Seeking Alpha
Independent research, long/short equity, dividend investing, ETF investing
Profile| Send Message|
( followers)  

This month's ETFReplay.com Relative Strength ETF Portfolio has been updated and includes turnover in two out of four positions.

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 select only the top ETFs out of a static basket of 25 ETFs and re-balance the portfolio monthly.

The portfolio strategy is to 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) and 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″. The top two ETFs in the 6/3/3 ranking and top two in the 3/20/20 ranking are purchased each month. When there are duplicates in the top two, I look to the third ranked ETF in the 3/20/20 and, if necessary, the third ranked ETF in the 6/3/3. The strategy always holds four ETFs.

I track this strategy as a public portfolio. As of the close October 31st, the hypothetical portfolio was up 13.38%, since inception on January 1st, 2011. Returns include dividends but exclude commissions and taxes. Also, all trades are hypothetical, so real results will differ. For some backtests on these strategies please see a recent post here.

For October 31st the portfolio sold its positions in SPDR Gold Shares (NYSEARCA:GLD) and (iShares MSCI EAFE Small Cap Index (NYSEARCA:SCZ).

Proceeds were used to purchase iShares S&P US Preferred Stock Index (NYSEARCA:PFF) and SPDR DJ International Real Estate (NYSEARCA:RWX). The portfolio also continues to hold its position in the PowerShares Emerging Markets Bond (NYSEARCA:PCY) and iShares iBoxx Invest Grade Bond (NYSEARCA:LQD).

Top 50 Trending Stocks

Minor fluctuations in rankings may not always justify selling positions each month. For example, if one ETF drops from the second highest rated to the third or fourth highest rated, it may not warrant selling the position. An investor could only sell a position when it drops out of the top 4 or 5 at the end of the month. This type of modification could be used when someone is looking to limit turnover; however, I think it is important to have whatever rule you prefer to use in place prior to making the investment decision in order to avoid discretionary or emotional decision making.

Below are the top six ranked ETFs for this month, using both the 6/3/3 and 3/20/20 strategy: (6mo/3mo/3mo )

  1. (PCY) PowerShares Emerging Mkts Bond

  2. (PFF) iShares S&P US Preferred Stock Index

  3. (RWX) SPDR DJ International Real Estate

  4. (LQD) iShares iBoxx Invest Grade Bond

  5. (NYSEARCA:HYG) iShares iBoxx High-Yield Corp Bond

  6. (GLD) SPDR Gold Shares

3mo/20day/20day

  1. (PCY) PowerShares Emerging Mkts Bond
  2. (RWX) SPDR DJ International Real Estate

  3. (PFF) iShares S&P US Preferred Stock Index

  4. (LQD) iShares iBoxx Invest Grade Bond

  5. (SCZ) iShares MSCI EAFE Small Cap Index

  6. (HYG) iShares iBoxx High-Yield Corp BondBelow is a performance graph of the portfolio (green) versus (NYSEARCA:SPY) SPDR S&P 500 ETF and (NYSEARCA:AOR) S&P Growth Allocation from the portfolio's inception until October 31st, 2012.

(click to enlarge)

Disclosure: None

Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions.

Source: Relative Strength ETF Portfolio November Update