Kevin_in_GA
4,599 posts
msg #92003
- Ignore Kevin_in_GA |
5/3/2010 7:04:46 PM
I like your thinking Kevin in subbing out SPY for IWM.
Here would be my uber basket selection, which I will attempt to backtest as I get the time.
FXI (China)
EWW (Mexico)
IWM (US)
LSC (leveraged commodities with much lower correlation to equities)
GLD (gold)
TLT (long term treasuries as the safe haven)
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Here is my short list. This is designed to represent most of the typical 401k fund choices (I based this off of my own account):
US Large Cap - SPY
US Large Cap Value - VTV
US Large Cap Growth - IVE
US Small Cap - IWM
Emerging Markets - EEM (although VWO is a better ranked ETF with a lower expense ratio)
Bond Fund - BND
Stable Income - MBB or IEI
Cash Equivalent - SHY
I would then add in several non-correlated asset classes:
Commodities - GLD, DBB
Real Estate - VNQ
Agriculture - COW or MOO
just to see how these are tracking relative to the other investment classes.
Kevin
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Kevin_in_GA
4,599 posts
msg #92004
- Ignore Kevin_in_GA |
5/3/2010 7:20:32 PM
The filter more or less tries to time the market, and signals when to go to cash. I haven't done the numbers, but it seems creating any sort of mixed fund that follows the broader market would have returned similar results. I mean most stocks have returned 100%+ since the March 2009 lows.
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Yes, but I backtested this from Jan 2007 (posted earlier in this thread) so that it included all of the Great Recession to date. The return was almost three times that of the SPY. It is more than just holding in cash during downturns - it also is selecting ETFs that are outperforming the SPY even when it is going up as dramatically as it has over the past year.
This basic concept can be tested on etfreplay.com back to 2003 (in which it returned 504.3% as of the close today, which is more than 9x the return from buy-and-hold).
Also, why overcomplicate this? Adding in other ETFs sounds good in theory, but will require more trades and more account management, with no guarantee of higher returns.
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hmsb4494
81 posts
msg #92007
- Ignore hmsb4494 |
5/3/2010 8:39:26 PM
504.3% total return in 88 months----what is the annual compounded rate of return?
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sbuck143
88 posts
msg #92009
- Ignore sbuck143 |
5/3/2010 8:59:26 PM
Also, why overcomplicate this? Adding in other ETFs sounds good in theory, but will require more trades and more account management, with no guarantee of higher returns
*********************************************************************************************************************
Multiple ETF's that all have close correlation are really not that much of different choices. Where this system will really shine is when you have uncorrelated (dis-correlated?) choices such that there is always a good choice to be had.
I just ran some quick numbers off of the following ETF basket: IWM, EWW ,EEM, FXI, SPY, SHY, GLD, TLT, and LSC.
Starting as far back as SF would allow - Oct 8, 2008 - I bought the top 3 ETF's from that list of 9 using your filter each month, noted their performance for the month, and then re-ran the filter the next month.
The overall ROI from Oct 8, 2008 to today using this strategy was approximately 84%, compared to SPY's ~ 33% over that same time frame.
The IWM/EEM/SHY combo returned 72% but that number represents Jan 2008 to present, so its not apples to apples, but the "top 3" strategy does have a better ROI in a shorter period, and furthermore the drawdowns were greatly reduced by the virtue of spreading out the risk amongst 3 selections instead of "all or none".
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Kevin_in_GA
4,599 posts
msg #92010
- Ignore Kevin_in_GA |
5/3/2010 9:01:52 PM
2.07% per month, 29.32% annual.
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Kevin_in_GA
4,599 posts
msg #92011
- Ignore Kevin_in_GA |
5/3/2010 9:07:05 PM
Stockfetcher will allow you to go further back - try typing in 800 as the offset and see ...
Also, what you have done only further validates this approach. It is a simple and effective portfolio management tool. The use of ETFs lets you access lots of options - just be sure that the ETF is highly liquid so that you can sell it as needed without giving up to much to the spread.
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sbuck143
88 posts
msg #92012
- Ignore sbuck143 |
5/3/2010 9:28:30 PM
I did not realize SF let me do that with the offsets. I'll analyze it more tomorrow.
And oh yeah, I wasnt trying to invalidate anything. This is a great approach, Kevin, and seems like you and the ETFreplay guys were in sync the whole time!
One thing that is interesting to note though is that I've yet to find an instance where "rebalancing" weekly gave a better result than rebalancing monthly (at least per ETFreplay's tester). It seems like you'd be able to get in and out quicker without the delay of waiting for a month before you look at things again, but it doesn't pan out that way.
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hmsb4494
81 posts
msg #92014
- Ignore hmsb4494 |
5/3/2010 10:11:35 PM
Kevin_in_GA
- Ignore Kevin_in_GA 5/3/2010 9:01:52 PM
2.07% per month, 29.32% annual.
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at the risk of looking like an idiot, how is this figured???
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Kevin_in_GA
4,599 posts
msg #92016
- Ignore Kevin_in_GA
modified |
5/3/2010 11:52:32 PM
http://www.investopedia.com/rotate.aspx?sp=0&backurl=http%3A//www.investopedia.com/calculator/CAGR.aspx
starting amount 100000
ending amount 604600
periods (for months = 88, for years = 7)
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jnafach
74 posts
msg #92023
- Ignore jnafach |
5/4/2010 7:38:19 AM
By the way guys, Fidelity.com offers trading on 25 ETF from them IWM and EEM for free so there is no cost whatsoever for trading
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