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| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status |
|---|---|---|---|---|---|---|
| SPY | Equity Investment Instruments | -5.58% | n/a | 37 | 31-Dec-09 | Prior Holding |
08-Feb-10
ETF Rotational System V1.0, Part 2
Holding Rationale for SPY.
Well its time to take a look at how this thing actually performs.
But if you are new to this series, you might want to take a look at Part 1.
To recap:
System Specifics
The system will calculate the momentum/strength of each ETF in the portfolio, and then based on that metric, rank the ETFs. Version V1.0 will use RSI as the proxy for momentum.
- The top 4 highest ranked ETFs will be bought on the next open after the signal to rotate.
- Each ETF will be held for a minimum number of trading days.
- At the end of the minimum hold time, the ETF portfolio will be ranked and re-balanced, with all sells taking place at the close.
Version 1.0 will be using only 2 factors, which are RSI(65) and the minimum number of trading days to hold the ETFs, which is also 65. Again, review Part 1 to see why those inputs were chosen.
The Results:
Summary
SPY has a compound annual rate of 5.34% over the same time period, so V1.0, once commission and slippage is accounted for, has probably not done any better than a buy-and-hold strategy.
Obviously, the system has a propensity for large drawdowns, and that issue must be addressed. That will be an easy fix/test, and not very much fun since it is so easy. Therefore, we’ll make improving V1.0 a little more challenging. What I will do for V1.1 is use two different RSI calculations, weighting both of them differently, and then summing them to get our ETF rank. Any of you who read the comments section here have probably seen Jeff Pietsch of Market Rewind fame mention this method a couple of times. Using two different period settings and weighting them should be more interesting than applying the old moving average filter to deal with the drawdowns, and will keep the system simple 2 factor model, for now.
One other thing to mention is that there were not but a few ETFs trading back in the middle 1990s. Because the system is requiring 4 ETFs, you’ll notice that some of the early trades are held for a few years, because there were simply no other ETFs to rotate in to. This issue disappears after a few years and other ETFs come on board. You can explore all this by viewing the trades, which I’ve linked to below.
View all the trades here: ETF Rotational System V1.0 All Trades
Tagged Stocks: SPY
Posted at 22:27 in Holding Rationales | Permalink | Top
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