ETFReplay.com Portfolio for January 2012

This month's ETFReplay.com Relative Strength ETF Portfolio has been updated at Scott's Investments and includes turnover in three positions.  As I mentioned in yesterday's Basic ETF post, you will see some changes to how the portfolios are tracked on the site.  There will be less transaction history posted due to the limitations of Google Docs, the clutter created with too many details on the spreadsheets, and the amount of time required to manually track dividends and performance. I will be using a third-party software platform to perform performance calculations and post the results monthly.  

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Strategy Background

I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility.  I originally created a portfolio of 22 ETFs and then expanded it to 25 ETFs which I believe represent a diverse basket of ETFs.  Readers often get confused by this point - I select only the top ETFs out of this static basket of 25 ETFs.

The buy/sell strategy for the portfolio is simple: purchase the top  ETFs based on a combination of their 6 month returns, 3 month returns, and 3 month volatility (lower volatility receives a higher ranking) and the average of  the 3 month return, 20 day return, and 20 day volatility.  I refer to these two different sets as "6/3/3" and "3/20/20".  The top 2 ETFs in the 6/3/3 ranking and top 2 in the 3/20/20 ranking are purchased each month.  When there are duplicates in the top 2, I look to the third ranked ETF in the 3/20/20 and, if necessary, the third ranked ETF in the 6/3/3.  The strategy always holds 4 ETFs.

I track this strategy as a public portfolio on Scott's Investments.  As of the close December 30th the hypothetical portfolio was up 7.5% including dividends (returns exclude commissions and taxes and all trades are hypothetical so real results will differ).  For some backtests on these strategies please see a post from mid-September.


2012 Updates

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For December 30th the strategy sold its positions in SHY (Barclays Low Duration Treasury), IEF (iShares Barclays 7-10 Yr Treasury), and XLU ( U.S. Utilities Sector SPDR). The proceeds were used to purchase  PCY (PowerShares Emerging Mkts Bond), HYG (iShares iBoxx High-Yield Corp Bond), and VNQ (Vanguard MSCI U.S. REIT).

Minor fluctuations in rankings may not always justify selling positions each month. For example, if one ETF drops from the second highest rated to the third or fourth highest rated, it may not warrant selling the position. An investor could only sell a position when it drops out of the top 4 or 5 at the end of the month. This type of modification could be used when someone is looking to limit turnover; however, I think it is important to have whatever rule you prefer to use in place prior to making the investment decision in order to avoid discretionary or emotional decision making.
Below are the full rankings of both the 6/3/3 and 3/20/20 strategies, in order from top to bottom ranked:

	3mo/20d/20d
Symbol	Name
HYG	iSharesiBoxxHigh-YieldCorpBond(4-5yr)
PCY	PowerSharesEmergingMktsBond(7-8yr)
VNQ	VanguardMSCIU.S.REIT
XLU	U.S.UtilitiesSectorSPDR
LQD	iSharesiBoxxInvestGradeBond(7-8yr)
SPY	SPDRS&P500Index
TIP	iSharesBarclaysTIPS(4-6yr)
IEF	iSharesBarclays7-10YrTreasury(7-8yr)
VBR	VanguardMSCIU.S.SmallCapValue
DBV	PowerShDBG10CurrencyHarvest
PFF	iSharesS&PUSPreferredStockIndex
TLT	iSharesBarclaysLong-TermTreasury(15yr)
SHY	BarclaysLowDurationTreasury(2-yr)
WIP	SPDRInt'lGovtInfl-ProtectBond(9-10yr)
XLE	U.S.EnergySectorSPDR
DBC	PowerSharesDBCommodityIndex
BWX	SPDRBarcapGlobalEx-U.S.Bond(6-7yr)
EFA	iSharesMSCIEAFEIndex
EEM	iSharesMSCIEmergingMarkets
DBA	PowerSharesDBAgriculturalCommodities
SCZ	iSharesMSCIEAFESmallCapIndex
LSC	ElementsS&PC.T.I.
DBB	PowerSharesDBBaseMetals
RWX	SPDRDJInternationalRealEstate
GLD	SPDRGoldShares

	6mo/3mo/3mo
Symbol	Name
TIP	iSharesBarclaysTIPS(4-6yr)
PCY	PowerSharesEmergingMktsBond(7-8yr)
LQD	iSharesiBoxxInvestGradeBond(7-8yr)
XLU	U.S.UtilitiesSectorSPDR
IEF	iSharesBarclays7-10YrTreasury(7-8yr)
HYG	iSharesiBoxxHigh-YieldCorpBond(4-5yr)
TLT	iSharesBarclaysLong-TermTreasury(15yr)
SHY	BarclaysLowDurationTreasury(2-yr)
DBV	PowerShDBG10CurrencyHarvest
VNQ	VanguardMSCIU.S.REIT
SPY	SPDRS&P500Index
BWX	SPDRBarcapGlobalEx-U.S.Bond(6-7yr)
WIP	SPDRInt'lGovtInfl-ProtectBond(9-10yr)
PFF	iSharesS&PUSPreferredStockIndex
DBC	PowerSharesDBCommodityIndex
XLE	U.S.EnergySectorSPDR
GLD	SPDRGoldShares
VBR	VanguardMSCIU.S.SmallCapValue
DBA	PowerSharesDBAgriculturalCommodities
EFA	iSharesMSCIEAFEIndex
EEM	iSharesMSCIEmergingMarkets
LSC	ElementsS&PC.T.I.
SCZ	iSharesMSCIEAFESmallCapIndex
RWX	SPDRDJInternationalRealEstate
DBB	PowerSharesDBBaseMetals

Performance data and current positions are listed below:

Disclaimer: No current positions in stocks mentioned. Please note that Scott's Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott's Investments.