ETFReplay Portfolios For February

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 |  Includes: EFA, HYG, LQD, SHY, TLT, VTI
by: Scott's Investments

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.

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
Click to enlarge

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
Click to enlarge

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.

Disclosure: No positions