Investing in the 10 ETF Ivy Portfolio Using Relative Strength (BND, DBC, GSG, RWX, TIP, VB, VEU, VNQ, VTI, VWO)

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October 14, 2010 5:15pm NYSE:BND NYSE:DBC

Yesterday I reviewed and tested (here and here) a relative strength investing strategy of the 5 ETF portfolio used in Mebane Faber’s The Ivy Portfolio: How to Invest Like the Top Endowments and

 Avoid Bear Markets. I used ETF Replay for the testing.

Faber also suggests a 10 ETF portfolio in The Ivy Portfolio consisting of (NYSE:BND), (NYSE:DBC), (NYSE:GSG), (NYSE:RWX), (NYSE:TIP), (NYSE:VB), (NYSE:VEU), (NYSE:VNQ), (NYSE:VTI), (NYSE:VWO).  I tested this portfolio on ETF Replay using the same parameters as previous tests.  The 10 ETF portfolio was tested using a combination of 3 month returns, 20 day returns, and 20 day volatility (each weighted 40%/30%/30% and lower volatility receives a higher weighting) as well as 6 month returns, 3 month returns, and 3 month volatility.

I tested 2 different strategies, one which bought the top rated ETF and another which bought the top 3 ETFs at the beginning of each month.  I began the tests January 2007 even though only 7 of the 10 ETFs were trading at that time.  However, by August 2007 all 10 ETFs were trading.

The results are below and it is striking how well both strategies performed while also limiting drawdowns. As with yesterday’s results, the 6/3/3 strategy slightly outperformed the 3/20/20.

In comparison, simply buying and holding the 10 ETF in equal amounts results in a total return of -1.1% with a max drawdown of -48.56%:

3/20/20 Strategy for 10 ETFs          
  Total Returns CAGR Volatility Drawdown Total changes
Buy Top 3 67.40% 14.60% 18.50% -25.60% 39
Buy Top 1 76.80% 16.30% 19.50% -11.40% 33
SPY -10.60% -2.90% 28.00% -50.80%  
6/3/3 Strategy for 10 ETFs          
  Total Returns CAGR Volatility Drawdown Total changes
Buy Top 3 84.00% 17.50% 18.80% -25.80% 28
Buy Top 1 170.70% 30.20% 21.40% -10.30% 16
SPY -10.60% -2.90% 28.00% -50.80%  
  Total Returns CAGR Volatility Drawdown
Buy and Hold the 10 ETFs -1.10% -0.30% 21.00% -48.56%

Written By Scott’s Investments

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