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A Basic ETF Portfolio For August (BND, DBC, VEU, VNQ, VTI)

August 1st, 2010
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I previously detailed some basic portfolios as well as trading ideas. In an effort to be more user friendly, I track the portfolios monthly on my blog using Google Docs. One portfolio consists of 5 basic ETFs: (NYSE:BND)- Vanguard Total Bond Market ETF, (NYSE:DBC)- Powershares Commodity Index, (NYSE;VEU)- Vanguard FTSE All-World ex-US ETF, (NYSE:VNQ)- Vanguard REIT Index ETF, (NYSE:VTI)- Vanguard Total Stock Market ETF. 
 
Despite only being 5 ETFs, one could take multiple approaches to the portfolio, from buying and holding to actively managing it; or an investor could use a combination of different approaches or trading strategies. Listed below are the month end results for July of the 5 ETFs listed above. One could purchase the top 1,2, or 3 performing ETFs based on momentum as judged by the 3-6-12 returns or just the 6 month returns. In this case, that would indicate a purchase of (BND), (VNQ), and (VTI) (3-6-12 strategy and 6 month strategy).  This combination of ETFs is the same as last months list.
 
Another twist an investor could add would be to purchase the underlying securities based on momentum only if they are also trading above their 200 day moving average (or another moving average of your choice). At the end of July, (VEU), (VNQ) and (BND) were above their 200 day simply moving average.  (VTI) is within pennies of its 200 day moving average.  Thus, an investor could take an alternative approach to the previous paragraph and purchase (BND) and (VNQ).

Many of the strategies listed here were inspired in part by Mebane Faber, author of The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. For an even better explanation of some of the strategies, I recommend the book. Also, he has a new project which allows users to replicate the best performing hedge funds, AlphaClone.

The data source for the information below is Finviz, which has some of the best free financial data on the web (as well as a new elite service) and Google Finance.

In addition, I have also added an exciting new ranking feature.  Using ETF Replay, I am ranking the ETFs in various portfolios based on their 3-factor statistical model that combines relative strength and volatility.  The current ranking of the 5 ETFs are below.  I ranked the ETFs over different time periods – the first column is the rank of each ETF based on a combination of 6 month and 3 month return and 3 month volatility.  The rankings are identical for both different tests I ran this month. For previous discussions on this system please read the articles here andhere.  An investor could use the ETF Replay ranking system similar to the momentum and moving average system detailed above. 

Ticker Company Free Analysis 3 Mo. 6 Mo. Year 3-6-12 Sum 200-Day SMA
(BND) Vanguard Total Bond Market ETF Here 3.48% 4.69% 8.42% 16.59% 3.88%
(DBC) PowerShares DB Commodity Index Tracking Here -6.34% 0.88% 1.33% -4.13% -2.20%
(VEU) Vanguard FTSE All-World ex-US ETF Here -2.63% 3.43% 10.53% 11.33% 0.12%
(VNQ) Vanguard REIT Index ETF Here -1.66% 22.59% 54.16% 75.09% 11.73%
(VTI) Vanguard Total Stock Market ETF Here -7.18% 4.40% 15.27% 12.49% -0.04%

 

  ETF Replay Ranking    
    (6 mo return/3 mo return/3 mo volatility) 3 month return/20 day return/20 day volatility
(BND)   1 1
(VNQ)   2 3
(VTI)   3 5
(VEU)   4 2
(DBC)   5 4

 

Written By Scott From Scott’s Investments

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NYSE:BND, NYSE:DBC, VEU, VNQ, VTI


 

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