Category Archive 'ETFs'

ETF Asset Allocation Applied To The Ivy Portfolio A Detailed Example, Part 3


I have taken some time to look at my ETF asset allocation model and the results generated by the Ivy Portfolio trading method. Some of you mentioned that the recent years were very hard to predict and such a simple trading technique (trading with the moving average) should not be able to make sense in such high volatility market.

In fact, it’s the complete opposite; the Ivy Portfolio works better with highly volatile markets. I was surprised to see that the ETF asset allocation model works very well when market goes up and down many times. Surprisingly, it has less success when the ETF follows a steady trend over several years. In order to better understand this trading technique, here are my conclusions after looking at a 10 year history (from 2001 to 2011):

#1 You Will Trade Several ETFs

When you look at the Ivy Portfolio calculation details, you notice that there are several “unnecessary” trades where you sell and have to go back in the market only a few days later. This will not only affect your pocket since you are paying for trading fees each time the ETF price crosses the moving average but will also annoy you as an investor. If you don’t have a solid trading system where it triggers an alert each time you have to make a trade, you may lose some great investing opportunities.

#2 The Ivy Portfolio is at its best to avoid a downfall

If you look closely to the trading tables, you will notice that most ETFs were been sold in July 2008; right before the major market plunge. I find it quite interesting since you could have avoided almost the whole market crunch simply by following this very simple rule.

#3 The Ivy Portfolio is not too bad to catch the uptrends either

Considering the stock market index ETFs I used, most of them were sold in July 2008 and bought back in March 2009. If you ignore the few transactions done in between, you can see that you not only avoid most of the downfall, but you can also capture most of the uptrend as well.  The latest years have been a great example to show how great the Ivy Portfolio works well in times of high fluctuations.

#4 In Steady uptrend, the Ivy Portfolio is not impressive

If you look at the Canadian ETF for example, it is one of the very few (besides the emerging markets ETF I have used) to show a worse result than if you would have kept it for 10 years. This could be easily explained; the Canadian market was trending up most of the time. Therefore, there wasn’t many downfalls to avoid and you “lose” a part of the uptrend (which you can’t gain back since the stock is continuously rising and you missed the bottom price).

#5 Overall, the Ivy Portfolio Shows Better Return

I guess this is why it is so important to build a solid ETF asset allocation since some ETFs won’t work in the Ivy Portfolio. However, if you look at the overall portfolio I have built, it has outperformed individual indexes. The important point to consider before trading with the moving average is the trading costs and the system you will use to receive alerts.

In this regard, I know that INO offers a triangle trading system that is very similar to the moving average technique. They offer a service where you add the ticker you want to follow and they send you an email each time the stock or ETF is on an uptrend or downtrend.

I have used it in the past and it works very well… but you have to trade each time they send you an email. It’s the same thing with the Ivy portfolio method. If you want to learn more about it, you can take a look here:

ETF Asset Allocation Applied To The Ivy Portfolio A Detailed Example Part 2


Last Monday, I took a huge contract; making the trade calculations for each ETF trading with a moving average of 200 days. I thought it was easy… man, this was a lot of trades! Before I jump with the actual calculation, I’ll share a few points to consider first:

#1 There are some trades that I have ignored

In order to list the trades according to the moving average, I have used Google Finance. Since there were moments where the closing price and the moving average were getting crossed every 2 days, I have skipped a few trades. So keep in mind that while it wouldn’t affect much the overall return of each ETF, but it would affect it if you trade with a small amount due to trading fees.

#2 Trading dates might now be completely exact

Since I had to cover 10 years of trade for each, I have decided to use the graphs from Google Finance as I have previously mentioned. However, this doesn’t give all the dates and trade prices (you skip a few days from one point to another on the graph). Nevertheless, the main point of this strategy is still respected; avoid most of the downfall and capture most of the uptrend.

#3 Trading calculations don’t take trading fees into account

I have not taken trading fees into consideration since they do not necessarily play a huge role in yield calculation. As you will see in the trading tables, there are several trades done for each ETF. Therefore, if you want to use the Ivy portfolio strategy, I strongly suggest you use it with a large amount. If you start your portfolio with $10,000, you may end-up eat a lot of your investment return in trading fees.

#4 I have “sold” all ETF on March 7th 2011

In order to have a “final yield”, I have virtually sold all ETF on March 7th 2011 even they were not meant to be sold according to the moving average. This exercise was to give you an idea of what works and what doesn’t with the Ivy Portfolio.

I leave you today with the table and I’ll return on next Monday with my final conclusion on the Ivy Portfolio and the ETF asset allocation model.

