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I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility. I originally created a portfolio of 22 ETFs and then expanded it to 25 ETFs which I believe represent a diverse basket of ETFs.

The buy/sell strategy for the portfolio is simple: purchase the top ETFs based on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking). I also track the performance of a strategy which combines the average of the 3 month return, 20 day return, and 20 day volatility. I refer to these two different sets as "6/3/3" and "3/20/20." For some backtests on these strategies please see my previous posts or August's list.

I track this strategy as a public portfolio on Scott's Investments. As of the close April 29th, the hypothetical portfolio is up 11.58% including dividends (returns exclude commissions and taxes and all trades are hypothetical so real results will differ).

As of the close on April 29th, the top 2 ETFs in the basket of 25 for the 6/3/3 strategy were:

  • GLD SPDR Gold Shares
  • DBC PowerShares DB Commodity Index

The top 3 ETFs in the basket of 25 for the 3/20/20 strategy were:

  • GLD SPDR Gold Shares
  • WIP SPDR Int'l Govt Infl-Protect Bond (9-10yr)
  • LSC Elements S&P C.T.I

The strategy is to purchase the top 2 ranked ETFs in the 6/3/3 and 3/20/20 but to not purchase duplicates and always hold 4 ETFs. Therefore, since GLD is a top ranked ETF on both lists we look to the third ranked ETF in the 3/20/20 strategy to fill the fourth ETF position. In this case that ETF is LSC, which was also held last month.

Therefore, for May the hypothetical portfolio will sell 36 shares of XLE, the U.S. Energy Sector SPDR which had been held in the portfolio since January 3rd, and use the proceeds to purchase GLD. Beginning tomorrow, the current portfolio will be the following:

  • No change - DBC, 88 shares
  • No change - WIP, 42 shares
  • No change - LSC, 282 shares
  • New position - GLD, share amount to be determined based on proceeds from XLE sale

Disclosures: None

Source: Relative Strength ETF Portfolio for May