Inefficient Rebalancing from MarketWatch's Lowell?

Roger Nusbaum submits: At the beginning of the month, MarketWatch has its Trading Strategies feature. One of the regular write ups comes from newsletter writer Jim Lowell. As best as I can tell he has some sort of portfolio comprised of ETFs that he makes changes to once a month as market conditions warrant.

Over the last four months, two times he beat the market and two times he lagged.

Here is the portfolio for this month:

• iShares S&P Global 100 Index (IOO) 18%
• S&P 500 Index (SPY) 18%
• iShares MSCI EAFE Index Fund ETF (EFA) 27%
• Vanguard European ETF (VGK)
• Vanguard Mid-Cap ETF (VO) 9%
• iShares Russell 2000 Index ETF (IWM) 9%
• ProShares Short Dow30 (DOG) 10%

The changes made to get to this portfolio were selling the 18% in the Diamonds Trust Series 1 ETF (DIA) to buy IOO, selling 18% in MidCap SPDRs ETF (MDY) to add 9% to EFA and create the 9% in VO, and he swapped a 10% weight in ProShares UltraShort S&P500 (SDS) into DOG.

First I don't get selling MDY to buy VO. The correlation is 0.96. He wanted to reduce mid cap exposure? Okay, that could be right or wrong, but for people playing at home that is double the trading cost.

Swapping completely out of SDS to buy DOG is lost on me as well. I may not explain this well but SPY and DIA have a 0.948 correlation; the corresponding short ETFs should also have similar correlations. If getting less short is the idea, fine, but why not sell half the SDS? Again, less trading, less commissions.

The IOO fund—do you know this one? It is a mega cap ETF 47% weighted in the US and the rest is pretty much in the EFA countries, so again what is the point? Instead of buying this fund, why not add to the domestic big cap ETF you already have and EFA, weighted accordingly?

While I can't imagine these trades are so he has something to write about, I just don't get his tactics for repositioning. To be clear I am not questioning his strategies, they will either work or they won't, and that is fair. But to the title of this post—does anyone do this?