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Preliminary Momentum Strategy and Value Strategy Updates

January 31, 2018 • Posted in Momentum Investing, Strategic Allocation

The home page“Momentum Strategy” and “Value Strategy” now show preliminary Simple Asset Class ETF Momentum Strategy (SACEMS) and Simple Asset Class ETF Value Strategy (SACEVS) positions for February 2018. For SACEMS, past returns for the first and second positions and for the third and fourth positions are close, such that rankings could change by the close. For SACEVS, allocations are unlikely to change by the close.

An anomaly in the source data surfaced this month. Returns for December 2017 for dividend-paying ETFs changed between the end of December 2017 and the end of January 2018. It appears that data available as of the December market close did not account for dividend ex-dates during December. This anomaly has two implications:

  1. December 2017 returns previously reported for SACEMS and SACEVS (and alternatives using dividend paying ETFs) were too low. We are correcting these returns.
  2. More seriously, incorporation of December 2017 dividends causes a change in the SACEMS top three winners for December 2017, which we determine based on total returns. Since the historical SACEMS performance we present is based on fully updated backtests, the data anomaly introduces a disconnect between backtest and live portfolio performances. In this case, the backtest performs better than a live portfolio. If this issue recurs, we will consider other data management approaches.

Recall the prior data instability reported in “Simple Asset Class ETF Momentum Strategy Data Changes”. Over the long run, data instability issues may cancel with respect to live portfolio performance.

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