Fund Trading Strategies
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This technique can be applied to any group of diverse funds. Vanguard funds are used as an example. This page discusses how to achieve high returns with modest risk by

• holding several Vanguard index funds for high return, modest risk.

• shifting a modest part (25%) of assets every quarter.

Result:

• reduce risk and improve return by several percent per year.

• incur no trading fees.

• not require any exotic approaches like short selling or margin.

Momentum Quarterly Trading
2 Funds: LargeCap vs. SmallCap

First, a simple strategy building toward the grate return shown at the top of the page. Trade two funds: Vanguard S&P 500 fund and the Vanguard SmallCap  fund. Their chart lines are somewhat correlated (red Cor=81.96%). Correlation values less than 70% are better for trading partners.

The yellow Screen AVG line is the result of trading 25% of assets between the redline and the green  line every quarter. This works even better monthly, but this may incur Vanguard's trading limitations.

Result:

The trading did somewhat better than either fund held alone, but the true value of Momentum trading was not achieved since the two funds are too closely correlated.

Momentum Quarterly Trading 3 Funds:
LargeCap, SmallCap,US Long Bonds

The chart shows three Vanguard funds rebalanced quarterly: The newly added  VUSTX has  little correlation to the other two funds.

1. Red VFINX  
   US large Cap

2. Green NAESX
    US Small Cap

3. Yellow : The Momentum average.

4. Cyan line VUSTX
   US Treasury Long Bonds.

Result:

The Yellow line begins to show the improvement in risk/return that you should expect from  your portfolio when you manage a diversified set of  funds using a Momentum Strategy.

The Yellow line has better return with much less risk when compared to the Vanguard funds from which the yellow line was made.

Momentum Quarterly:
Trading Four Vanguard Funds

The chart shows four Vanguard funds rebalanced quarterly: 

1. Red VFINX  
   US large Cap

2. Green NAESX
    US Small Cap

3. Yellow (see below).

4. Purple VWIGX 
   International Growth

5. Lite Blue VUSTX
   US Treasury Long Bonds.

Result:

The Yellow line  return improves despite the terrible buy and hold performance of VWIGX. The Momentum Model holds VWIGX only when it is doing well, and dumps VWIGX when it underperforms.
 

Bottom Line:

FastTrack implements the classic strategy of allocating investments among bonds and equities, domestic and international funds, small cap and large cap funds. Trades are only quarterly. Every investment advisor in the world and every investing magazine article you have read describes this type of portfolio management, but only FastTrack gives you a real picture of how to do it.

Do this with your own  funds!

Take the four funds above as the starting point and find funds that look different from these funds. Add them as the blue line and recompute the Momentum Model. Feel free to pick funds that have performed poorly in the past in an attempt to sabotage the results. BUT pick funds that are in the same range of volatility as the other funds on the charts. A fund that is much more volatile than the others will dominate trading as the extreme ups and downs constantly put it at the top and bottom of the ranking.

If you believe that holding just large cap, small cap, growth, and value equity funds is a good diversification strategy, then you really need FastTrack's help. Look at your portfolio. Are they all highly correlated? Are you really diversified? Would there have been trading opportunities in the past? If no, then it is unlikely that there will be trading opportunities in the future. Selection is important.

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