The tables below show the target asset allocation of the core portfolio, the current signal and the expected signal for next month, depending on the reference moving average chosen. For more details on how to use these tables, please see below.
The asset allocation of this proposed ETF Portfolio provides exposure to all the major asset classes. The ETFs have then be selected from the list of the commission-free ETF Program for TD Ameritrade. Whenever possible, we chose the Vanguard ETF available.
There are two ways to implement this portfolio of core holdings:
- Buy and Hold, with annual rebalancing to the target allocation
- A more active management
If you have followed us for a while, you know that we are strong believers in the second option. The active management outlined below if a form of tactical asset allocation strategy. It has been popularized by Mebane Faber and its famous book. We offer here a simple table for anyone interested to implement this kind of mechanical strategies. Here are the rules to be followed. At the end of every month, do the following for each ETF (just replace N by the moving average you prefer):
- If the ETF is above its N-month moving average: go LONG. The table above provides the signal for the current month as well as the expected signal for the next month.
- If the ETF closes below its N-month moving average: move to CASH.
This simple timing system has a proven track record of significant ouperformance of buy-and-hold strategies in terms of higher risk-adjusted returns and lower drawdowns. Our research suggests that it has returned 10% per year on average (CAGR) with a low volatility (below 9%) using the 6-month moving average.
Data as of May 15, 2013
| Period | Return MA(6) |
|---|---|
| January 2012 | +1.78% |
| February 2012 | +3.58% |
| March 2012 | -0.17% |
| April 2012 | -0.51% |
| May 2012 | -6.68% |
| June 2012 | +0.12% |
| July 2012 | +0.99% |
| August 2012 | +0.42% |
| September 2012 | +0.99% |
| October 2012 | -0.39% |
| November 2012 | +1.04% |
| December 2012 | +2.17% |
| January 2013 | +2.31% |
| February 2013 | -0.93% |
| March 2013 | +1.42% |
| April 2013 | +1.70% |
| May 2013 | +0.46% |
| Since inception | +8.0% |
The Table above summarizes the performance of this strategy since we first posted the signals on the website.
Mebane Faber initially featured the long term performance of this strategy using five asset classes and the 10-month moving average.
