Risk Management is a critical part of portfolio management as it eventually plays directly into portfolio return. Beginning with a stable of “critical” ETFs, the following Cluster Weighting Momentum (CWM) analysis identifies the favored securities based on data as of 2/12/2014. ETFs within this list are found in nearly all the portfolios tracked here at ITA.
ETF Rankings: The positive market at the end of last week is still reflected in the high number of ETFs that are outperforming SHY. Note that VSS just took over the top spot and all “systems” are go as it has a clean “green” record across the EMA spectrum. The absolute acceleration or momentum percentage is positive.
I also want to draw attention to VNQ as it continues to move up the list. I picked up shares of VNQ in several portfolios yesterday.
Cluster Identification: This cluster diagram is on the small size as I needed to crunch it down so my screen-capture software was able to corral it in one shot. I used a 0.80 correlation cutoff and this ended up breaking the portfolio into nine clusters. Set a little higher and VWO would have been split into a separate cluster. Since it is the poorest performing ETF it would not have made any difference.
Cluster #7 (Gold) is the only one to fall short of SHY.
Buy-Hold-Sell Recommendations: The favored ETFs are: SHY, VUG, VSS, VNQ, LQD, BWX, and PCY. TLT is a strong competitor to LQD. Based on the following recommendations for a $100,000 portfolio, only VSS shows up with a recommendation exceeding 20%.
Cluster Rankings: The following table isolates the favored ETFs based on the most recent information. I managed to pick up shares of VNQ, DBC, and PCY in at least one portfolio yesterday.