Conventional financial wisdom holds that the average investor should passively invest the vast majority of their money in low-cost exchange traded funds or mutual funds. The most commonly advised course of investment is a portfolio mainly costing of an ETF tracking the S&P 500 (IVV, SPY, etc.) which provides consistent annual returns of about 7.7%.
After thoroughly examining the rotational strategy I discussed here, I have found that it consistently outperforms the S&P 500. In my personal backtest, which was notably inefficient, the rotational strategy produced an average annual return of about 10% over the past 11 years. The CXO Advisory -- a professional financial research publisher -- conducted a backtest of the strategy which showed an average annual return of 12%. Either way, it is clear that this strategy clearly outperforms the S&P 500. The strategy involves tracking the 17 week performances of ETFs representing certain asset classes and investing equally in the three best performing ones at the beginning of each month. For my backtest, I considered the following ETFs and asset classes:
- PDBC - Commodities
- SCHE - Emerging Markets
- SCHF - Europe and Asia Large-Cap
- IAU - Gold
- SCHH - Real Estate
- IVV - US Large-Cap
- SCHA - US Small-Cap
- TLO - US Long-Term Treasury Bonds
- Cash - US Short-Term T-Bills
It seemed like a few people were interested in this strategy, so I thought I'd write down what I have found. There is absolutely no reason anyone should be investing primarily in an S&P 500 ETF after this. It also shows that anyone investing in generally inversely correlated asset classes at the same time (such as being invested in both gold and large-cap equities at the same time) really should not be doing so. While the risk would surely be lower in a more diversified portfolio, this strategy is rather low-risk due to the momentum considerations involved. You can read more about it here.
Submitted January 12, 2017 at 06:49PM by Meursault98 http://ift.tt/2jJSyvt
