Scott's Investments

Alternative ETF Portfolio Update

It's a formatting issue on SA - you can try looking at it on my blog, scottsinvestments.blog...

One Basic Portfolio, 5 ETFs

I would tend to agree that hedge fund returns are shrouded in ambiguity, but I think you need to look at Alphaclone's historical returns - they are calculating returns based on actual stock holding performance (not hedge fund performance). The stocks are determined by representation in various hedge funds.

One Basic Portfolio, 5 ETFs

Kinabalu - I think you may be confusing holding individual stocks vs. tracking some type of hedge fund index. Alphaclone uses the reported stock holdings of hedge funds to compose stock portfolios. Thus, you are not tracking an index but holding actual stocks using quarterly filings of various hedge funds. There are limitations with this system but the historical performances w/ lower volatility speak for themselves. Of course, with anything, past performance won't guarantee future success. I would, however, suggest checking out their site if you are interested in understanding the product and strategy more thoroughly.

One Basic Portfolio, 5 ETFs

Geoffrey - Those are valid points. This type of portfolio is geared towards smaller account which may not either have access to certain types of products only available to institutions or which do not have the capital to justify holding more positions. A couple of points:

1 - During a crisis, all correlations gravitate towards 1, which is what we have seen over the past year +; however, employing a moving average system *may* allow an investor to avoid significant drawdowns.

2 - A momentum based system, as explained, will offer different returns then just buying and holding all 5.

3 - I'll try to put together a portfolio of 5 liquid ETFs or mutual funds that offer lower correlation then the 5 mentioned (again, we're picking 5 here to keep it realistic for smaller retail accounts). Sounds like a fun challenge!

One Basic Portfolio, 5 ETFs

Hi - If you combine the allocations with a moving average system (Faber used the 10 month), the portfolio has not had a losing year since 1974, which includes 2008. Thus, the subtitle of the book may be a little misleading since you're not exactly investing like the endowments, but are taking some allocation ideas from them. I would suggest checking out the book if you have not done so to gain a deeper perspective. Thanks for the comment -

A Basic ETF Portfolio for September

If the market sees that as a potential, it will be reflected in the price action and a sell would be triggered at the 200 day MA.

A Basic ETF Portfolio for September

I tend to watch the technicals for indicators, from a momentum perspective it is not a buy when compared to the others, but is still trading above the 200 day MA. Commodities have been shown to offer diversification especially when in a positive trend, as indicated by long term moving averages.

Building a Momentum Based ETF Portfolio

I think as long as your consistent (not switching back and forth) that is the most important element. EMA has advantages since it weights current data more heavily, but most academic studies I've read use the SMA which is the reason why I incorporate it into the article. Others suggest using EMAs for shorter durations and SMAs for longer durations. Consistency is key, no matter which one you choose.

Building a Momentum Based ETF Portfolio

Yes, you are correct yahoo is showing an SMA of 44.66. This article was written using data collected from Thinkorswim, my guess is their data is not using the adjusted close which could account for the difference but I'll follow up with them. Starting in August I will be posting on my blog links or spreadsheets for the data to make it more transparent; in addition, I'm finding that the 200 day SMA seems to be a more popular average for investors, so a permanent switch may be made there as well. Thanks!

Building a Momentum Based ETF Portfolio

They are different - the 10 month SMA is the last 10 trading months, the 200 day is the last 200 trading days, which is not equal to the 10 month. Some months there can be more then 20 trading days. My source on this article was my online broker's data, but going forward for simplicity I will probably be using Yahoo for everything so the information is accessible for everyone.

Building a Momentum Based ETF Portfolio

As they say, past performance is no guarantee of future returns :). However, check an idea I posted here about using multiple strategies, scottsinvestments.blog...

Building a Momentum Based ETF Portfolio

As they say, past performance is no guarantee of future returns :). However, check an idea I posted here about using multiple strategies, scottsinvestments.blog...

Alternatives to Buy and Hold for Income Investors

It's a fair question - volatility in bond investments tends to be lower then in equities. However, I would read Faber's paper for some results - bonds (10 yr govt) using a timing model had an annualized return of 9.11% vs 8.75% on buy and hold from 1973-2008. The key is that the volatility was 7.6% vs 9.05% on a buy and hold. He doesn't have corporate bond results, but I would suspect lower volatility there as well.

Alternatives to Buy and Hold (Part II)

Tom Lydon'ts ETF Trends website has a great (free) tool for tracking ETFs and the percentage they are above/below various moving averages. I have caught a few mistakes in their spreadsheet, so I would double check anything on the list.

Alternatives to Buy and Hold (Part II)

To answer your first question, Faber studied that and showed that there was no significant edge gained by shorting the market below the average. The returns earned on cash contributed to the lower risk/return ratio for the strategy. Regarding the band, yes, that would decrease toggles and transaction costs (and potentially taxes), and could also slightly decrease returns on the underlying investment.