ETFReplay Portfolio For December

by: Scott's Investments

Among the more popular portfolios on Scott’s Investments has been the Portfolio. I previously detailed here and here how an investor can use to screen for best performing ETFs based on momentum and volatility.

The portfolio begins with a static basket of 15 ETFs. These 15 ETFs are ranked by 6-month total returns (weighted 40%), 3-month total returns (weighted 30%), and 3-month price volatility (weighted 30%). The top 4 are purchased at the beginning of each month. When a holding drops out of the top 5 ETFs it will be sold and replaced with the next highest ranked ETF.

In addition, ETFs must be ranked above the cash ETF SHY in order to be included in the portfolio, similar to the absolute momentum strategy I profiled here. This modification could help reduce drawdowns during periods of high volatility and/or negative market conditions (see 2008-2009), but it could also reduce total returns by allocating to cash in lieu of an asset class.

The top 5 ranked ETFs as of 11/29/13 are below:

Top 50 Trending Stocks

HYG iShares iBoxx High-Yield Corp Bond
VTI Vanguard MSCI Total U.S. Stock Market
RWX SPDR DJ International Real Estate
SHY Barclays Low Duration Treasury

Since cash (represented by SHY) is now the fifth highest rated ETF, anything rated above it qualifies for purchase. In October SHY was the third highest rated ETF and in November it was the fourth highest rated ETF.

For December the portfolio maintains positions in VTI, HYG and EFA. The portfolio held 25% cash in November, which is being allocated to RWX for December.

The strategy’s performance since inception is below, as is comparative performance of the SPDR S&P 500 ETF (NYSEARCA:SPY), iShares Growth Allocation (NYSEARCA:AOR), and the Permanent Portfolio (MUTF:PRPFX):

(Click to enlarge)

Disclosure: None