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Value Allocations for Apr 2018 (Final)
Cash TLT LQD SPY
Momentum Allocations for Apr 2018 (Final)
1st ETF 2nd ETF 3rd ETF

Value Strategy (SACEVS)

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 exchange-traded funds (ETF) plus a monthly tactical edge from intermediate-term momentum per the stream of research itemized in "What Works Best?".

This Value Strategy tracks the performance of the "Simple Asset Class ETF Value Strategy" SACEVS), a partial value complement to SACEMS that seeks diversification across a smaller set of asset class ETFs plus a monthly tactical edge from potential undervaluation of three risk premiums:

  1. Term - monthly difference between the 10-year Constant Maturity U.S. Treasury note (T-note) yield and the 3-month Constant Maturity U.S. Treasury bill (T-bill) yield.
  2. Credit - monthly difference between the  Moody's Seasoned Baa Corporate Bonds yield and the T-note yield.
  3. Equity - monthly difference between S&P 500 operating earnings yield and the T-note yield.

Premium valuations are relative to historical averages.

There are two versions of the Value Strategy: (1) Best Value, which picks the most undervalued premium; and, (2) Weighted, which weights all undervalued premiums according to respective degree of undervaluation. Based on the assets considered, the principal benchmark is a monthly rebalanced portfolio of 60% stocks-40% U.S. Treasury notes (60-40).

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

Some investors may want to follow one of the two strategy 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 with refining variables/parameters 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 the Best Value and Weighted portfolios since the end of July 2002 (when all ETFs considered are first available). The chart includes the 60-40 portfolio as a benchmark and buy-and-hold SPY for reference.

Monthly and Annual Performance Statistics

The following table summarizes some monthly statistics for these same strategies and ETF components over the available sample period. The average monthly returns are arithmetic means.

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. Also, the bottom row of the table presents maximum (peak-to-trough) drawdown  for these strategies based on monthly measurements over the available sample period.

ETF Value Allocations for Apr 2018 (Final)

Cash

TLT

LQD

SPY

The asset with the highest allocation is the holding of the Best Value strategy.

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