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Monthly Trading Of MDY, MVV And UMDD

|Includes:SPDR S&P MidCap 400 ETF (MDY), MVV, TLT, UMDD

The basic strategy is to switch between TLT and MDY (or its leveraged variants, MVV or UMDD) on the first trading day of each month on the basis of their performance during the immediately preceding month (e.g. for January 2013, use the performance during the period 11/30/2012 thru 12/31/1012).

However, the dates of inception of all these ETFs are quite recent, and so any definitive conclusions on the performance of the strategy on the basis of the limited data are not quite warranted. To supplement the back testing, we can (i) use VUSTX, and (ii) construct synthetic leveraged variants (the synthetic version of MVV is named $MVV in the following table, and, likewise, $UMDD is the synthetic version of UMDD).

The following table lists the major performance metrics for various combinations of the ETFs and time periods. We have listed the performance of the pairs (MVV, TLT) and (MVV, VUSTX) for the same periods to estimate the difference in performance due to replacement of TLT by VUSTX. Likewise the data for (MVV, VUSTX) and ($MVV, VUSTX) for the same periods indicate the accuracy of the derived data for synthetic version of MVV. Taken together, the data provide some indication of the reliability of the extrapolation to the maximum time period (1997-2012) of the performance of the pair ($MVV, VUSTX). Similar comments apply to the other pairs.

Year to date, the returns of (MDY, TLT), (MVV, TLT), and (UMDD, TLT) have been 5.8%, 12.3% and 18.75%, respectively, and in all of the cases TLT was not held for either of the two months of this year.

Basket

CAGR (Monthly Drawdown)

Sharpe Ratio (Kelly Fraction)

Mean Annual Return (95% Lower Bound)

TLT, MDY (2003-2012)

15.9 (22.9)

.8 (.37)

17.9 (6.9)

VUSTX, MDY

(2003-2012)

16.3 (19.5)

.88 (.39)

17.5(7.9)

VUSTX, MDY

(1997-2012)

17.2 (19.5)

.92 (.43)

18.3 (10.8)

TLT, MVV

(2007-2012)

28.7 (26.4)

1 (.37)

32.6 (8.6)

VUSTX, MVV

(2007-2012)

21.7 (34.6)

.77 (.31)

25.8 (1.9)

VUSTX, $MVV

(2007-2012)

27.2 (32.8)

.92 (.35)

31.7 (6.1)

VUSTX, $MVV

(1997-2012)

30.3 (32.8)

1 (.4)

34.2 (17.8)

TLT, UDDM

(2011-2012)

48.6 (13.6)

1.7 (.5)

52 (12.9)

VUSTX, UDDM

(2011-2012)

45.6 (13.6)

1.7 (.5)

48.9 (12.3)

VUSTX, $UDDM

(2011-2012)

47.1 (12.6)

1.7 (.5)

50.5 (13.3)

VUSTX, $UDDM

(1997-2012)

39.4 (47.6)

.96 (.39)

48.7 (20.2)

Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: MDY, MVV, UMDD, TLT