Tuesday, September 16, 2014

ETF Investment System (16 Assets)

Explanation of ETF Investment System covering 5 major assets is at the following link: "A Minimum Variance ETF Investment System".

Explanation of ETF Investment System covering 10 assets is at the following link: "ETF Investment System (10 Assets)".

If expanding investing pool to 16 of the most actively traded ETFs in the U.S., and allocate equal capital to the two ETFs with the highest values of the "Investment Value Index". The equity growth curve of the new ETF Investment System model from January 2003 to September 2014 is as follows: 




This new aggressive investment system increases annual percentage return dramatically comparing to the previous two conservative models (+14.5% and +18.4% vs. +43.8%). Two factors affect the result. First,  there are a few very volatile funds in the 16 of the most actively traded ETFs (such as Brazil and China ETF funds). Long-term investment returns turn to have positive correlation with volatility. Second and more importantly, trading signals of the new investment system are generated one week earlier than previous models (forward-looking one week). The difference between early and late signals are illustrated in the following charts:

Investment model with early signals (1 out of 16 ETFs)




Investment model with late signals (1 out of 16 ETFs)




Therefore, we will follow the new more aggressive ETF Investment System (16 Assets) from now on to replicate its equity growth curve.


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http://murmurhudson.com 






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