Would adding a systematically chosen exchange-traded fund (ETF) or note (ETN) asset class proxy to the base set used in the “Simple Asset Class ETF Momentum Strategy” improve performance? To investigate, we consider adding each of the following 14 ETFs/ETNs (suggested over time by subscribers) one at a time to the strategy:

iPath S&P 500 VIX Short-Term Futures (VXX)

iPath S&P 500 VIX Medium-Term Futures (VXZ)

Guggenheim Frontier Markets (FRN)

iPath DJ-UBS Copper Total Return Sub-Index (JJC)

United States Oil (USO)

JPMorgan Alerian MLP Index (AMJ)

iShares 7-10 Year Treasury Bond (IEF)

iShares TIPS Bond (TIP)

iShares iBoxx High-Yield Corporate Bond (HYG)

SPDR Barclays International Treasury Bond (BWX)

PowerShares DB G10 Currency Harvest (DBV)

SPDR Dow Jones International Real Estate (RWX)

PowerShares Global Listed Private Equity (PSP)

First Trust US IPO Index (FPX)

In measuring strategy performance, we focus on monthly net return-risk ratio (average monthly net return divided by standard deviation of monthly returns). We calculate the return-risk ratio 14 times, each time adding just one of above to the following base set of nine assets (so each test involves ten assets):

PowerShares DB Commodity Index Tracking (DBC)

iShares MSCI Emerging Markets Index (EEM)

iShares MSCI EAFE Index (EFA)

SPDR Gold Shares (GLD)

iShares Russell 1000 Index (IWB)

iShares Russell 2000 Index (IWM)

SPDR Dow Jones REIT (RWR)

iShares Barclays 20+ Year Treasury Bond (TLT)

3-month Treasury bills (Cash)

We then relate the resulting 14 return-risk ratios to four characteristics of the respectively added assets: (1) average monthly return; (2) standard deviation of monthly returns; (3) average (pairwise) cross-correlation of monthly returns with the base set assets; and, (4) serial correlation of monthly returns. The objective is to determine whether any of these four characteristics explain asset contribution to the momentum strategy. Using dividend/split-adjusted monthly returns for the above 23 asset class proxies as available during January 2003 through April 2014 (a maximum of 135 monthly returns), *we find that:* Keep Reading