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Thursday, January 11, 2018

ETF Momentum Rotation Systems - 2017 Results

In the ETF Rotation Systems to Beat the Markets series, written more than three years ago, we discussed the idea behind this dynamic, and yet fairly laid back way of investing, which evidence suggests is superior to simply following an index (Mebane Faber's work, back-testing some of these principles over a century of data is a good starting point). With 2017 in the rear-view mirror, it's a good time to compute the most recent results. Once again I bought a one-month membership over at ETFReplay.com to run the tests and show you the results.

Disclaimer: as I have mentioned in the past, I personally do not have money invested in any of these systems.  I think they are an interesting idea to explore for those with very long time-frames and large amounts of capital to preserve. As we have discussed in the past, rotation systems will usually under-perform the market (SPY) in straight up years, where every correction is short-lived, as the systems tend to exit equity positions on a small correction, only to miss the immediate recovery, which has been the tone in recent years. This technique however, is what prevents staying invested during extended bear markets, reducing the depth of the draw-downs drastically.


So how did the systems perform in 2017?
Not a great year if we were to compare the ETF Rotation systems against SPY. Maybe, just maybe, one day we will see more pronounced corrections that will let these systems shine. That said, even though they under-performed SPY in 2017, they preserved capital while bringing gains and giving investors piece of mind that in a true extended correction that lasts more than a month, all these systems will avoid the deep hole by exiting on a 10-month Moving average filter rule that moves the positions in corresponding instruments to cash.


Results:

1-American Equities
Symbols: XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY
2017 Return: +13.1% (Investing in the 3 best symbols each month and applying moving avg filter for cash position)

Updated All-Time statistics*:

$$$
Symbols: EEM, EPP, IEV, ILF, MDY
2017 Return: +20.3% (Investing in the 2 best symbols each month and applying moving avg filter for cash position)

Updated All-Time statistics*:

$$$

3-American Equities + TLT + GLD + IYR + EEM
Symbols: XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY, TLT, GLD, IYR, EEM
2017 Return: +13.9% (Investing in the 3 best symbols each month and applying moving avg filter for cash position)

Updated All-Time statistics*:

$$$

4-SPY + EFA + IEF + GLD + ICF
2017 Return: +13.8% (Investing in the 2 best symbols each month and applying moving avg filter for cash position)

Updated All-Time statistics*:


$$$

5-SPY + IWM + EEM + EFA + TLT + TLH + DBC + GLD + ICF + RWX 
2017 Return: +10.5% without cash position and +9.4% when applying the filter for moving to cash positions.

Updated All-Time statistics (with filter rule)*:


$$$


6-SPY + EFA + IEF + GLD + ICF + DBC
2017 Return: +8.7% (Investing in the 2 best symbols each month and applying moving avg filter for cash position)

All time statistics*:



* The starting point is not the same for all back-tests. It depends on the inception date of the ETFs included in the respective system.

Conclusion
Rotation systems under-performed the simple buy/hold of SPY. However, they still show better historical risk-adjusted returns than simple buy/hold.

I will keep updating this experiment for a few more years, and hopefully we will get to see the benefits of the hedging capabilities on a market down year.

LT

Related Articles:
ETF Rotation Systems to beat the markers Serie 
ETF Momentum Rotation Systems - 2016 Results
ETF Momentum Rotation Systems - 2015 Results
ETF Rotation systems - ranking evaluation with Excel


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