A subscriber requested comparison of four variations of an “Ivy 5″ asset class allocation strategy, as follows:
- Ivy 5 EW: Assign equal weight (EW), meaning 20%, to each of the five positions and rebalance annually.
- Ivy 5 EW + SMA10: Same as Ivy 5 EW, but take to cash any position for which the asset is below its 10-month simple moving average (SMA10).
- Ivy 5 Volatility Cap: Allocate to each position a percentage up to 20% such that the position has an expected annualized volatility of no more than 10% based on daily volatility over the past month, recalculated monthly. If under 20%, allocate the balance of the position to cash.
- Ivy 5 Volatility Cap + SMA10: Same as Ivy 5 Volatility Cap, but take completely to cash any position for which the asset is below its SMA10.
The subscriber proposed the following five asset class proxies for testing:
The DBC series in combination with the SMA10 rule are limiting with respect to sample start date and the first return calculations. Using daily and monthly dividend-adjusted closing prices for the five asset class proxies and the yield on 13-week U.S. Treasury bills (T-bills) as a proxy for return on cash during February 2006 through August 2014 (103 months), we find that: Keep Reading