Objective research to aid investing decisions
Value Allocations for June 2019 (Final)
Momentum Allocations for June 2019 (Final)
1st ETF 2nd ETF 3rd ETF

Combined Value-Momentum Strategy (SACEVS-SACEMS)

The Value Strategy tracks the performance of two versions of the “Simple Asset Class ETF Value Strategy”  (SACEVS), which seeks diversification across a small set of asset class exchange-traded funds (ETF) plus a monthly  tactical edge from potential undervaluation of term, credit and equity risk premiums relative to historical averages. The two versions are: (1) most undervalued premium (Best Value) ; and, (2) weighting all undervalued premiums according to respective degree of undervaluation (Weighted).

The Momentum Strategy tracks the performance of three versions of the “Simple Asset Class ETF Momentum Strategy” (SACEMS), which seeks strategic diversification across asset classes via ETFs plus a monthly tactical edge from intermediate-term momentum. The three versions, all based on total ETF returns over recent months, are: (1) top one of nine ETFs (Top 1); (2) equally weighted top two (EW Top 2); and, (3) equally weighted top three (EW Top 3).

This combined strategy, seeking diversification across asset classes and two widely accepted anomalies, holds SACEVS Best Value and SACEMS EW Top 3 portfolio with equal weights (50-50) and end-of-month rebalancing coincident with SACEVS and SACEMS portfolio reformations.

Supporting research includes (items may at times be unavailable for a few days during updates):

Some additional relevant but less directly applicable research is in the last list of items in “What Works Best?“.

Some investors may want to follow the combined strategy. Others may want to modify the strategy with other than equal weights for SACEVS and SACEMS. Something to keep in mind is that adding adjusting the strategy based on sensitivity tests increases snooping bias.

Cumulative Performance

The following chart tracks since the end of July 2006 (when all ETFs considered are first available) gross cumulative values of a $100,000 initial investments in each of:

  • Combined SACEVS Best Value-SACEMS EW Top 3 (50-50).
  • SACEVS Best Value
  • SACEMS EW Top 3
  • SPDR S&P 500 (SPY).
  • A simple timing strategy that holds SPY (Cash) when the S&P 500 Index is above (below) its 10-month simple moving average (SPY:SMA10).

Basic Performance Statistics

The next table summarizes annual/annualized returns for these strategies over different intervals commonly used to describe performance of funds. The annualized returns are compound annual growth rates. Maximum drawdown is the deepest peak-to-trough drawdown  for these strategies based on monthly measurements over the available sample period.

Based on available data, 50-50 SACEVS-SACEMS suppresses volatility compared to its component strategies, thereby boosting risk-adjusted performance.

Portfolio performance calculations are based on assumptions as summarized in Value Strategy and Momentum Strategy.

Daily Email Updates
Research Categories
Recent Research
Popular Posts