Core ETF portfolio

Core ETF Portfolio Signals


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.

  • Signals with the 6-month Moving Average

    As of August 31, 2014

    Asset Class ETF Description Target Weight Sep Signal
    U.S. Equity VTI U.S. Large Caps 5.0% LONG
    U.S. Equity VO U.S. Mid Caps 5.0% LONG
    U.S. Equity VB U.S. Small Caps 5.0% LONG
    U.S. Equity VIG U.S. Dividend Appreciation 5.0% LONG
    Adv. Equity VGK European Stocks 7.5% $Cash
    Adv. Equity EWJ Japanese Stocks 2.5% LONG
    EME Equity AAXJ Asia ex-Japan Stocks 5.0% LONG
    EME Equity ILF Latin American Stocks 5.0% LONG
    EME Equity GUR Emerging Europe Stocks 5.0% $Cash
    EME Equity EWX Emerging Small Caps 5.0% LONG
    REITs VNQ U.S. real Estate 5.0% LONG
    REITs RWX International Real Estate 5.0% LONG
    Commodities DBC Commodity Broad basket 7.5% $Cash
    Commodities DBO Oil Fund 2.5% $Cash
    Bonds WIP Intl. Inflation-protected Bonds 5.0% LONG
    Bonds BWX Intl. Bonds 5.0% LONG
    Bonds TIP Inflation-protected U.S. Bonds 5.0% LONG
    Bonds JNK High-Yield Bonds 5.0% LONG
    Bonds LQD Inv Grade Corporate Bonds 5.0% LONG
    Bonds TLT Long Term U.S. Treasuries 5.0% LONG

  • Signals with the 10-month Moving Average

    As of August 31, 2014

    Asset Class ETF Description Target Weight Sep Signal
    U.S. Equity VTI U.S. Large Caps 5.0% LONG
    U.S. Equity VO U.S. Mid Caps 5.0% LONG
    U.S. Equity VB U.S. Small Caps 5.0% LONG
    U.S. Equity VIG U.S. Dividend Appreciation 5.0% LONG
    Adv. Equity VGK European Stocks 7.5% LONG
    Adv. Equity EWJ Japanese Stocks 2.5% LONG
    EME Equity AAXJ Asia ex-Japan Stocks 5.0% LONG
    EME Equity ILF Latin American Stocks 5.0% LONG
    EME Equity GUR Emerging Europe Stocks 5.0% $Cash
    EME Equity EWX Emerging Small Caps 5.0% LONG
    REITs VNQ U.S. real Estate 5.0% LONG
    REITs RWX International Real Estate 5.0% LONG
    Commodities DBC Commodity Broad basket 7.5% $Cash
    Commodities DBO Oil Fund 2.5% $Cash
    Bonds WIP Intl. Inflation-protected Bonds 5.0% LONG
    Bonds BWX Intl. Bonds 5.0% LONG
    Bonds TIP Inflation-protected U.S. Bonds 5.0% LONG
    Bonds JNK High-Yield Bonds 5.0% LONG
    Bonds LQD Inv Grade Corporate Bonds 5.0% LONG
    Bonds TLT Long Term U.S. Treasuries 5.0% LONG

A Dynamic asset allocation


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.

Core ETF Portfolio Performance


Data as of August 31, 2014

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 +2.21%
February 2013 -1.04%
March 2013 +1.28%
April 2013 +1.72%
May 2013 -2.16%
June 2013 -1.15%
July 2013 +1.31%
August 2013 -0.90%
September 2013 +1.33%
October 2013 +2.06%
November 2013 -0.26%
December 2013 +0.55%
January 2014 -3.03%
February 2014 +2.20%
March 2014 +0.24%
April 2014 +1.13%
May 2014 +1.44%
June 2014 +1.90%
Jul-Aug 2014 +0.4%
Since inception +12.8%

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.