Objective research to aid investing decisions
Value Allocations for Apr 2018 (Final)
Cash TLT LQD SPY
Momentum Allocations for Apr 2018 (Final)
1st ETF 2nd ETF 3rd ETF

Momentum Strategy (SACEMS)

As elaborated in "What Works Best?", a strategic allocation involving perhaps five to ten equally weighted asset classes available via low-fee exchange-traded funds (ETF) or mutual funds, with periodic rebalancing, is a simple way for individual investors to harvest uncorrelated volatility over the long term. For investors seeking an active (tactical) edge, there is evidence supporting exploitation of intermediate-term momentum of asset class proxies. Holding a few top-performing funds (rather than just the top fund) combines continuous diversification and momentum.

For the set of strategies described here, we allocate at the end of each month all funds to the top one (Top 1), the equally weighted top two (EW Top 2) or the equally weighted top three (EW Top 3) asset class ETFs from a set of nine, based on total return over recent months.

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

Some investors may want to follow one of the alternatives tracked here. Others may want to adapt them with modifications suited to their individual goals and constraints. Still others may want to apply the analysis approaches to stress other strategies. Something to keep in mind is that adding complexity to the strategy increases the number of ways to optimize and thereby elevates potential for snooping bias.

Cumulative Performance

The following chart shows the gross cumulative values of $100,000 initial investments in Top 1, EW Top 2 and EW Top 3 portfolios since the end of July 2006 (when all ETFs considered are first available). The chart includes three benchmarks: (1) an equally weighted, monthly rebalanced portfolio of all ETFs considered (EW All), indicative of simple diversification benefits; (2) buying and holding SPDR S&P 500 (SPY); and, (3) SPY:SMA10, a simple timing strategy that holds SPY (Cash) when the S&P 500 Index is above (below) its 10-month simple moving average.

Monthly and Annual Performance Statistics

The following table summarizes some monthly statistics for these same strategies over the available sample period. Maximum (peak-to-trough) drawdowns are based on monthly measurements over the available sample period. 

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. Only the longest measurement intervals include a major equity bear market.

Momentum Signal for Apr 2018 (Final)

Winner ETF

Second Place ETF

Third Place ETF

Please log in or subscribe to continue reading...
Daily Email Updates
Login
Research Categories
Recent Research
Popular Posts
Popular Subscriber-Only Posts