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  • The Mechanics of Our Conservative ETF Portfolio Strategy [View article]
    Thank you for your kind words!
    Indeed, IAU and GLD are perfect substitutes as they both track the performance of gold prices with the same return and volatility.
    Jun 7, 2011. 03:33 PM | Likes Like |Link to Comment
  • Our Conservative ETF Model Portfolio [View article]
    One additional remark: we have rerun some backtesting assuming that the fixed-income part is not a mix of TLT, SHY and AGG, but simply cash (SHY). The results are almost the same: 15.7% annual return (CAGR) with, of course, lower volatility (9.2%) and lower maximum drawdown (-4.2%).
    Jun 4, 2011. 09:08 PM | 1 Like Like |Link to Comment
  • Our Conservative ETF Model Portfolio [View article]
    Thanks everyone for these comments. The portfolio composition will indeed be updated monthly on our site, but we will write several more articles here to drill down further on the mechanics and performance of the strategy and other more aggressive strategies.

    Shorts answers to some of the questions in the meantime:
    - Portfolios are rebalanced monthly to the best ranked ETFs. Overall over the backtesting period, this has led to an average of around two round-trip (a buy and a sell) a month.
    - BND and AGG are almost perfect substitutes so you'd get roughly the same results with BND. FXI and GXC are less perfect substitutes because their sector composition is a bit different, but the results should not be affected too much.
    - the remark about TLT is very relevant. I would stress that its share is high for the month of June 2011 because it has performed well since February. This ranking also highlights the higher risk aversion since early may. Note however that our allocation process is quite dynamic and at some points TLT share was as low as 10%. But neverless though. This is not the case in our more aggressive portfolio.
    - Backtesting over 30 or 40 years is not possible because ETFs did not exist back then. However, several backtests have been performed over a 1972 - 2010 period based on indexes performance, such as the ones performed by the great Mebane Faber. These studies confirm the soundness of this kind of strategies.

    Looking forward to discuss further all these issues.

    Happy investing

    Jun 4, 2011. 05:27 PM | 1 Like Like |Link to Comment
  • Our Conservative ETF Model Portfolio [View article]
    Dear Robin,

    Thanks a lot for your interest. As I hope it is clear from the article, the strategy is mostly based on relative strength. This being said, the addition of value and technical criteria as filters has proved to be a very helpful complement to identify ETF with high ranking but about to experience a correction.

    To be more specific:
    1/ Technical: if an ETF has been overbought for an extended period of time AND trades above x% of a reference MA, the odds that it is about to coorect are high. As of May 31 it was not the case for FXI.

    2/ Fundamental: current P/E shall not be in an extreme perceptile compared to historic P/E (for equity ETFs). As of May 31, it was not the case for FXI.

    Hope this is useful.
    All the best,

    Jun 3, 2011. 11:48 AM | 3 Likes Like |Link to Comment