ETFs

I have taken some time to look at my ETF asset allocation model and the results generated by the Ivy Portfolio trading method. Some of you mentioned that the recent years were very hard to predict and such a simple trading technique ( trading with the moving average ) should not be able to make sense in such high volatility market.

In fact, it’s the complete opposite; the Ivy Portfolio works better with highly volatile markets. I was surprised to see that the ETF asset allocation model works very well when market goes up and down many times. Surprisingly, it has less success when the ETF follows a steady trend over several years. In order to better understand this trading technique, here are my conclusions after looking at a 10 year history (from 2001 to 2011):

#1 You Will Trade Several ETFs

When you look at the Ivy Portfolio calculation details . you notice that there are several “unnecessary” trades where you sell and have to go back in the market only a few days later. This will not only affect your pocket since you are paying for trading fees each time the ETF price crosses the moving average but will also annoy you as an investor. If you don’t have a solid trading system where it triggers an alert each time you have to make a trade, you may lose some great investing opportunities.

#2 The Ivy Portfolio is at its best to avoid a downfall

If you look closely to the trading tables, you will notice that most ETFs were been sold in July 2008; right before the major market plunge. I find it quite interesting since you could have avoided almost the whole market crunch simply by following this very simple rule.

#3 The Ivy Portfolio is not too bad to catch the uptrends either

Considering the stock market index ETFs I used, most of them were sold in July 2008 and bought back in March 2009. If you ignore the few transactions done in between, you can see that you not only avoid most of the downfall, but you can also capture most of the uptrend as well.  The latest years have been a great example to show how great the Ivy Portfolio works well in times of high fluctuations.

#4 In Steady uptrend, the Ivy Portfolio is not impressive

If you look at the Canadian ETF for example, it is one of the very few (besides the emerging markets ETF I have used) to show a worse result than if you would have kept it for 10 years. This could be easily explained; the Canadian market was trending up most of the time. Therefore, there wasn’t many downfalls to avoid and you “lose” a part of the uptrend (which you can’t gain back since the stock is continuously rising and you missed the bottom price).

#5 Overall, the Ivy Portfolio Shows Better Return

I guess this is why it is so important to build a solid ETF asset allocation since some ETFs won’t work in the Ivy Portfolio. However, if you look at the overall portfolio I have built, it has outperformed individual indexes. The important point to consider before trading with the moving average is the trading costs and the system you will use to receive alerts.

In this regard, I know that INO offers a triangle trading system that is very similar to the moving average technique. They offer a service where you add the ticker you want to follow and they send you an email each time the stock or ETF is on an uptrend or downtrend.

I have used it in the past and it works very well… but you have to trade each time they send you an email. It’s the same thing with the Ivy portfolio method. If you want to learn more about it, you can take a look here:

Posted on 14 March 11 by pc 5 Comments | Permalink

ETFs

Last Monday, I took a huge contract; making the trade calculations for each ETF trading with a moving average of 200 days. I thought it was easy… man, this was a lot of trades! Before I jump with the actual calculation, I’ll share a few points to consider first:

#1 There are some trades that I have ignored

In order to list the trades according to the moving average, I have used Google Finance. Since there were moments where the closing price and the moving average were getting crossed every 2 days, I have skipped a few trades. So keep in mind that while it wouldn’t affect much the overall return of each ETF, but it would affect it if you trade with a small amount due to trading fees.

#2 Trading dates might now be completely exact

Since I had to cover 10 years of trade for each, I have decided to use the graphs from Google Finance as I have previously mentioned. However, this doesn’t give all the dates and trade prices (you skip a few days from one point to another on the graph). Nevertheless, the main point of this strategy is still respected; avoid most of the downfall and capture most of the uptrend.

#3 Trading calculations don’t take trading fees into account

I have not taken trading fees into consideration since they do not necessarily play a huge role in yield calculation. As you will see in the trading tables, there are several trades done for each ETF. Therefore, if you want to use the Ivy portfolio strategy . I strongly suggest you use it with a large amount. If you start your portfolio with $10,000, you may end-up eat a lot of your investment return in trading fees.

#4 I have “sold” all ETF on March 7 th 2011

In order to have a “final yield”, I have virtually sold all ETF on March 7 th 2011 even they were not meant to be sold according to the moving average. This exercise was to give you an idea of what works and what doesn’t with the Ivy Portfolio.

I leave you today with the table and I’ll return on next Monday with my final conclusion on the Ivy Portfolio and the ETF asset allocation model .

BOND ETF; SHY (Starting on August 2 nd 2002 ) (total yield:4.80% vs 3.21%)