Georg Vrba | iMarketSignals

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Profiting from the Consensus Stock Holdings of Five Hedge Funds (iM-5HedgeFundSelect)

Posted on May 22, 2020 by Georg Vrba — 28 Comments ↓

This is a copycat trading strategy based on the quarterly 13F filings of five hedge funds.
The model holds the top 20 consensus picks from a group of five hedge funds.
Changes in the holdings occur only every three months when the end-of-the-month 13F filings becomes public information.
From Jan-2007 to May-2020 this strategy would have produced an annualized return (CAGR) of 27.1%, much more than the 7.8% CAGR of the S&P 500 ETF (SPY).

Rational for a Copycat Strategy

Research from Barclay and Novus published in October 2019 found that a stock selection copycat strategy that combines conviction and consensus of fund managers that have longer-term views outperformed the S&P 500 by 3.80% on average annually from Q1 2004 to Q2 2019.

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Profiting from the Expected Uptrend of Gold with a Momentum Trading Strategy of Gold Mining Stocks

Posted on Apr 28, 2020 by Georg Vrba — 23 Comments ↓

The ratio of federal debt to the GDP is expected to rise dramatically due to the covid-19 pandemic fiscal stimulus. This should result in a significant gold price rally.
The analysis shows that a trading strategy for gold miners is preferable to a buy-and-hold investment strategy of individual mining stocks.
This momentum strategy selects periodically one gold mining stock from a set of three: AngloGold Ashanti Ltd (AU), Newmont Corp. (NEM) and Sibanye-Stillwater Ltd. (SBSW).
The selection is based on the momentum of the percentage price change and the up/down volume ratio of the stocks.
From Jan-2016 to Apr-2019 this strategy would have produced an annualized return (CAGR) of 80.6%, much more than that of the best performing single stock of the three considered.

The ratio of federal debt to the economic output of the U.S. is expected to rise dramatically by the end of 2020 as a result of the covid-19 pandemic fiscal stimulus. This, and low interest rates should result in a significant rally in gold, similar to the post 2008 gold price increase, as shown in the figure below.

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Read more >

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Short-Term Losses for Stocks Could Exceed 30%, But 10-Year Forward Returns Look Good

Posted on Apr 4, 2020 by Georg Vrba — No Comments ↓

The average of S&P500 for March-2020 was 2652. A 12% decline, or 325 point drop, would bring it to 2327, the end of March level of the long-term trend line.
A recession appears to be imminent. Stocks could lose up to 50% if the S&P reaches the lower prediction band line of the long-term trend.
If the percentage decline matches the loss during 2009-09 recession then the S&P500 could reach a low of 1560, a decline of about 35% from the current value.
The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 24.5, almost identical to the 35-year moving average (MA35) of the CAPE of 24.3.
The CAPE-MA35 ratio is 1.01, forecasting a 10-year annualized real return of 7.9%. Should the CAPE-MA35 ratio decline further then 10-year forward returns will be higher.

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Why Vanguard Should Retire The U.S. Momentum Factor ETF (VFMO)

Posted on Feb 17, 2020 by Georg Vrba — No Comments ↓

In February 2018 Vanguard released a set of five actively managed sector ETF’s and one multi-factor ETF. Here we report on the performance of the Momentum Factor ETF (VFMO).
Shortly after the inception of VFMO we published “Why Not To Invest In Vanguard’s New U.S. Momentum Factor ETF” which demonstrated that Vanguard’s selection criteria for this fund was flawed.
In the referenced article we stated that it was unlikely that VFMO would show a higher return than the SPDR S&P 500 ETF (SPY) over the year following inception.
In April 2019 in a follow up article we showed that the actual performance of VFMO since inception was 6.8% lower than that of SPY, confirming the conclusion in the bullet-point above.
Again, VFMO has underperformed SPY, and we come to the same conclusion for the following year, namely that the one-year return to Feb-2021 will be less than that of SPY.

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The iM-SuperTimer – Update No.2a:
Timing the Market with the iM-Stock Market Confidence Level

Posted on Feb 10, 2020 by Georg Vrba — 126 Comments ↓

For a detailed model description of the system please read the original description and previous update.
To make this model more user-friendly we will be providing signals for three different version of this model, all updated weekly.
The models’ holdings alternate between ETF (SPY) and ETF (IEF), being proxies for investments during up- and down stock market periods, repectively.
The iM-1wk-SuperTimer (SPY-IEF) would have produced an annualized return of 19.9% with a max drawdown of about -10%.
Appendix 2 shows that a (50%SPY+50%VCIT)-(IEF) strategy reduces drawdowns to -6.2% but would still have achieved an annualized return of 14%.

