Momentum Portfolio March Update

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Includes: EEM, EFA, GLD, PCY, RWX, SHY, TIP, TLT, VNQ, VTI
by: Scott's Investments

In 2011, Scott's Investments began tracking a momentum portfolio which ranks a basket of ETFs based on price momentum and volatility. In 2014, I also introduced a pure momentum system, which ranked the same basket of ETFs based solely on price momentum. Both strategies have undergone minor revisions over the years but the key elements remain.

The strategies in their current form begin by screening a basket of these 10 ETFs:

RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond
EFA iShares MSCI EAFE
EEM iShares MSCI Emerging Markets
VNQ Vanguard MSCI U.S. REIT
TIP iShares Barclays TIPS
VTI Vanguard MSCI Total U.S. Stock Market
GLD SPDR Gold Shares
TLT iShares Barclays Long-Term Trsry
SHY iShares Barclays 1-3 Year Treasry Bnd Fd

The ETFs in the "Conservative Momentum" system are still ranked by 6-month total returns (weighted 34%), 3-month total returns (weighted 33%), and 3-month price volatility (weighted 33%). The top 3 are purchased at the beginning of each month and if a holding drops out of the top 3 at the next month's rebalance it is replaced.

Pure Momentum System

The pure momentum system previously ranked ETFs based solely on 6-month price momentum. The strategy now ranks ETFs based on 5-month price momentum. There is no cash filter in the pure momentum system, volatility ranking, or requirement to limit turnover. The portfolio and rankings are posted on the same spreadsheet as the Conservative Momentum strategy.

A free option for backtesting these strategies is available at Portfolio Visualizer.

The current top 3 ETFs are listed below, and for this month the only new position is EEM in the Conservative Momentum system, replacing SHY:

Conservative Momentum
VTI Vanguard MSCI Total U.S. Stock Market
EEM iShares MSCI Emerging Markets
EFA iShares MSCI EAFE
Pure Momentum
EEM iShares MSCI Emerging Markets
EFA iShares MSCI EAFE
VTI Vanguard MSCI Total U.S. Stock Market

The current portfolios are below:

Conservative Momentum

Position Shares Avg Purchase Price Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends
VTI 36 113.78 11/30/2016 $4,096.08 $4,443.84 8.49%
EFA 70 58.09 1/3/2017 $4,066.30 $4,267.90 4.96%
EEM 110 38.58 3/1/2017 $4,243.80 $4,243.80 0.00%

Pure Momentum

Position Shares Purchase Price Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends
EFA 53 56.79 11/30/2016 $3,009.87 $3,231.41 7.36%
EEM 93 37.36 2/1/2017 $3,474.48 $3,587.94 3.27%
VTI 27 113.78 11/30/2016 $3,072.06 $3,332.88 8.49%

Below are historical backtests of each strategy using Portfolio Visualizer, starting with the conservative momentum strategy:

And the pure momentum strategy,

Disclosure: None

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