Going More Defensive: ETF Recommendations For February 3, 2014

by: Cliff Smith

Listed here are the latest ETF recommendations for the Tactical Asset Allocation (TAA) strategies I have discussed in my Seeking Alpha articles. The ETFs mentioned in this article are (in the order they appear):

1) Guggenheim Spin-Off ETF (NYSEARCA:CSD),

2) iShares Barclays Long-Term Treasuries (15-18 year) ETF (NYSEARCA:TLT)

3) Global X Top Guru Holdings ETF (NYSEARCA:GURU)

4) iShares S&P Europe 350 Index Fund ETF (NYSEARCA:IEV)


6) Barclays Low Duration Treasuries (2 Year) ETF (NYSEARCA:SHY)

7) AdvisorShares Peritus High Yield Bond ETF (NYSEARCA:HYLD)

8) Vanguard Long-Term Government + Credit ETF (NYSEARCA:BLV)

9) iShares Barclays 7-10 Year Treasuries ETF (NYSEARCA:IEF)

10) PowerShares S&P-LSTA Senior Loan ETF (NYSEARCA:BKLN)

11) SPDR Barclays Convertible Bond ETF (NYSEARCA:CWB)


13) SPDR Barclays International Corporate Bond ETF (NYSEARCA:IBND)

14) Schwab FTSE Developed Small-Cap Ex-U.S. ETF (NYSEARCA:SCHC)

15) PowerShares RAFI High Yield Bond ETF (NYSEARCA:PHB)

16) Schwab Dow Jones U.S. Small-Cap ETF (NYSEARCA:SCHA)

17) SPDR Nuveen S&P High Yield Muni Bond ETF (NYSEARCA:HYMB)

18) Schwab Dow Jones U.S. REIT Index ETF (NYSEARCA:SCHH)

19) Schwab 1-3 Year Treasury Bond ETF (NYSEARCA:SCHO)

To mimic the strategies, you should try to buy the ETFs of a particular strategy on the first business day of each semi-monthly period, preferably toward the end of the trading day (3:00 - 3:30 pm). However, making the trades anytime on the first trading day of a period should not significantly alter the returns. The first trading day of the next period is Feb. 3, 2014. Feb. 3rd is the day to make your trades.

The current semi-monthly period (that will not end until the close of Feb. 3rd) has produced negative returns for almost all of the strategies except the bond-only strategies. The aggressive/moderate strategies have larger losses than the conservative strategies, as expected. Most of the strategies have now turned defensive, going from equities to bonds and/or cash. This is one of the benefits of TAA strategies: the ability to quickly change to a defensive posture when market conditions show evidence of a downturn. The downturn may be short-lived (perhaps only a market correction, small or large), or it may be more dramatic (like the bear market of 2008). Only time will tell. But in the meantime, the TAA strategies are dictating a more defensive position.

Please use limit order trading at the last sell price if there is a large difference between bid and ask prices. Some of the ETFs are not heavily traded so there might be relatively large differences between bid and ask prices.

The strategies assume automatic rebalancing of the ETFs at the end of the first business day of a new period. In actual practice, this would require selling all holdings and buying new holdings at the start of each period, even if the holdings do not change. This procedure would increase costs due to excessive buying and selling of ETFs. So, in practice, rebalancing should be performed whenever all of the ETF recommendations change in a new period. In addition, rebalancing should be performed when the percentage of one ETF gets more than 5% out of line.

If you are using one of these strategies in a real money account, please send me a SA message and let me know. All I'm interested in knowing is how many people are really using this information, and what strategy you are using. Many people have expressed an interest in these strategies, but I would like to how many are really using them.

Aggressive CSD-Bond Strategy (almost called SSSEquity)

Jan. 2, 2014 CSD Return=+1.85%

Jan.16, 2014 CSD Return=-5.13%

Feb. 3, 2014 TLT

Total Return (including div.) YTD = -3.4% (Starting COB Jan. 2, 2014)

Moderate AllAssetsExceptBonds Strategy

Jan. 2, 2014 GURU(50%), IEV(50%) Return=+1.60%

Jan.16, 2014 GURU(50%), MDY(50%) Return =-3.64%

Feb. 3, 2014 MDY(50%), SHY(50%)

Total Return (including div.) YTD = -2.1% (Starting COB Jan. 2, 2014)

Conservative AssetBlend Strategy

Jan. 2, 2014 GURU(30%), IEV(30%), HYLD(40%) Return=+1.43%

Jan.16, 2014 GURU(30%), MDY(30%), BLV(40%) Return=-1.30%

Feb. 3, 2014 BLV(40%), MDY (30%), SHY (30%)

Total Return (including div.) YTD = +0.1% (Starting COB Jan. 2, 2014)

Conservative Super Simple Savings Strategy

Jan. 2, 2014 CSD(60%), HYLD(40%) Return=+1.57%

Jan.16, 2014 CSD(60%), HYLD(40%) Return=-3.12%

Feb. 3, 2014 IEF(40%), TLT(60%)

Total Return (including div.) YTD = -1.6% (Starting COB Jan. 2, 2014)

Bond-Only Strategy

Jan. 2, 2014 HYLD(100%) Return=+1.16%

Jan.16, 2014 BLV(100%) Return=+2.20%

Feb. 3, 2014 BLV

Total Return (including div.) YTD = +3.4% (Starting COB Jan. 2, 2014)

Simple Bond Strategy on HYLD - Trade on Day of 30 MDA & 3 MDA Cross

Buy Jan. 2, 2014 Open Trade Return=+1.0%

Total Return (including div.) YTD = +1.0% (Starting COB Jan. 2, 2014)

Simple Bond Strategy on BKLN - Trade on Day of 12 MDA & 3 MDA Cross

Buy Jan. 2, 2014 Sell Jan. 28, 2014 Return=+0.34%

Total Return (including div.) YTD = +0.3% (Starting COB Jan. 2, 2014)

Conservative Schwab-Free Strategy

Jan. 2, 2014 CWB(20%), FEU(30%), IBND(20%), SCHC(30%) Return=+1.95%

Jan.16, 2014 CWB(20%), PHB(20%), SCHA(30%), SCHC(30%) Return=-2.44%

Feb. 3, 2014 HYMB(20%), PHB(20%), SCHH(30%), SCHO(30%)

Total Return (including div.) YTD = -0.5% (Starting COB Jan. 2, 2014)

For comparison, the total return (including dividends) Year-To-Date (YTD) of three benchmarks are presented below.

Equity Benchmark: SPY

Total Return (including div.) YTD = -2.6% (Starting COB Jan. 2, 2014)

Bond Benchmark: AGG

Total Return (including div.) YTD = +1.5% (Starting COB Jan. 2, 2014)

Balanced (60% Equity/40% Bond) Benchmark: VBINX

Total Return (including div.) YTD = -0.5% (Starting COB Jan. 2, 2014)

These strategies have been backtested over a limited timeframe and shown to produce good growth with minimum risk, but future results may be dependent on factors not considered. Use these recommendations at your own risk.

Disclosure: I am long TLT, MDY, SHY, BLV, IEF, HYLD, HYMB, PHB, SCHH, SCHO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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