BOND ETF; SHY (Starting on August 2nd 2002) (total yield:4.80% vs 3.21%)

SHYDatePriceProfit/Loss $Profit/Loss %
Sell03/21/200382,110,53 $0,65%
Sell04/17/200382,21(0,22) $-0,27%
Sell07/18/200382,410,12 $0,15%
Sell10/17/200382,2(0,40) $-0,48%
Sell04/02/200482,460,11 $0,13%
Sell11/05/200481,71(0,35) $-0,43%
Sell12/29/200679,960,03 $0,04%
Sell05/18/200780,04(0,14) $-0,17%
Sell04/25/200883,132,94 $3,67%
Sell02/06/200983,970,98 $1,18%
Sell12/11/200983,52(0,34) $-0,41%
Sell11/12/201084,160,62 $0,74%
Total3,88 $4,80%

REITS ETF: IYR (Starting on March 2nd 2001) (total yield: 114.29% vs 64.15%)

IRYDatePriceProfit/Loss $Profit/Loss %
Sell09/14/200140,4152,31 $6,06%
Sell07/05/200242,4752,06 $5,08%
Sell04/08/200450,2511,05 $28,19%
Sell02/25/200558,6257,93 $15,63%
Sell10/14/200560,591,34 $2,25%
Sell05/12/200669,285,26 $8,22%
Sell06/16/200670,28(0,67) $-0,94%
Sell04/13/200785,9813,58 $18,76%
Sell10/19/200773,74(7,06) $-8,74%
Sell07/20/200864,6(2,23) $-3,34%
Sell09/26/200862,84(2,21) $-3,40%
Sell06/04/201047,2214,99 $46,51%
Sell07/02/201046,22(5,61) $-10,82%
not sell yet03/07/201158,437,72 $15,22%
Total46,34 $114,29%

US Stock Market: SPY (Starting on March 2nd 2001) (total yield:27.12% vs 6.55%)

SHYDatePriceProfit/Loss $Profit/Loss %
Sell08/03/2001121,94(4,27) $-3,38%
Sell02/08/2002110,09(5,59) $-4,83%
Sell04/05/2002112,69(1,05) $-0,92%
Sell12/13/200289,34(2,06) $-2,25%
Sell01/24/200386,38(3,61) $-4,01%
Sell04/30/2004110,9621,40 $23,89%
Sell07/02/2004112,88(1,41) $-1,23%
Sell10/15/2004111,26(0,19) $-0,17%
Sell03/18/2005118,545,34 $4,72%
Sell09/23/2005121,441,29 $1,07%
Sell05/12/2006129,245,48 $4,43%
Sell03/09/2007140,7812,58 $9,81%
Sell07/27/2007145,111,72 $1,20%
sell11/09/2007145,14(6,83) $-4,49%
sell06/20/2008131,58(6,90) $-4,98%
sell01/29/2010107,3923,13 $27,45%
sell05/07/2010111,260,52 $0,47%
Not sold yet03/07/2011131,4320,54 $18,52%
Total27,91 $27,12%

International Stock Market: EFA (Starting on August 24th 2001) (total yield 89.91% vs 46.58%)

EFADatePriceProfit/Loss $Profit/Loss %
Sell01/11/200239,031(3,84) $-8,95%
Sell06/14/200238,315(2,25) $-5,54%
Sell04/30/200445,55413,05 $40,16%
Sell07/23/200445,025(1,90) $-4,04%
Sell04/01/200552,7815,86 $12,49%
Sell10/21/2005551,84 $3,46%
Sell06/09/200661,915,76 $10,26%
Sell03/02/200772,46,28 $9,50%
Sell07/27/200777,644,39 $5,99%
Sell12/14/200779,94(2,65) $-3,21%
Sell07/13/200872,48(2,32) $-3,10%
Sell01/22/201053,8713,33 $32,88%
Sell04/30/201054,41(1,25) $-2,25%
sell08/13/201050,71(1,20) $-2,31%
Not sold yet03/07/201160,648,15 $15,53%
Total37,57 $89,91%

Canadian Stock Market: EWC (Starting on March 2nd 2001) (total yield: 102.69% vs 185.82%)

EWCDatePriceProfit/Loss $Profit/Loss %
Sell06/08/200112,020,20 $1,69%
Sell07/14/200210,680,10 $0,95%
Sell04/23/200414,234,88 $52,19%
Sell08/13/200414(0,15) $-1,06%
Sell04/15/200516,732,23 $15,38%
Sell11/21/200519,542,27 $13,14%
Sell05/19/200623,473,15 $15,50%
Sell06/09/200623,24(0,88) $-3,65%
Sell09/15/200623,52(0,68) $-2,81%
Sell01/05/200724,270,48 $2,02%
Sell03/02/200724,880,11 $0,44%
Sell04/17/200728,422,32 $8,89%
Sell12/21/200731,962,06 $6,89%
sell07/03/200832,30,68 $2,15%
sell01/22/201025,088,02 $47,01%
sell05/21/201025,68(0,23) $-0,89%
sell06/25/201026,43(1,19) $-4,31%
Not sodl yet03/07/21133,536,30 $23,14%
Total14,03 $102,69%

