• This ETF trading model uses the Conference Board Leading Economic Index to determine “Risk-On” periods for equities.
• A universe is defined from the SPDR, Vanguard, and PowerShares ETF providers for the sectors healthcare, energy, communication, technology, and general multi-sector funds, holding large-mega cap stocks from the United States.
• The model selects 3 ETFs from the previously defined universe at the beginning of a “Risk-On” period and holds these ETFs continuously until the end of the “Risk-On” period.
• During “Risk-Off” periods for equities it goes to the gold ETF (GLD) to maximize returns. ETF (BND) is also a suitable alternative to GLD.
• The simulation shows that this strategy would have produced over 7-times the total return of SPY with similar risk.

• Investment risk can be reduced by a multi-model market timer whose many components use different and uncorrelated financial and economic data, including inflation.
• This model seeks to determine effective asset allocation for risk-on and risk-off periods for equities considering the effect of inflation.
• Four risk scenarios are possible: risk-on & normal-inflation, risk-on & high-inflation, risk-off & normal-inflation, and risk-off & high-inflation. Different ETF groups apply to each risk scenario.
• From 2000 to 2022, switching accordingly between risk-related ETF groups would have produced an annualized return of about 39% versus 6.5% for buy and hold SPY.

• We tested nine asset classes which are supposed to provide protection against inflation according to an Investopedia article. The test period was from January 2005 to May 2022.
• Investopedia provides no definition for inflationary environment, but this analysis uses the 6-month moving average of the inflation rate and the University of Michigan: Inflation Expectation© series to define it.
• For this investigation we consider separately the inflationary periods which fall within the Risk-on and Risk-off phases for equities, as defined by the iM-Multi-Model Market Timer.
• From the asset classes listed by Investopedia only the Vanguard Real Estate ETF (VNQ) provided some inflation protection relative to the SPDR S&P 500 ETF (SPY).
• Better inflation protection is provided by energy sector ETFs XLE and PXE, but energy sector funds were not among the asset classes listed in the Investopedia article.

• The average of S&P 500 for February 2022 was 4436 (5% down from December 2021 average) and is still 1896 points higher than the corresponding long-term trend value of 2540.
• A reversal to the long-trend would entail a 43% decline, possibly over a short period aggravated by the imminent S&P500 death cross.
• The Shiller CAPE-ratio is at a level of 35.9 (down 7.2% from its recent peak of 38.7). That is 41% higher than its 35-year moving average (MA35), currently at 25.5.
• The CAPE-MA35 ratio is 1.41 (down from the end of December 2021 level of 1.51), forecasting a 10-year annualized real return of about 4.6%.
• The historic long-term trend indicates a 10-year forward real annualized return of only 0.8% (up from the end of December 2021 forecast of 0.2%).

• The difference in return of the Consumer Staples- and the Consumer Discretionary sectors can provide risk-on and risk-off signals for equity investment.
• Four time series sets are used: ETFs XLP & XLY, Portfolio 123 Specialty SP1500 Consumer Staples & Consumer Discretion, Aggregate Series Non-Cyclical & Cyclicals, and ETFs RHS & RCD.
• Investment in equities is signaled when the 15 week return of the discretionary sector outperformed the staples sector’s return.
• From 5/1/1999 to 10/1/2021 this strategy, when accordingly switching between ETF SPY and ETF IEF, would have produced a 14.9% annualized return with a maximum drawdown of -17%.

• This model only holds fixed income asset class ETFs, never equity. It significantly out-performs the S&P 500 ETF (SPY) over longer periods by strategically switching holdings for risk-on and risk-off situations.
• It uses three previously published market timing algorithms, the ModSum Timer, the YieldCurve Timer, and the Cyclically Adjusted Risk Premium (CARP) to define risk-on, risk-off, and hedging periods.
• During risk-on periods, as indicated by the ModSum Timer and the CARP, the model holds the SPDR Bloomberg Barclays Convertible Securities ETF (CWB).
• During risk-off periods the model switches to iShares 20+ Year Treasury Bond ETF (TLT).
• Near, or during recession periods, as indicated by the YieldCurve Timer, the model is hedged with the iShares 7-10 Year Treasury Bond ETF (IEF), irrespective of the risk situation.

The strategy described here demonstrates that contrary to the accepted believe investing in fixed income can produce superior returns to equity investments.  This model uses three previously published market timing algorithms to define risk-on, risk-off, and hedging periods.
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