• Stocks usually perform poorly when inflation is on the rise. We developed a market timer according to two inflation rate based rules. A buy signal has now emerged.
• Switching according to the signals between the S&P500 with dividends and a money-market fund would have provided from Aug-1953 to end of Jan-2017 an 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 Enhanced Inflation Timer uses one additional criterion in the buy rule for stocks (and sell rule for bonds); high-beta stocks must perform better than low-beta stocks.

• This system invests in well capitalized companies with strong market positions, which pay good dividends, have price appreciation potential, and provide a degree of downside protection during bear markets.
• The portfolio holds six large-cap stocks selected from a universe of twenty Russell 1000 Index stocks with Capital Strength type characteristics, rebalanced quarterly in January, April, July and October.
• A backtest, from 7/6/2006 (inception of FTCS) to 5/31/2017, showed a 24.7% annualized return with a maximum drawdown of -25.7%, and low average annual turnover of about 80%.
• Over the same period the First Trust Capital Strength ETF (FTCS), which selects stocks from the NASDAQ Index, produced only 9.63% annualized return with a maximum drawdown of -53.6%.
• FTCS’s performance is not much better than that for SPY (the ETF tracking the S&P 500), which over this period returned 8.25% annualized, with a maximum drawdown of -55.2%.

Currently we have 12 different ETF models at iMarketSignals. The various models and their correlation between them are shown below.

(click to enlarge)
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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.

• The system screens for high dividend, low volatility S&P 500 stocks yielding significantly more than the average yield of the index and which also have a low 3-yr beta.
• Market timing rules related to our long-period backtest models, the MAC-US Timer, CAPE-Cycle-ID, and Inflation Timer have been incorporated into the model’s algorithm, and turnover has been modestly increased by introducing an additional sell signal based on volatility.
• The 16.5 year backtest of the original iM HiD-LoV-7 System produced annualized return of about 22% with a maximum drawdown of -34%, whereas the improved model provided annualized return of about 25% with a maximum drawdown of -14% over the same backtest period. (Figure-3a)

• 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.