Emerging Stock Market: EWZ (Starting on March 2nd 2001) (total yield: 311.24% vs 343.4%)

EWZDatePriceProfit/Loss $Profit/Loss %
Sell03/16/200115,7(1,75) $-10,03%
Sell05/24/200212,070,58 $5,05%
Sell04/16/200416,218,62 $113,57%
Sell04/15/200521,175,08 $31,57%
Sell05/19/200639,4516,15 $69,31%
Sell03/02/200743,844,07 $10,23%
Sell08/17/200753,086,44 $13,81%
Sell01/18/200870,8410,84 $18,07%
Sell03/20/200875(9,39) $-11,13%
Sell07/03/200883,06(0,64) $-0,76%
Sell02/27/200934,2(6,05) $-15,03%
Sell01/22/201067,9731,54 $86,58%
Sell05/07/201063,9(9,33) $-12,74%
sell01/21/201174,995,52 $7,95%
Total65,49 $311,24%

ETF Asset Allocation Applied To The Ivy Portfolio – A Detailed Example


Since the beginning of the year, I have written a lot about ETF asset allocation and about an easy way to trade your ETF; The Ivy Portfolio. A few of you were mentioning that the ETF asset allocation model of the Ivy Portfolio was too simple; trading according to the 200 days moving average. An argument that keeps coming back is the following:

“How such simple trading technique can work in such complicated market”

In fact, for the past 10 years, we had our shares of market fluctuations;

– Techno crunch

– Enron, Worldcom and other financial frauds

– The Oil price run

– The Housing market boom

– The Lehman Brothers’failure, Ponzi Schemes and other financial frauds

– The credit crunch

– Huge comeback in 2009

– Government debts problems

This may seem to be quite an argument in order to not use a simple ETF asset allocation model such as the Ivy Portfolio. So I have decided to look at one ETF per asset classed I mentioned in my ETF portfolio model and make a graph of the past 10 years to see when I would be trading them and how much I would ended making.

In order to make my ETF selection, I simply take the biggest one in term of market capitalization (and considering history too in order to make sure I have the longest history to look at the trading possibilities)

Today, I’m leaving you with the graph of each ETF and I’ll come back with my full analysis this Wednesday (March 9th 2011).
BOND ETF; SHY (Starting on August 2nd 2002) (total yield: 3.21%)

REITS ETF: IYR (Starting on March 2nd 2001) (total yield: 64.15%)

US Stock Market: SPY (Starting on March 2nd 2001) (total yield: 6.55%)

International Stock Market: EFA (Starting on August 24th 2001) (total yield 46.58%)

Canadian Stock Market: EWC (Starting on March 2nd 2001) (total yield: 185.82%)

Emerging Stock Market: EWZ (Starting on March 2nd 2001) (total yield: 343.4%)

According to my ETF asset allocation model (and according to the fact that some ETF doesn’t start 10 years ago), the complete yield of this portfolio would have been:

15% ETF US Market 6.55% 0.9825%
15% ETF Canadian Market 185.82% 27.8730%
15% ETF International Market 46.58% 6.9870%
15% ETF Emerging Market 343.40% 51.5100%
20% ETF Real Estate (REIT) 64.15% 12.8300%
20% ETF Bonds 3.21% 0.6420%
100% 100.8245%

So a total yield of 100% over the past 10 years. This Wednesday, we will look at how much we would have been making if we would apply the Ivy Portfolio model.

Do you think we will make more or less money?

ETF Asset Allocation Model How To Pick The Right One


On Valentine’s Day, I’ll tell you how to choose the right one. The one that you stay with throughout the years. The one that will be there for you no matter what. The one that you are glad you chose a while ago. I’m talking about the right ETF asset allocation model of course ;-)

Obviously, I can’t give you specific financial advice nor can I tell you how to trade your ETFs. However, I can help you out with a few guidelines. The rest will need to be done with further research or with the help of a financial advisor.

A few Rules for the Perfect ETF Asset Allocation Model

Since we already discussed how to build a ETF portfolio, I will go straight to the point:

#1 Make Sure You Consider Your Risk Tolerance

If you are not much into wild fluctuations, I would avoid trading ETFs linked to emerging markets, for example. I would also avoid investing too much in stocks and commodities ETFs. But most importantly, I would avoid investing in a Bond ETF thinking it is secure.

