• 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%.

• 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.

• The iM-Bond Market Trader exploits the fact that, generally, when equity returns are good high yield bonds outperform investment grade bonds.
• When equity performs well the model invests in one of the high yield bond ETFs HYG, JNK, or EMB.
• If stock market climate deteriorates the model switches to Treasury Bond ETF IEF.
• Backtesting over the preceding 20 years the model showed a simulated annualized return of 14.6% with a maximum drawdown of -9.6%, versus 5.0% and -9.3% for benchmark ETF BND, respectively.
• Simulations also show that the model’s returns over any calendar year are positive and exceeded those of BND.

This model uses only four fixed income ETFs:
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• Since the launch of IM-Best12(USMV)Qx (x=1,2,3,or 4) in 2014, these models converged to a combined holding of 18 stocks, thus future performance of each of the models is expected to be very similar.
• There is not much to be gained by following four similar models and these are now replaced by the iM Min Volatility(USMV)-Investor.
• This model holds 10 equal weighted stocks and the simulated performance since 1/3/2013 shows an annualized return of 22.0% versus 14.3% for SPY and an annual turnover ratio of 60%
• As from Sunday 7 July we will disseminate to Gold Subscribers any buy/sell signals this model generates.

• The average of S&P 500 for Jun-2019 was 2,890. A 20% decline from this level would bring it to 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 28.9, and the CAPE’s 35-year moving average (MA35) is at 23.9.
• The CAPE-MA35 ratio is 1.21, forecasting a 10-year annualized real return of 6.2%. This would indicate that for long-term investors the S&P 500 is currently not overvalued.
• 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 signifies overvaluation of the market.

• For a detailed model description of the system please read the original description, update No.1 and update No.2
• We have transferred the excel data onto Portfolio 123 and will in future be providing signals and performance for the weekly, monthly and 3-month models running on Portfolio 123, all updated weekly.
• The models’ holdings alternate between ETF (SPY) and ETF (IEF), being proxies for investments during up- and down stock market periods.

• The seasonal effect that equities do better from November through April is well-known. Here we provide a rigorous statistical test of this and a trading strategy to profits from it.
• From 1960 the S&P 500 with dividends returned on average 1.92% for the six months May to October, the “bad-periods”, while the “good-periods”, November to April, returned 8.47% on average.
• Statistics provide a 65% probability that good-periods will produce higher returns than the average of all good- and bad-periods, and a similar probability that the bad-periods will produce lower returns.
• This anomaly can be exploited by tactically shifting from more aggressive “good-period portfolios” to lower risk portfolios at the end of every April, and reversing the process end of October.
• Switching accordingly between the S&P 500 and 10-Year Treasuries would have provided an annualized return of 12.1% from 1960 to 2019 versus 9.4% for buy-and-hold the S&P 500.