Currently we have 12 different ETF models at iMarketSignals. The various models and their correlation between them are shown below.
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The iM-5 ETF Trader
- This system always holds five ETFs (equity-, fixed income-, leveraged equity-, short equity-, and Gold-ETFs) selected according to stock market climate and rank.
- Typically, during good-equity markets it holds equity-ETFs and/or leveraged-equity ETFs, and during bad-markets fixed income-ETFs and/or short equity-ETFs. Also at times it can hold three gold-ETFs with other ETFs.
- A one factor ranking system selects five ETFs from a preselected list of 33 ETFs. A simulation from 2000 to 2017 shows a 35% annualized return with a maximum drawdown of -13%.
The iM-Minimum Drawdown Combo
In our continued effort to satisfy request for low drawdowns models with reasonable turnover and good returns we provide this model, which combines:
- the iM-Composite Timer (SPY-IEF),
- the iM-Composite Timer(GLD&SCHP+VTV&VOE+BIV&LQD) based on the iM-Composite (Gold-Stocks-Bond) Timer,
- the iM-Composite-(SH-RSP) Timer,
- the iM-Best7(HiD-LoV).
- This combination model always holds four ETFs approximately equal weight at any time and seven S&P 500 stocks.
The combo showed a simulated 22.2% annualized return with a maximum drawdown of -7.7% when backtested from Jan-2000 to Apr-2017.
The iM-Low Turnover Composite Timer Combo
In an effort to satisfy request for low turnover models with low drawdowns and reasonable returns we provide this model, which combines:
- the iM-Comp Mkt Timer Stocks/Bonds (VOE-BIV) based on the iM-Composite Timer (SPY-IEF) which holds only one ETF at any time (33% weight in the combo),
- and the iM-Composite Mkt Timer(GLD&SCHP+VTV&VOE+BIV&LQD) based on the iM-Composite (Gold-Stocks-Bond) Timer which holds two ETFs concurrently (67% weight in the combo).
- This combination model always holds two or three ETFs at any time for a minimum period of six weeks before any of them can be sold.
The combo showed a 17.6% annualized return with a maximum drawdown of -11.2% when backtested from Jan-2000 to Mar-2017 on the simulation platform Portfolio 123.
Updated: Timing the Stock Market with the Inflation Rate
- Stocks usually perform poorly when inflation is on the rise. Using the inflation rate, we developed a market timer according to two simple rules.
- Switching according to the Timer signals between the S&P500 with dividends and a money-market fund would have provided from Aug-1953 to end of Jan-2016 and annualized return of 12.69%.
- Over the same period buy-and-hold of the S&P500 with dividends showed an annualized return of 10.08%, producing about a quarter of the total return of the Timer model.
The MAC-US Timer – a Moving Average Crossover System of the S&P 500
- Switching between stocks and bonds as signaled by a simple moving average crossover system of the S&P 500 – the MAC-US Timer – produces significantly higher returns than buy-and-hold stocks.
- The model has been updated from Aug-1965 to Jan-2017, conservatively assuming that funds are placed in the money market when not in the stock market.
The iM Composite Timer Gold-Stocks-Bonds
- This model uses the rules of the iM-Gold Timer and the iM-Composite Market Timer to signal periodic investments in gold, stocks and bonds.
- From Jan-2000 to Jan-2017 the Gold Timer signaled eight gold investment periods totaling only 9.3 years, while for the remaining periods totaling 7.7 years the model would have been in cash.
- During the “cash periods” the Composite Market Timer provides the signals when to invest in stock and/or bond ETFs. Bond ETFs include the ETF (XLU) are also selected according to the prevailing Market Climate Score (MC-Score) and a ranking system.
Forecasting Stock Market Returns with Shiller’s CAPE Ratio and its 35-Year Moving Average
- Shiller’s Cyclically Adjusted Price to Earnings Ratio (CAPE ratio) is at 27.8, which is 11.1 above its long-term mean of 16.7, signifying overvaluation of stocks and low forward returns.
- The alternative CAPE ratio methodology offered in this article references stock market valuation to a 35-year moving-average of the Shiller CAPE ratio instead of to the 1881-2016 fixed long-term mean.
- The latest CAPE ratio predicts a 10-year annualized real return of only 1.5%, whereas the presented methodology forecasts 5.8%, similar to the long-term market trend expected real return of 5.4%.
Market Timing with ETFs SH and RSP: Using the iM-Composite & Standard Market Timers’ Rules
- This market timing model integrates the iM-Standard Market Timer and the iM-Composite Market Timer.
- This model switches between ETFs SH and RSP providing signals when to be short or long the stock market.
- The model does not utilize Bond ETFs, and is therefore not directly affected by the potential risk of rising interest rates.
- From 2001 to 2016 switching between SH and RSP provided significant benefits. This strategy would have produced an average annual return of 26.2% versus only 8.5% for buy&hold RSP.
Profitable Market Timing Using Performance of the Hi-Beta and Lo-Beta Stocks of the S&P 500
- This market timing model compares the performance of two different types of stock groups over time and provides signals when to invest or not to invest in the stock market.
- When the performance of the Hi-Beta stocks becomes lower than, or equal to Lo-Beta stocks the model exits the stock market and enters the bond market.
- It re-enters the market when the performance of the Hi-Beta stocks becomes higher than Lo-Beta stocks.
- From 2001 to 2016 switching between bonds and stocks provided significant benefits. This strategy would have produced an average annual return of 12.5% versus only 5.2% for buy&hold stocks.
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