quarterly risk premium calculation data during January 1934 through December 2014 (limited by availability of Moody’s Baa data), and quarterly dividend-adjusted closing prices for the three asset class mutual funds during June 1980 through December 2014 (139 quarters), we find that:
We have made the following changes to CXOadvisory.com:
We added a new Value Strategy to the main menu to track the performance of the strategy described in “Simple Asset Class ETF Value Strategy” on a quarterly basis. We intend this new strategy to complement Momentum Strategy.
We retired the Real Earnings Yield (REY) and the Reversion to Value (RTV) models of the U.S. stock market. The new Value Strategy, to a degree, subsumes these models. Archived pages for these models remain available via these links and via Market Models. With these retirements, we will no longer present a daily “Stock Market Projection” on the home page.
Since its only purpose is to feed the REY and RTV models, we also retired Earnings Forecast. An archived page for this forecast remains available via the link.
The overall intent of the changes is to nudge content toward greater concrete applicability.
Below is a weekly summary of our research findings for 3/23/15 through 3/27/15. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs.
Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list. Keep Reading
Does a simple relative value strategy applied to tradable asset class proxies produce attractive results? To investigate, we test a simple strategy on the following three asset class exchange-traded funds (ETF), plus cash:
3-month Treasury bills (Cash)
iShares 7-10 Year Treasury Bond (IEF)
iShares iBoxx $ Investment Grade Corporate Bond (LQD)
SPDR S&P 500 (SPY)
This set of ETFs relates to three factor risk premiums: (1) the difference in yields between Treasury bills and Treasury note/bonds indicates the term risk premium; (2) the difference in yields between corporate bonds and Treasury notes/bonds indicates the credit (default) risk premium; and, (3) the difference in yields between equities and Treasury notes/bonds indicates the equity risk premium. We consider two alternative strategies for exploiting premium undervaluation: Best Value, which picks the most undervalued premium; and, Weighted, which weights all undervalued premiums according to degree of undervaluation. Based on the assets considered, the principal benchmark is a quarterly rebalanced portfolio of 60% stocks and 40% U.S. Treasury notes (60-40 SPY-IEF). Using quarterly S&P 500 Index levels and earnings, quarterly average yields for 3-month Constant Maturity U.S. Treasury bills (T-bills), quarterly average yields for 10-year Constant Maturity U.S. Treasury notes (T-notes), quarterly average yields for Moody’s Seasoned Baa Corporate Bonds during March 1989 through December 2014 (limited by availability of earnings data), and quarterly dividend-adjusted closing prices for the above three asset class ETFs during September 2002 through December 2014 (45 quarters, limited by availability of IEF and LQD), we find that: Keep Reading
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