ETF Replay Portfolio For July

I previously detailed how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility. I select only the top 4 ETFs out of a static basket of ETFs and re-balance the portfolio monthly.

For 2013 the static basket of ETFs was reduced from 25 to 15. From this basket of 15, the top 4 are purchased each month. The portfolio will be re-balanced 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. I added the top 5 requirement in order to further limit turnover. ETFs will be ranked on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking).

In addition, ETFs must be ranked above the cash ETF SHY in order to be included in the portfolio, similar to the absolute momentum strategy I profiled. This modification could help reduce drawdowns during periods of high volatility and/or negative market conditions (see 2008-2009).

The top 5 ranked ETFs as of 6/28/13 are below:


Last month the strategy moved to 75% cash with the balance in VTI. For July there is no change to the allocation. Since cash is the second highest rated ETF, anything rated below it does not qualify. This is a defensive allocation, as a result of recent volatility and negative performance in a variety of equity, commodity and bond markets.

The strategy’s performance since inception is below, as is comparative performance of the SPDR S&P 500 ETF (SPY), a balanced allocation ETF, the iShares Growth Allocation (AOR), and the Permanent Portfolio (PRPFX):

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.