Quarterly ETF Strategy

Posted: April 13th, 2010 | Author: | Filed under: Uncategorized | Tags: , , , , , , , , , , , , , , , , , , , | No Comments »

This system is based on some personal research and the work done in
“Beating the Market, 3-Months at a Time” by Gerald and Marvin Appel.
A quick summation would be to rotate your assets to the best
performing ETF’s over the prior quarter. It is a little more
complicated than that but not much.

For several years I had been looking at Barron’s Quarterly Mutual
Fund Report trying to see if there was a way to get better than
average returns with the data in this report. I had been looking
specifically at the “results by sector” section in the Mutual Fund
Report. Then this past year I stumbled upon the “Beating the Market,
3-Months at a Time” and took the time to read it. I liked the book
but a few questions nagged me. It took a bit of time getting the
total returns for the ETF’s tracked, so I wondered if using the
“results by sector” could simplify things. The premise was
essentially the same rotate assets to the best performing ETF’s from
a selected list at the end of each quarter. I was somewhat worried
that the delayed release of the data (6 to 13 days after the end of
the quarter.) could hurt results, but I ended up being more than
satisfied with the results.

Here are the rules I used.
Invest 25% of funds into each of the TWO top-performing sectors in
Group One.

Group One
Sector (ETF)
Large Cap Growth (IWF)
Large Cap Value (IWD)
Small Cap Growth (IJT)
Small Cap Value (IJS)
Large Cap International (EFA)
Large Cap International Growth (EFG)
Large Cap International Value (EFV)

Invest 25% in the top-performing sector in Group Two.

Group Two
Emerging Markets (EEM)
Japan (EWJ)
Europe 350 (IEV)

Invest 25% in the top-performing sector in Group Three.

International Small/Mid Growth (IFSM)
International Small/Mid Value (SCZ)
Pacific Region (VPL)
Pacific Region ex Japan (EPP)
China (FXI)
Latin America (ILF)

If none of the sectors in a group showed a positive return for the
quarter, then keep that portion of the portfolio in cash equivalents
for the quarter. This will help to avoid any prolonged downtrends.

I do not know how Barron’s computes the quarterly sector performance,
but if the ETF performance were any clue, then our recommended
allocation for the following quarter would be.

25% IJS
25% IWD
25% EWJ
25% VPL
(The actual portfolio based on returns in Barron’s were different.)

Again this portfolio is based on a guess of what the actual sector
performances will be. I don’t think Barron’s Quarterly Report will
be published until the second weekend in April.

Here is a link to a worksheet showing the results of this strategy
over the past 10 years.