Investors FastTrack

Quality Data for Investing Strategies

momentum

New Families – Smart Beta

smart beta cube

Its hard to open a newspaper (or news app) these days and not see something about “smart beta,” “liquid alternative,” “strategic beta,” etc etc. There’s hot… Red hot right now. As such, we’ve created a FT Cloud family grouping for these funds. (see the instructions below to find the new family)

So, what is a smart beta ETF? Generally, its an ETF that weights its holdings by something other than market capitalization. They’re generally marketed as a hybrid between passive investing and active investing.

For example, RSP – Guggenheim S&P 500 Equal Weight ETF hold all companies in the S&P 500, but instead of market weighting the assets, RSP hold equal weights of all 500 assets.

Another good example is MTUM – iShares MSCI USA Momentum Factor ETF. It operates largely like the FT Cloud momentum model. The ETF holds approx 100-150 large and/or midcap stocks that have shown the highest 6 and 12 month total returns, then it market capitalization weights those funds for its final holdings. Its rebalances the holdings approximately once a quarter.

The smart beta segment is already big and its growing. According to FactSet there’s approx 450 strategic/smart beta ETFs currently in the market and there’s approx $450 billion invested. That’s up from 213 funds managing $132.5 billion in assets in 2009. FastTrack’s got 480 ETF (and some funds) that qualify as “smart beta” per our analysis. So, enjoy. Let us know what you think.

How to see the Smart Beta Family in FT Cloud:

First, sign into FT Cloud (sign up for a free trial here), click the FT Cloud tab, then press the “Load Family” button in the upper right corner.

smart beta load family

Next, expand the top tree level “Funds,” navigate to the bottom tree called “Smart Beta” and expand. Double click the families to load on the the right hand grid (press the load button to add to the spreadsheet)

smartbeta family selection

Also, to mix and match families, try using the sieve feature!

 

Use Momentum to Improve Investment Returns

Introduction

Investors FastTrack and FastTrack strategies have been around for a long time and have a great track record. For 25 years we’ve been training money managers and wealthy individuals how to increase returns and reduce volatility with FastTrack products. This paper discuses a typical investors profile (derived from the years of speaking with investors), the pitfalls of the typical investor, and how to FT Cloud+ can improve the typical investor’s portfolio.

Every Investor’s Goal: Increase returns and reduce risk. FT Cloud+ uses high quality data, processing power or our server and your computer to crunch the numbers and make achieving this goal simple and fast.

A picture speaks a thousand words… Over the past 10 years a typical investor has experienced major drawdowns and lower returns than the S&P 500. FT Cloud+ has produced a fraction of the drawdowns and retained the upside of a good investing strategy. Read more below to dig into the FT Cloud+ details.

top chart
Red Line: Typical Investor
Green Line: FT Cloud+
Grey Line: S&P 500

Profile of a Typical Investor

FastTrack has been is a nexus of money mangers and wealthy individuals for the past 25 years. We’ve spoken to thousands of different investors and its safe to say the profile below is extremely accurate.

The red line in the chart above is the average investor’s portfolio. The red line is a 60/20/20 portfolio. That’s 60% S&P 500, 20% long investment grade bonds,and 20% cash, then rebalanced to those allocations at the beginning of every year. We can see it’s not a strong strategy. Its highly correlated to the S&P (99.3%), produced a 37.3% draw down, and weighs in at approximately 1.25 percent less annualized return a year compared to buying and holding the S&P.

Every week we speak to investors that hold this portfolio and claim “diversity,” but have a portfolio substantially similar to the red line above. What does it take to break out of this rut? Below we’ll look at a strategy with 4 trades a year and holding the best 4 fund of diversified family. FT Cloud+ does the heavy lifting, all you do is pull the trigger.

Improve With FT Cloud+

Be More Active To Improve Returns (But No Need to Be To Active)

As the “typical investor” analysis above shows, buy and hold isn’t a great strategy. With FT Cloud+, we’re going to make 4 trades a year, and each trade we’ll rank our family of tickers by total return and guy the top 4 tickers in the list. Its very straight forward. And, its called the “Momentum Model” because when funds are trending up, we buy them. When funds are trending down, we sell them.

The green line in the chart above is the FT Cloud+ Momentum Strategy. Its a simple strategy with 4 trades a year and always hold 4 fund at approximately 1/4 of total assets each. The power of the FT Cloud+ model is which 4 funds you hold. FT Cloud+ chooses the funds based on momentum and relative strength. Its not a black box or a fancy algorithm. Every quarter FT Cloud+ ranks a group of funds (in the green line we ranked by total return), sorts by value, and buys the top 4 funds.

More Details

Here’s how FT Cloud+ uses momentum:

  • Step 1 – Choose a diversified list of funds you might possibly want to own. For this example we used 21 Vanguard mutual funds. The list of 21 (see entire list in appendix A) is a diversified mix of plain vanilla Vanguard funds. We’ve go equities, bonds, money market, international, and commodities.
  • Step 2 – At the end of every quarter we rank the 21 funds by total return for the prior month. So, this give us a ranking of the trailing 1 month.
  • Step 3 – Sell all positions in our portfolio. Sort our ranking with the highest total return at the top. Reinvest our assets evenly among the top 4 assets in our ranking.

Summary

It pays to be a more active investor and with FT Cloud+ doing all the hard work and heavy lifting, its a straight forward and painless process.

All our strategies are easy to understand and easy to execute. And best of all… they work. There’s no need to stick with strategies producing big drawdowns, high correlations, weak performance.

Visit http://www.investorsfasttrack.com today to sign up. Use promo code “MARCHFREE” to get your free trial of FT Cloud+.

Tickers in Family

  1. VUSTX – Vanguard INV:Long-Term US Treasury
  2. VWESX – Vanguard INV:Long-Term Investment Grade
  3. VMMXX – Vanguard INV:Money Market Prime
  4. VBMFX – Vanguard INV:Total Bond Market Index Fd
  5. VFIIX – Vanguard INV:GNMA
  6. VFSTX – Vanguard INV:Short-Term Investment Grade
  7. VWEHX – Vanguard INV:Hi-Yield Corporate
  8. VGHCX – Vanguard INV:Health Care
  9. VWINX – Vanguard INV:Wellesley Income
  10. VINEX – Vanguard INV:International Explorer
  11. VGENX – Vanguard INV:Energy
  12. VTRIX – Vanguard INV:International Value
  13. VEXPX – Vanguard INV:Explorer
  14. VWUSX – Vanguard INV:US Growth
  15. NAESX – Vanguard INV:SmallCap Index Fund
  16. VEXMX – Vanguard INV:Extended Market Index Fund
  17. VMRGX – Vanguard INV:Morgan Growth
  18. VGSTX – Vanguard INV:STAR
  19. VEIPX – Vanguard INV:Equity Income
  20. VQNPX – Vanguard INV:Growth & Income
  21. VFINX – Vanguard INV:S&P 500 Index Fund