ETF Replay Portfolio Mid-Month Update

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One of the most followed portfolios on
Scott's Investments
is the
ETF Replay Portfolio
, or Relative Strength Portfolio,  which I typically update around the 1st of the month.  However, as I have previously noted, the portfolio can be updated or rebalanced at any point so given the recent market volatility now is a good time to check in on the strategy.


The strategy is to buy the top 2 ranked ETFs based on the weighting of the 6 and 3 month returns and 3 month volatility (what I call the "6/3/3" strategy) as well as the top 2 ranked ETFs based on the weighting of the 3 month and 20 day returns and 20 day volatility ("3/20/20"). If there are duplicates in the top 2, then the strategy purchases the third ranked ETF in the 3/20/20 strategy and, if necessary, the third ranked in the 6/3/3 strategy. In other words, the portfolio always holds 4 ETFs. 


At the beginning of March, the portfolio called for the following holdings:


XLE U.S. Energy Sector SPDR
DBC PowerShares DB Commodity Index

VNQ Vanguard Morgan Stanley REIT
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DBA PowerShares DB Agricultural Commodities


As of today's close the strategy, if one were to choose to re-balance today, calls for holding:


TIP iShares Barclays TIPS
WIP SPDR Int'l Gov't Inflation-Protected Bond
DBC PowerShares DB Commodity Index
XLE U.S. Energy Sector SPDR


DBC and XLE are the picks for the 6/3/3 strategy, so the longer term trend is still in favor of commodities and energy. However, the shorter term trend has shifted to inflation protected bonds, both in the US and internationally. Clearly, a portfolio of the 4 ETFs above are heavily protected against future inflation as was the portfolio at the beginning of the month.


How does re-balancing the portfolio semi-monthly backtest? In recent years both the 6/3/3 and 3/20/20 strategy have far outperformed SPY (S&P 500). The returns below are for holding the top 2 ETF in each strategy since 2007 and re-balancing semi-monthly. Note that returns exclude commissions and taxes:


6/3/3:






3/20/20



I will continue to update the portfolio monthly at Scott's Investments. If you enjoy this type of free content, do me a favor and leave me a review at Investimonials!

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