Ivy Portfolio For December

Includes: AGG, EFA
by: Scott's Investments

Early in we added a daily Ivy Portfolio spreadsheet-- a tool that uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the portfolios listed in Mebane Faber's book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages.

The Ivy Portfolio spreadsheet tracks the 5 and 10 ETF Portfolios listed in Faber's book. When a security is trading below its 10 month simple moving average, the position is listed as "Cash". When the security is trading above its 10 month simple moving average the positions is listed as "Invested".

The spreadsheet's signals update once daily (typically in the evening) using the dividend/split adjusted closing price from Yahoo Finance. The 10 month simple moving average is based on the most recent 10 months including the current month's most recent daily closing price. Even though the signals update daily, it is not an endorsement to check signals daily. It simply gives the spreadsheet more versatility for users to check at their leisure.

The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10 month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted / unadjusted data you will see differences in the percent an ETF is above / below the 10 month SMA. This could also potentially impact whether an ETF is above or below its 10 month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach.

I do not track these portfolios as hypothetical portfolios like I do with other portfolios on the site. However, I will periodically post backtest results on the strategy. Below are updated backtest results for the Ivy Portfolio using ETFReplay.com. ETF Replay has added some new features including the ability to use mutual funds as benchmarks. Bench-marking against a balance fund such as the Vanguard Balanced Fund (MUTF:VBINX) provides a more accurate assessment of a strategy's performance against a mixed stock/bond asset allocation strategy. Thus, the tests below are compared to the performance of VBINX instead of the benchmark I have used in the past, the SPDR S&P 500 ETF (NYSEARCA:SPY).

The backtest results for the Ivy 5 Portfolio since 2007 and 10 month simple moving average with a monthly update are charted below. For the backtests, iShares Barclays Aggregate Bond (NYSEARCA:AGG) was used in lieu of BND and iShares MSCI EAFE (NYSEARCA:EFA) was used in lieu of VEU because they have longer trading histories:

Click to enlarge images:

The Ivy 10 Portfolio, using a 10 month moving average and updated monthly, has performed as follows since 2008 and is compared to VBINX. Again, AGG and EFA were used in the backtests. A starting date of 2008 was used in the first chart because only 8 of the 10 ETFs in the list were available at the start of 2007. The second chart shows the performance since 2007.

The strategy's strength is avoiding significant drawdowns during periods of market turbulence, such as 2008. During periods of strong uptrending equity markets, it has the potential to under-perform a benchmark like VBINX or SPY. "Choppy" markets, in which markets are trend-less, can also reduce the strategy's returns as securities bounce above and below long-term moving averages without establishing a trend.

The current signals based on November 30th's closing prices are below. International equities and international real estate are the strongest sector in terms of their percent above their 10 month moving average. Commodities and U.S. REITs are the weakest sectors.

The first table is based on adjusted historical data and the second table is based on unadjusted price data: