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I am an independent investor writing at Scott's Investments (http://www.scottsinvestments.com). My site is dedicated to discussing and publicly tracking historically successful investments strategies and sharing free investment resources. I emphasize empirical, historical, and quantitative... More
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  • Investing in the 10 ETF Ivy Portfolio Using Relative Strength 0 comments
    Oct 13, 2010 10:35 PM | about stocks: BND, DBC, GSG, RWX, TIP, VB, VEU, VNQ, VTI, VWO
    Yesterday I reviewed and tested (here and here) a relative strength investing strategy of the 5 ETF portfolio used in Mebane Faber's The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. I used ETF Replay for the testing.

    Faber also suggests a 10 ETF portfolio in The Ivy Portfolioconsisting of BND, DBC, GSG, RWX, TIP, VB, VEU, VNQ, VTI, VWO.  I tested this portfolio on ETF Replay using the same parameters as previous tests.  The 10 ETF portfolio was tested using a combination of 3 month returns, 20 day returns, and 20 day volatility (each weighted 40%/30%/30% and lower volatility receives a higher weighting) as well as 6 month returns, 3 month returns, and 3 month volatility.

    I tested 2 different strategies, one which bought the top rated ETF and another which bought the top 3 ETFs at the beginning of each month.  I began the tests January 2007 even though only 7 of the 10 ETFs were trading at that time.  However, by August 2007 all 10 ETFs were trading.

    The results are below and it is striking how well both strategies performed while also limiting drawdowns. As with yesterday's results, the 6/3/3 strategy slightly outperformed the 3/20/20.

    In comparison, simply buying and holding the 10 ETF in equal amounts results in a total return of -1.1% with a max drawdown of -48.56%:

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    3/20/20 Strategy for 10 ETFs     
     Total ReturnsCAGRVolatilityDrawdownTotal changes
    Buy Top 367.40%14.60%18.50%-25.60%39
    Buy Top 176.80%16.30%19.50%-11.40%33
    SPY-10.60%-2.90%28.00%-50.80% 
          
    6/3/3 Strategy for 10 ETFs     
     Total ReturnsCAGRVolatilityDrawdownTotal changes
    Buy Top 384.00%17.50%18.80%-25.80%28
    Buy Top 1170.70%30.20%21.40%-10.30%16
    SPY-10.60%-2.90%28.00%-50.80% 


     Total ReturnsCAGRVolatilityDrawdown
    Buy and Hold the 10 ETFs-1.10%-0.30%21.00%-48.56%
     
     

    Disclosure: no positions
    Stocks: BND, DBC, GSG, RWX, TIP, VB, VEU, VNQ, VTI, VWO
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