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Best2x4(S&P500 Min-Volatility) Variable Asset System with Minimum Volatility Stocks of the S&P 500

  • This model can hold 2 to 8 stocks, at variable weightings, selected by a ranking system from a minimum volatility stock universe of the S&P500.
  • The model has 8 equally weighted slots; a very high ranked stock could occupy a maximum of 4 slots, that is a nominal 50% weighting of the model’s total assets.
  • When adverse stock market conditions exist, the model reduces stock holdings by 50% and invests the proceeds in the -2x leveraged ProShares UltraShort S&P500 ETF (SDS).
  • The backtest produced a simulated average annual return of about 42% from Jan-2000 to end of June-2015 with a maximum draw-down of minus 19%.

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Best3x4(S&P500 Min-Volatility) Variable Asset System with Minimum Volatility Stocks of the S&P 500

  • This model can hold 3 to 12 stocks, at variable weightings, selected by a ranking system from a minimum volatility stock universe of the S&P500.
  • The model has 12 equally weighted slots; a very high ranked stock could occupy a maximum of 4 slots, that is a nominal 33% weighting of the model’s total assets.
  • When adverse stock market conditions exist, the model reduces stock holdings by 35% and invests the proceeds in the -2x leveraged ProShares UltraShort S&P500 ETF (SDS).
  • The backtest produced a simulated average annual return of about 36% from Jan-2000 to end of June-2015 with a maximum draw-down of minus 22%.

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Best8(S&P500 Min-Volatility)-Tax Efficient Large-Cap Portfolio Management System With Minimum Volatility Stocks of the S&P 500

  • This model invests periodically in eight highly liquid large-cap stocks selected from those considered to be minimum volatility stocks of S&P 500 Index.
  • Most stock positions are held for longer than one year resulting in a Tax Efficiency ratio of 81.4%.
  • When adverse stock market conditions exist the model shorts the 3x leveraged Ultrapro S&P500 ETF (UPRO) – hedge/current holding ratio= 45%.
  • It produced a simulated average annual return of about 36% from Jan-2000 to end of June-2015.

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Minimum Volatility Stocks: 1 year Out-Of-Sample Performance of iM’s Best12(USMV) Models

  • Portfolios of the 12 top ranked stocks of the iShares MSCI USA Minimum Volatility ETF provided much higher 1-year returns than the ETF.
  • For the period 6/30/14 to 6/18/15, our Best12(USMV)Q3-Investor, a 1-year buy&hold portfolio, returned 26.0%,
  • The Best12(USMV)-Trader, re-balanced every 2 weeks, returned 29.3%,
  • iShares MSCI USA Minimum Volatility ETF USMV returned 13.3% for the same period..

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iM-USMV Investor Portfolio

The iM-USMV Investor Portfolio consists of the four quarterly displaced Best12(USMV)-Investor models at iMarketSignals. The purpose of the combination model is to check whether our hypothesis – ranking the holdings of USMV, the iShares MSCI USA Minimum Volatility ETF, and selecting a portfolio of the 12 top ranked stocks, provides higher returns for the portfolio than for the underlying ETF – is supported by the actual performances of the model over longer period of time.
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iM-Best(SPY-IEF) Market Timer: A Combination of Three Market Timing Models

  • Stock market timing models usually provide discreet signals indicating whether to be in or out of the market.
  • A better approach with potentially less risk is to stage investments over time when entering or exiting the market.
  • Three market timing models with low correlation to each other are used in combination to provide staged signals, indicating stock market investment in 25% increments from 0% to 100%.

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Minimum Volatility Stocks: Out-Of-Sample Performance of iM’s Best12(USMV) Buy&Hold Models

The backtest reported in this article showed that ranking the holdings of USMV, the iShares MSCI USA Minimum Volatility ETF, and selecting a portfolio of the 12 top ranked stocks, provided higher returns for the buy&hold portfolio than for the underlying ETF. To test these findings out-of-sample we launched the Best12(USMV)-July-2014on Jun-30-2014 and the first sister model Best12(USMV)-Oct-2014 on Sep-29-2014. Holdings and performance have been published weekly on our website since then. So far to Dec-15-2014 these portfolios have gained 19.2% (6.8%) and 10.5% (5.3%), respectively. (USMV gains are in brackets.) The test will be expanded by the launch on Jan-5-2015 of the second of the three sister models quarterly displaced, the Best12(USMV)-Jan-2015, which again will consist of the 12 highest ranked stocks of the then point-in-time holdings of USMV.
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Trading the Dividend Growth Stocks of the Vanguard Dividend Growth Fund: Simulated Performance of iM’s Best10(VDIGX)

Ranking the holdings of the Vanguard Dividend Growth Fund VDIGX and selecting a portfolio of the highest ten ranked stocks provided much higher returns for the portfolio than for the underlying fund. A simulation over the time period (6/30/14 to 12/8/14) which selects periodically the 10 highest ranked stocks shows a 15.3% return while VDIGX gained 7.0%.

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Minimum Volatility Stocks: iM’s Best12(USMV)-Trader

Since end of June 2014 we provided updates of our Best12(USMV) at iM, a tax efficient model which holds positions normally for at least one year. Concurrently we were testing the Best12(USMV)-Trader model. The only difference between the two models is that the Trader is not restricted to hold stocks for a 1-year minimum period and has an additional sell rule based on rank. We backtested the Trader for various periods and found its returns to be to be marginally higher than that of the tax efficient Best12(USMV) model. However, returns were more consistent.

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Minimum Volatility Stocks: Out-Of-Sample Performance of iM-Best12(USMV)

Three months ago we introduced the iM-Best12(USMV) model, which still holds the then twelve best ranked stocks selected from the holdings of USMV, the iShares MSCI USA Minimum Volatility ETF. So far this portfolio has gained 8.2%, while USMV is up a mere 2.2%, confirming the results of the backtest performed over a relative short period. The out-of-sample test will be expanded by the launch of the second of three sister models quarterly displaced, the Best12(USMV)-Oct-2014, which again will consist of the 12 highest ranked stocks of the then point-in-time holdings of USMV.

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