Ok, for interest, lets track (paper trade) the 38 ETF Sector Portfolio generated in preparation for, and as part of, the upcoming (more diversified) Hawking Portfolio project to see if we can learn anything.
Since this (Sector Portfolio) is a 100% US equity portfolio it will not have much diversification but, for interest, let’s see if we can beat the performance of the SPX using a Cluster Weighted Momentum (CWM) model with SHY Filter. I have tried this in the past using a simple equal weight momentum (no clustering) model – without much success, i.e. no obvious benefit from just buying a broad market ETF such as VTI (or SPY) – but let’s see what happens using the new rules and if we can learn something that might be useful to apply to more diversified portfolios going forward.
Start Date of Test: 11/14/2013 – Next Adjustment Date: 12/17/2013 (33 Days)
For this test I will use all assets ranked higher than SHY, with no limitation on the number of assets used – up to the max 10 established through clustering i.e. 1 asset from each cluster. This may reduce returns but should also keep volatility as low as possible.
Rankings as of 11/14/2013 are as shown below:
A cluster analysis was performed as per earlier post and the portfolio is broken down into 10 Clusters (in this case exactly representing the 10 Sectors). Allocations to ETFs/Clusters are as indicated in the following Figures:
We can note the following:
- All 10 Sectors are represented (>SHY)
- Max allocation to a single sector/cluster – 21.52% to XLI (Industrials)
- Acceleration and Momentum numbers positive for all Assets
- All EMA signals bullish except 13 EMA for IYZ (Telecomm) – note: other Telecomm (VOX) below SHY momentum cut-off. I might hesitate to buy this in a live portfolio – certainly if I were choosing assets from this list to put in the Hawking Portfolio list, it would be gone – we’ll see what happens. Also, 3 of the 4 Utility ETFs fail the SHY momentum filter, so Utilities would probably be gone too and Financials don’t look that strong. Let’s watch these going forward.
Let’s keep track as we move forward. If members see something else worthy of note please contribute by adding your observations.