We have been looking for ideas for investments in these very turbulent waters. We go back to one we reviewed almost exactly a year ago and see how it has weathered the recent storms. A brief recap:
Douglas Roberts, Channel Capital Research Institute founder and chief investment strategist developed the "Follow the Fed Strategy," which is based on the Fed monetary policy. It follows the Fed's stance and allocates its assets in three equal parts:
- Large/small stocks
- Gold/Treasury bonds
- Intermediate government notes
If money is tight, the portfolio is composed of:
- 1/3 in large stocks
- 1/3 in Treasury bonds
- 1/3 in intermediate government notes
If money is easy, the portfolio is made up of:
- 1/3 in small stocks
- 1/3 in gold
- 1/3 in intermediate government notes
The strategy adjusts portfolios every month according to the money status.
The fund selection for testing the strategy is listed below with the ETF alternatives:
Large cap | VFINX | |
Small cap | NAESX | |
Gold | ||
Long term treasury | VUSTX | |
Intermediate term treasury | VFITX |
We compare this against a portfolio of dividend bearing ETF's that we have reviewed and use as a recommended plan for those looking to invest for income.
| Asset | Fund in this portfolio |
|---|---|
| REAL ESTATE | ICF (iShares Cohen & Steers Realty Majors) |
| CASH | CASH |
| FIXED INCOME | TIP (iShares Barclays TIPS Bond) |
| Emerging Market | VWO (Vanguard Emerging Markets Stock ETF) |
| US EQUITY | DVY (iShares Dow Jones Select Dividend Index) |
| US EQUITY | VIG (Vanguard Dividend Appreciation ETF) |
| INTERNATIONAL EQUITY | IDV (iShares Dow Jones Intl Select Div Idx) |
| High Yield Bond | HYG (iShares iBoxx $ High Yield Corporate Bd) |
| INTERNATIONAL BONDS | EMB (iShares JPMorgan USD Emerg Markets Bond) |
The comparison is
- P Doug Roberts Follow the Fed Add Treasury Note One Month Simple Indicator Moving Average 64 Days
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| P Doug Roberts Follow the Fed Add Treasury Note One Month Simple Indicator Moving Average 64 Days | 21% | 236% | 13% | 106% | 11% | 89% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 8% | 75% | 11% | 88% | 10% | 71% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 8% | 59% | 5% | 22% | 4% | 16% |
The current situation is in the "easy money" category. It is not clear that the definitions really hold up here because, while interest rates are at historic lows, getting money may not be easy with increased steps to be able to secure loans.
Still, the combination works well with Gold being a major contributor to growth.
Three Month Chart
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One Year Chart
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Three Year Chart
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Five Year Chart
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Full Details
Both the table and graphs tell you the same thing -- this is a stable and well performing portfolio that has handled the current turbulent waters well. If you were to have a focus on dividend bearing equities, you would also be able to secure a reasonable income stream as well.
This is a good looking portfolio worth considering.
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
