Among the more popular portfolios on Scott’s Investments has been the ETFReplay.com Portfolio. I previously detailed how an investor can use ETFReplay.com 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 my absolute momentum strategy. 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 based on the 6/3/3 system as off 1/31/14 are below:
| LQD | iShares iBoxx Invest Grade Bond |
| VTI | Vanguard MSCI Total U.S. Stock Market |
| HYG | iShares iBoxx High-Yield Corp Bond |
| SHY | Barclays Low Duration Treasury |
| TLT | iShares Barclays Long-Term Trsry |
For February the portfolio maintains positions in VTI, HYG and LQD. EFA was sold for a loss of 0.30% and the proceeds used to purchase SHY.
Beginning in 2014 we will track both the 6/3/3 strategy (same system as 2013) as well as the pure momentum system, which will rank the same basket of 15 ETFs based only on 6 month price momentum. There is no cash filter in the pure momentum system, volatility ranking, or requirement to limit turnover – the top 4 ETFs based on price momentum will be purchased each month. The portfolio and rankings will be posted on the same spreadsheet as the 6/3/3 strategy.
The top 5 six month momentum ETFs are below:
| VTI | Vanguard MSCI Total U.S. Stock Market |
| EFA | iShares MSCI EAFE |
| LQD | iShares iBoxx Invest Grade Bond |
| HYG | iShares iBoxx High-Yield Corp Bond |
| TLT | iShares Barclays Long-Term Trsry |
For February the portfolio maintains positions in VTI and EFA. EEM and RWX were sold for losses of 8.61% and 4.17% and the proceeds used to purchase LQD and HYG.
Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions.