Rudesheim, Germany
It was a bullish week in the US Equity markets with the S&P 500 closing the week ~2.6% higher than last week’s close and at all-time highs:
The closes on the last 2 days were also outside the Expected Move (EM) for the week and volatility has dropped. We will now wait to see whether we can test the big 4000 round number – that is within the EM range for next week – or whether we will pullback for a retest of the ~3830 level.
Checking on the performance of the Rutherford Portfolio:
we see that, despite not holding any positions in “pure” equity ETFs and 50% in Cash, we have not performed too badly over the past week:
In Tranche 5 (the focus of this week’s review) we are holding 90 shares of AOR (our benchmark fund) with ~$15,000 in Cash.
Checking our Tranche worksheet:
we see that, based on rotations:
the recommendations are to hold positions in VTI and VEA (Equity ETFs), VNQ (Real Estate) and DBC (Commodities). However, note the rotation of equity ETFs into the lower right quadrant – indicating a weakening trend.
After 6 months of watching these rotations I am sure there is valuable information contained in the numbers – but I am still having difficulty in finding an algorithm to take advantage of the data. I therefore also check our existing BHS model recommendations:
where we see recommendations to Buy or Hold positions in VEA, VWO, VNQ, RWX and DBC.
Since I am not yet convinced that I have a better system I will let the BHS model influence my decision on how to interpret the rotation data. I will add positions in DBC and VNQ – as recommended by both models and I will choose to go with a position in VEA (recommended in both systems). However, I am a little confused with VTI in that it looks stronger in the rotation graphs than VEA but ranks lower in the BHS model. Also, remembering the situation with US Equities (at all-time highs) it would seem prudent to be a little careful at the present time. I am therefore going to compromise a little and to keep my existing position in AOR (an equity/bond ETF). This will also save me a little in commissions/slippage and avoid too much churning.
My adjustments for this week will therefore look like this:
with ~8% risk with 1.65 SD stop loss orders in place.
David
David,
What is your setting for Buy Low/Sell High Period in the Menu sheet?
Out of curiosity, I graphed the quil looking at the last 10 days and last 15 days. The top rankings were:
10-day: DBC, VNQ, VTI, VEA, RWX, VWO
15-day: DBC, VNQ, VTI, VEA, RWX, VWO
Note that the top 4 mirror your “rotation model” results above. That is reassuring.
As for VTI not being included in the BSH results, that is a bit of a conundrum. I also graphed 3-month and 6-month prices (not adjusted for dividends or earnings) and VTI was in the top 4 in both of those as well. The “Hold” on VWO is what is keeping VTI out of a Buy in the BSH model and that may be because despite its short-term relatively low ranking based on the graphs, it was the highest ranked security over the last six months until around February 16; since then it has been trending down. So my WAG is that the 40% Momentum weighting in the Score Rank Weightings is outweighing the negative 5-Day HA (which only has a 10% weighting) because of the superior momentum of VWO over the first 5 months of the 6-month period. I can picture the linear regression lines in my mind. I suspect that relationship will change over the next week or so unless VWO improves.
I ran your BSH model this morning with both Yahoo and TIngo adjusted prices and VWO ended up with a Score of only 4 (Sell), which means that VTI became a Buy – consistent with your Rotation model.
By the way, I bought DBC quite a while ago based on the rotation model because of a very positive “tail”. It has done well for me – slow and steady but a relatively continuous rise.
~jim
Jim,
Good question on the BL/SH setting – I didn’t know the answer without checking the workbook – I’ve got it set at 60 for this portfolio. This is slower/more lag than I am presently using for most other portfolios where I have tended to use 10 or 20 (preferred) days.
Nice analysis of the rotation tendencies – I think your observations/reasoning are absolutely correct. Unfortunately it doesn’t really help me to design an algorithm that works under all market conditions (without prior knowledge of what those conditions might be). As we’ve said many times, no single system works best under all market conditions.
And yes, DBC has done quite well. Although I was holding DBC in all tranches for a while, my tight (1 SD) TSLOs took me out – now I have to try to get back in – so I’ve missed out on a portion of the move by getting whipsawed. That’s why SLOs upset me so much 🙂 – and I’m not a big fan – but I need to play it relatively safe. I can live with my original 1.65 SD (10% stop-out probability) so will go back to that.
David
Jim,
btw, although it’s not an obvious input in the rotation model that I’m working with, the equivalent of the BL/SH period in that model is currently set at 20 days.
David
David,
For a newbie to the Rutherford models, without having to re-read all the postings, is there one posting that describes what all the settings do so I don’t feel like a monkey pushing buttons at the control panel? 🙂
Thanks for any help you can give,
Phil
Phil,
This “Camtasia” is a tad old, but I think it might be helpful in giving you an overview of the Kipling.
https://youtu.be/CY_Wx68hrZc
To keep things simple, I would not deviate too far away from the default settings. For example, stay with the 60- and 100-trading days look-back periods.
Yes, you will need to enter your securities in the Portfolio worksheet as well as the number of shares and cash in the account. Then select one of the four models. They are: HA, BHS, LRPC, and DM for Dual Momentum.
Ask again if you need more help.
Lowell
Hi David,
I have noticed recently you have been using AOR as your benchmark most of the time. Why the change?
BobT
Bob,
Good question and I should have explained the reason. Since the objective is to try to “beat” the benchmark I am testing the idea of including the benchmark as a possible candidate for holding in the portfolio – other holdings would, ideally, be expected to outperform the benchmark. Rather than changing the “arrows” in the Rutherford “quiver” I have used AOR as the benchmark. You will note that I now hold AOR in tranches 4 and 5 and I make the decision as to whether to do this by checking whether, if I have excess Cash, AOR has higher or lower Momentum relative to SHY in the rotation graph. In the above rotation graph AOR (at the origin) lies to the right of SHY – so momentum is positive (on a relative basis). I could use VTTVX (or any other appropriate fund) as my benchmark but, since this is a mutual fund, only tradeable at the End-Of-Day (EOD), I have chosen to use AOR (an ETF) that is tradeable intra-day. Since both VTTVX and AOR are Equity/Bond funds they perform similarly and are both appropriate benchmarks for the Rutherford.
Hope this explains my rationale/thinking.
David
David,
I understand. I like to use AOR for benchmark as well especially during trading hours to see how it is performing during trading hours. I like to use VTTVX for relative performance during the year since it only makes one distribution per year in December.
Bob