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Robust Recession Forecasting With Our New Long Leading Index For The US Economy

Posted on Jan 24, 2020 by Georg Vrba — 5 Comments ↓

The new Federal Reserve Bank of Chicago Brave-Butters-Kelley Indexes (BBK) provide useful input for recession forecasting.
We combine two BBK indexes with the Conference Board LEI and our Business Cycle Index BCIg to derive iMarketSignals’ new Long Leading Index (iM-LLI) for the US economy.
Our analysis shows that the iM-LLI would have provided an average warning signal about eight months before the start of recessions, as observed for the last seven recessions since 1967.
We are replacing the iM-Composite Index (COMP) with the new iM-LLI.
Currently this Leading Index is not yet warning of an oncoming recession.

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Estimating 10-Year Forward Returns For Stocks With The Shiller CAPE Ratio And The Long-Term Trend – Update January 2020

Posted on Jan 7, 2020 by Georg Vrba — 1 Comment ↓

The average of S&P 500 for Dec-2019 was 3166; that is 852 (i.e. 27% of 3166) above the Jan-2020 level of the long-term trend line.
The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a relatively high level of 30.1, and the 35-year moving average (MA35) of the CAPE is at 24.2.
The CAPE-MA35 ratio is 1.25, forecasting a 10-year annualized real return of 5.9%.
Investing in equities for the long-haul when the CAPE-MA35 ratio is below 1.30 should produce reasonable returns, as this level of the ratio does not indicate an abnormally overvalued market.

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The iM Tax-Efficient Seasonal ETF Switching Strategy

Posted on Sep 27, 2019 by Georg Vrba — 3 Comments ↓

This strategy exploits the anomaly that Cyclical Sectors and Small Caps perform best from November to April, and Defensive Sectors do better from May to October during most years.
Three identical models starting 6 months apart are used. Each model holds only one ETF for 18 months selected by a simple ranking system from the cyclical and defensive groups.
The effect of this is that the combination model always has 66% of the portfolio in the “correct” direction, defensive or cyclical, and 33% in the “wrong” direction.
The combination model trades only twice a year, switching only one position at the end of April and end of October.
For the approximately 18.5 year period from end of Apr-2000 to Sep-2019 the backtest showed an annualized return of 12.3% with a maximum drawdown of -24%.

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A Profitable Investment Strategy When The Yield Curve Inverts

Posted on Sep 13, 2019 by Georg Vrba — 5 Comments ↓

An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality is considered to be a predictor of recessions.
Prior to recession it is advisable to exit the stock market and invest in U.S. Treasuries instead; in this strategy using as proxies ETFs (SPY) and (IEF), respectively.
This model uses the 2-year and 10-year U.S. Treasury yields as measures of short-term and long-term rates, respectively, and calculates the Forward Rate Ratio (FRR2-10) between the two rates.
FRR2-10 is the ratio of the rate at which one can lock in borrowing for the eight year period starting two years from now and the current ten-year rate itself.
Currently the FRR2-10 is near 1.0 signifying that US economic activity is near the end of the expansion phase of this business cycle.

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The Almost Risk-Free Investment When The Yield Curve Inverts

Posted on Aug 31, 2019 by Georg Vrba — 20 Comments ↓

Prior to recession the yield curve becomes inverted, as indicated by the Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) being less than 1.00.

Currently the FRR2-10 is 0.998 and the smoothed FRR2-10 is 1.016 signifying that US economic activity is near the end of the expansion phase of this business cycle.

When FRR2-10 falls to near 1.00 the transition from expansion to boom occurs, as during boom times the Federal Funds Rate (FFR) is increased to slow the economy.

After the boom period comes the recession, on average 14 months after the FRR2-10 becomes less than 1.00, and concurrently the FFR is lowered.

An almost risk-free investment is to buy 2-year Treasury bonds when the FRR2-10 is close to 1.0 and to sell when the FFR is at its lowest after recessions.

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