September's portfolio hedges against higher agriculture prices rates by adding a position in PowerShares DB Agriculture ETF (DBA). We also have international fixed income exposure via a position in PowerShares Emerging Markets Sovereign Debt Portfolio ETF (PCY), which has been held since June 1st. PCY should continue to do well if the US dollar struggles. A rebound in the dollar could hurt PCY's performance going forward. At the end of July the portfolio purchased the SPDR Gold Trust (GLD) and iShares Barclays 7-10 Year Treasury Bond ETF (IEF). Both positions remain in this month's portfolio.
Strategy Background
I previously detailed here and here how an investor can use ETFReplay.com to screen for the 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 portfolio.
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 last August's list.
I track this strategy as a public portfolio on Scott's Investments. As of the close on August 31st the hypothetical portfolio is up over 14% year-to-date including dividends (returns exclude commissions and taxes and all trades are hypothetical so real results will differ).
August Updates
As of the close on August 31st, the top 3 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:
- iShares Barclays 7-10 Yr Treasury (IEF)
- SPDR Gold Shares (GLD)
- PowerShares DB Agricultural Commodities (DBA)
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 to always hold 4 ETFs. Therefore, since IEF is a top ranked ETF on both lists we look to the third ranked ETF, DBA, to fill the fourth ETF position.
Therefore, the strategy for August is selling, 24 shares of TIP, iShares Barclays TIPS ETF. The proceeds are used to purchase 83 shares of DBA.
Disclaimer: No current positions in stocks mentioned. Please note that Scott's Investments is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott's Investments.
