This month's ETFReplay.com Relative Strength ETF Portfolio has some very interesting changes. The entire portfolio is turning over, all 4 positions from last month are being sold in favor of 4 new ETFs.
Some, including myself, may initially feel uncomfortable purchasing long-term treasuries. However, as I stated in the Basic ETF Portfolio update, "commitment and discipline to a strategy is critical once you have decided a strategy is right for you". In addition, long-term treasuries have shown relative strength in recent weeks and if interest rates stay low in the short-term, long-term treasuries could continue to rally.
This month's portfolio also shows a shift from riskier assets and those that respond positively to inflation, such as commodities, and into "safety" assets like treasuries and utilities. Keep in mind that these signals were generated at the end of May, before today's significant market decline.
I track this strategy as a public portfolio on Scott's Investments. As of the close June 1st, the hypothetical portfolio is up 7.62% including dividends (returns exclude commissions and taxes and all trades are hypothetical so real results will differ).
As of the close on May 31st, the top 2 ETFs in the basket of 25 for the 6/3/3 strategy were:
The top 3 ETFs in the basket of 25 for the 3/20/20 strategy were:
- XLU - U.S. Utilities Sector SPDR
- PCY - PowerShares Emerging Mkts Bond (7-8yr)
- TLT - iShares Barclays Long-Term Treasury (15yr)
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 XLU 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 TLT.
Therefore, the strategy for June is selling:
- WIP SPDR Int'l Govt Infl-Protect Bond (9-10yr)
- LSC Elements S&P C.T.I.
- GLD SPDR Gold Shares
- DBC PowerShares DB Commodity Index
The proceeds are used to purchase:
- XLU U.S. Utilities Sector SPDR
- VNQ Vanguard MSCI U.S. REIT
- PCY PowerShares Emerging Mkts Bond (7-8yr)
- TLT iShares Barclays Long-Term Treasury (15yr)