This blog post is primarily for new ITA readers who not familiar with the Kipling spreadsheet. With few exceptions, I’ll stick to the “default” settings in this analysis.
Kepler Main Menu
Beginning with the Main Menu, the “default” settings are to use the 60- and 100-trading days look-back combination. I’m running a look-back test with the Franklin, McClintock, and Pauling so you might want to follow those portfolios from month to month.
The red arrows point to the critical information. I don’t mess with the other variables as back-tests indicate these work well over the long run.
Kepler Investment Quiver
Now we come to the investment quiver or list of securities you wish to use to populate your portfolio(s). This list of securities will vary from user to user. If you are unsure, just set the Strategic or Max AA percentages to 100% and let the program make the decisions. My preference is to set maximum securities percentages. This goes back to my early days of setting up Asset Allocation portfolios.
Kepler HA Recommendations
I’ve been using the BHS model for most Relative Strength portfolios. However, in this example I switched to the HA model for variety. Your choices for an investment model are found in the pull-down menu identified by the right red arrow. I generally use five (5) as the maximum number of securities to hold at any single time. The Dual Momentum (DM) model is available and as you well know, I recommend using this model for a portion of the family portfolio.
Due to my asset allocation maximum values, four ETFs show up as a Buy and all are allocated a maximum of 25%. They are: VOE, VBR, VO, and VB. All are U.S. Equities and they are tilted toward value and small size or two of the five Fama-French factors.
Kepler Manual Risk Adjustments
The Manual Risk Adjustments worksheet is where many of the managerial decisions are made. If using the HA model, we sell VTI, VWO, VNQI, HYT, and SCHC. If using the BHS model, many of these ETFs would show up as Hold? recommendations.
Cash raised from these sales is used to purchase VOE and VBR. Since VBR ranks #1, fill it to the recommended level and then use the remaining cash to fill the VOE recommendation.
Kepler Risk Ratios
While it is still early in March, I did not include any data. That will come when the Kepler goes through a full review in two weeks. Note the start date of 4/30/2017 and the AA Start Date of 11/30/2020. The latter date is when I made a shift in how the Kepler is managed. The slope of Jensen’s Alpha improved since making the shift. The next six months will provide useful information as to whether or not the management shift added or subtracted value. Watch Jensen’s Alpha value for clues.
If you have questions or comments, please place them in the Comment section at the bottom of this post.