Momentum Portfolio August Update

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Includes: EEM, EFA, GLD, PCY, RWX, SHY, TIP, TLT, VNQ, VTI
by: Scott's Investments

In 2011 Scott's Investments began tracking a momentum portfolio which ranks a basket of ETFs based on price momentum and volatility. In 2014 I also introduced a pure momentum system, which ranks the same basket of ETFs based solely on 6-month price momentum. The first portfolio was previously called the "ETFReplay.com Portfolio" but at the beginning of 2016 was renamed "Conservative Momentum Portfolio" (or "6/3/3 strategy") to reflect some changes in the portfolio and tracking methodology for both portfolios detailed below.

In previous years the Conservative Momentum Portfolio began with a static basket of 14 ETFs. The basket of 14 ETFs has been reduced to 10 ETFs. This change was made in order to further simplify the portfolio. The 10 ETFs are listed below:

RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond
EFA iShares MSCI EAFE
EEM iShares MSCI Emerging Markets
VNQ Vanguard MSCI U.S. REIT
TIP iShares Barclays TIPS
VTI Vanguard MSCI Total U.S. Stock Market
GLD SPDR Gold Shares
TLT iShares Barclays Long-Term Trsry
SHY iShares Barclays 1-3 Year Treasry Bnd Fd
Click to enlarge

The ETFs are still ranked by 6-month total returns (weighted 40%), 3-month total returns (weighted 30%) and 3-month price volatility (weighted 30%). The top 3 are purchased at the beginning of each month and if a holding drops out of the top 3 at the next month's rebalance it will be replaced. Previously, the portfolio purchased the top 4 ETFs and only sold when a holding dropped out of the top 5. In addition, ETFs previously had to be ranked above the cash-like ETF (NYSEARCA:SHY) in order to be included in the portfolio. This requirement has been removed, so the top 3 ETFs will be held regardless of proximity to SHY.

Pure Momentum System

The pure momentum system previously ranked ETFs based solely on 6-month price momentum. For 2015 the strategy now ranks ETFs based on 5-month price momentum. There is no cash filter in the pure momentum system, volatility ranking or requirement to limit turnover. Previously the strategy bought the top 4 ETFs each month - going forward the top 3 ETFs will be purchased. The portfolio and rankings are posted on the same spreadsheet as the 6/3/3 strategy.

The portfolio names dropped "ETFreplay.com" because the strategies can be tracked on multiple websites. ETFReplay.com is still an excellent choice for tracking and backtesting the strategies detailed. However, a formidable free option for backtesting these strategies has emerged at Portfolio Visualizer.

The current top 3 ETFs are listed below for each strategy:

Conservative Momentum
PCY PowerShares Emerging Markets Sovereign Debt Portfolio
VNQ Vanguard MSCI U.S. REIT
TLT iShares Barclays 20 Year Treasury Bond Fund
Pure Momentum
VTI Vanguard Total Stock Market ETF
EEM iShares MSCI Emerging Markets
VNQ Vanguard MSCI U.S. REIT
Click to enlarge

The current portfolios are below:

Conservative Momentum

Position Shares Avg Purchase Price Purchase Date
PCY 148 30.16 7/29/2016
VNQ 49 83.67 5/31/2016
TLT 31 138.9 6/30/2016
Click to enlarge

Pure Momentum

Position Shares Purchase Price Purchase Date
VTI 31 111.42 7/29/2016
EEM 98 34.36 6/30/2016
VNQ 38 88.67 6/30/2016
Click to enlarge

Current positions can be viewed on Scott's Investments here.

Disclosure: None