ETFReplay Portfolios for February
Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.
The portfolio begins with a static basket of 15 ETFs. These 15 ETFs are ranked by 6 month total returns (weighted 40%), 3 month total returns (weighted 30%), and 3 month price volatility (weighted 30%). The top 4 are purchased at the beginning of each month. When a holding drops out of the top 5 ETFs it will be sold and replaced with the next highest ranked ETF.
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In addition, ETFs must be ranked above the cash ETF SHY in order to be included in the portfolio, similar to the absolute momentum strategy I profiled here. This modification could help reduce drawdowns during periods of high volatility and/or negative market conditions (see 2008-2009), but it could also reduce total returns by allocating to cash in lieu of an asset class.
The top 5 ranked ETFs based on the 6/3/3 system as off 1/31/14 are below:
LQD | iShares iBoxx Invest Grade Bond |
VTI | Vanguard MSCI Total U.S. Stock Market |
HYG | iShares iBoxx High-Yield Corp Bond |
SHY | Barclays Low Duration Treasury |
TLT | iShares Barclays Long-Term Trsry |
For February the portfolio maintains positions in VTI, HYG and LQD. EFA was sold for a loss of 0.30% and the proceeds used to purchase SHY.
Beginning in 2014 we will track both the 6/3/3 strategy (same system as 2013) as well as the pure momentum system, which will rank the same basket of 15 ETFs based only on 6 month price momentum. There is no cash filter in the pure momentum system, volatility ranking, or requirement to limit turnover – the top 4 ETFs based on price momentum will be purchased each month. The portfolio and rankings will be posted on the same spreadsheet as the 6/3/3 strategy.
The top 5 six month momentum ETFs are below:
VTI | Vanguard MSCI Total U.S. Stock Market |
EFA | iShares MSCI EAFE |
LQD | iShares iBoxx Invest Grade Bond |
HYG | iShares iBoxx High-Yield Corp Bond |
TLT | iShares Barclays Long-Term Trsry |
For February the portfolio maintains positions in VTI and EFA. EEM and RWX were sold for losses of 8.61% and 4.17% and the proceeds used to purchase LQD and HYG.
Source: http://www.scottsinvestments.com/2014/02/01/etfreplay-portfolios-for-february/
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