In fact, bond ETFs follow bond prices and don’t give you any security. Therefore, if you are looking for safer investments, I would leave part of my money in regular bonds and GICs. Bond ETFs have smaller fluctuations than the stock markets but they will surely go down upon interest rate increases.

#2 Make sure you are well diversified

Put your beliefs aside and invest in American, International and Canadian equities. I outline the latter since the Canadian market represents one of the best places to invest in the financial and commodities sectors. If you think that Europe has problems and you don’t want to invest in international ETFs; you are on the wrong track. Since we can’t predict when the stock market will surge, I think that it is safer to have a good diversification of both sectors and countries.

#3 Rebalance your portfolio once a year

If you rebalance your portfolio quarterly, you will generate trading fees. For a solid asset allocation model, rebalancing once a year is more than enough. With this technique, you won’t be exposed to concentration risk while minimizing your trading fees.

#4 If You Follow the ETF Asset Allocation Model of the Ivy Portfolio, you must stick to it

As previously mentioned in my Ivy portfolio article, one must follow the moving average and trade accordingly. No second guessing, no second thoughts; only your ticker graph along with the moving average. This is the only way this ETF trading model will workout.

#5 Choose a Well Known ETF for Each Asset Class

Instead of trying to find the best performing ETF, I would select a well established company manufacturing several ETFs. You want a solid company that will be able to trade efficiently. Forget about the flavor of the day and focus on long term investments. This is how you will build a solid ETF asset allocation model.

In the upcoming weeks, I’ll build an ETF asset allocation following the Ivy portfolio trading technique. Just for the fun of showing you how it works ;-).

The Ivy Portfolio


ETF Asset Allocation Model Trading With The Moving Average

I’ve been reading about a very interesting investing strategy; have you heard of the Ivy Portfolio? This strategy comes from a book with the same name written by Mebane Faber and Eric Richardson. They studied how the most prestigious American Universities such as Harvard and Yale manage their pension plans. Here’s how the Ivy Portfolio works;

What is the Ivy Portfolio?

The Ivy portfolio mixes a strategic ETF asset allocation model traded according to the moving average of each ETF. The investment strategy is relatively easy to put in place as you must take into consideration only 2 factors:

#1 A tactical ETF asset allocation mix

#2 Trading according to the moving average of each ETF.

Therefore, once you have made enough research to get a good ETF asset allocation mix, your Ivy Portfolio will surf along on a very simple and easy to understand trading strategy: you buy when the ETF crosses the moving average in a uptrend and you sell when the same ETF crosses the moving average in a downtrend.

What is the goal of the Ivy Portfolio?

If you simply make an ETF list and buy them using a classic buy and hold technique; you will enjoy the rides up and suffer the market crashes. If you rebalance your portfolio to respect your asset allocation mix, you will eventually make money but you will also be tempted to sell your ETFs during bad times and wondering when to get back in during a bull market. However, by building an Ivy Portfolio; you are making your life much easier:

#1 The Ivy portfolio makes trading decisions fairly easy

Trades are not triggered by fundamental analysis, trader’s perceptions or investor’s emotions. Trades in the Ivy portfolio are triggered by the moving average. Therefore, it is just a matter of setting up an alarm that will tell you when one of your ETFs crosses the moving average. Automatically, you buy or sell the ETF according to your model.

#2 The Ivy portfolio avoids most of the crashes

As I have previously discussed, the biggest (in theory) advantage of trading with the moving average is that you avoid the biggest part of any stock market crash. Therefore, as soon as the ETF dropped enough to break the trend, you get rid of it and stay in cash until it goes back up high enough to break the trend again. This will prevent your portfolio from suffering severe losses.

#3 The Ivy portfolio captures most of the gains

Here again, this statement is based on the moving average theory. Instead of wondering if the recession is really over or if we are heading towards a double dip recession, you simply follow the moving average. Therefore, when the current trend hike is strong enough to break the trend, you have your answer. This allows you to get in on board without waiting on the sidelines too often.

#4 The Ivy portfolio is a cheap way to build a solid asset allocation

Through trading ETFs, the Ivy portfolio is the best solution for an investor who doesn’t want to lose his money in management and trading fees. Since you are following strong trends, you are not encouraged to trade often. I’ve seen an example of an Ivy portfolio that sat cash for 600 days with its international ETF since the markets were bad during that time.

The Ivy portfolio is not perfect

I see a major problem behind the Ivy portfolio theory; the investor behind the asset allocation mix! The problem is that you have to follow each ETF and its moving average to make sure you don’t miss a trade. This could take some time or will require one to invest in a trading system providing alerts within those parameters.

There is also another thing that bugs me with the Ivy portfolio; how to select the correct ETF asset allocation model? I’ll try to answer this question in another post ;-)

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