Comparison is made over the 10-year period ending on 12/31/13. The five that are trading below their 100 day lines are automatically excluded from consideration. JavaScript isn't enabled in your browser, so this file can't be opened. Swanson proposes two different versions of this system. The rest was simple math to calculate the returns. Data is provided on an as-is basis. Enable and reload. Using what he learned from the book, Swanson built a similar system that would attempt to replicate how those schools are trading. At this point, before the close on the last day of the month, four of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF ( VTI ), Vanguard FTSE All-World ex-US ETF ( VEU ), Vanguard REIT Index ETF ( VNQ ), and Invesco DB Commodity Index Tracking ( DBC) — are signaling … In summary, the “Ivy” portfolio using the 10-month moving average, as the market timing mechanism, provides equity-like returns with bond-like volatility with 36 years of positive returns. Mebane Faber is the author of The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. This made me wonder how well the original rules held up through 2016. Since it had more options for diversification, the Ivy Ten System performed even better over the same time period. While each of these systems offer subtle differences in their approach, the general strategy is usually quite similar. Together with Eric W. Richardson he published the Ivy Portfolio in his book with the same name in 2009. The moving average model applies the moving average signal to each portfolio asset. Last December, Jeff Swanson from System Trader Success wrote about The Ivy Portfolio, which is similar to Vrba’s Best10 System. Because it was so different, this system has stuck out in the back of my mind as something I would love to explore further. The average cash percentage held over the past 8-year period has been ~22%. The original rules used a 10-month moving average as a filter while our strategy used a 5-month moving average. Over the course of the backtesting period, the five ETF version of the system averaged an 11.8% annual return compared to only 7% for the S&P 500. Overall, we find that the models have performed well in real-time, achieving equity like returns with bond like volatility and drawdowns. The table below shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio. He is taking a basket of 5 or 10 ETFs that represent a broad cross section of the market and investing in the ones with the highest relative strength. If the current price is above its long-term average… I believe that there is an huge market of investors, like my mother, who have no desire to trade for a living, but would love to have a simple way to steadily beat the general market. Each of the trend following systems attempt to capture big chunks of trends in similar ways. Where did you get your historical data? The reason for this is that if a system is simple enough that my mother can understand the logic behind it, it may convince her to switch from her current buy and hope strategy. The market timing model uses “buy” and “sell” rules depending on the monthly price of each of the 5 assets of the Simple Ivy Portfolio relative to 200-day Simple Moving Averages (or “ 200-day SMA “). The rules for this portfolio are simple: Buy each ETF at the beginning of the month if it closed the previous month above its 10-month simple moving average. The Ivy Portfolio spreadsheet tracks the 5 and 10 ETF Portfolios listed in Faber’s book. Now that I have the Ivy spreadsheet built, the math will be done automatically from here on out. The mean reversion systems I have profiled each offer slightly different ways to execute the same basic mean reversion strategy. Simple Moving Average or “SMA” explained The moving average is … IVY Portfolio (IVP): The strategy calculates a 10-month moving average for each underlying asset class. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. For this lesson we will use a simple Moving Average crossover of 25 days and 100 days (for example we buy when the 25 day Moving Average crosses above the 100 day Moving Average. Then we would repeat the same process next month. A do-it-yourself guide to investing like the renowned Harvard and Yale endowments. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages. He then weights each of the returns as half of the overall rank. Using the endowment Policy Portfolios as a guide, the authors illustrate how an investor can develop a strategic asset allocation using an ETF-based investment approach. The Ivy Portfolio. When the security is trading above its 10 month simple moving average the … Interestingly, they were the bottom five in the overall ranking as well. The strategy is a clone of a 2013 whitepaper by Mebane Faber. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. Swanson does this by calculating the 20 day return and the three month return. ETFreplay’s tools are designed to allow investors to find, test and pursue a robust and repeatable process for gaining exposure to up-trends while avoiding large drawdowns. The idea is the asset classes slowly rise and fall and the 200 day simple moving average (or similar 10 month average) can be used to advantageously buy and sell assets and assemble the asset group which is … The concept of Swanson’s system is remarkably simple. Save my name, email, and website in this browser for the next time I comment. This could be remedied by setting stop-losses at the 100 day SMA filter for all open positions. The first step of the system is to rank each of the ETFs in terms of relative strength. Filed Under: Test your concepts historically, Trading strategy ideas Tagged With: ivy portfolio, portfolio systems, Your email address will not be published. The systems also involve a much smaller universe, simpler calculations, and significantly less risk exposure. We chose monthly since daily data does not go back that far for many of the asset classes. Swanson’s work was based on a book written by Mebane Faber and Eric Richardson, who studied how Ivy League schools are able to achieve steady and significant returns on their endowment funds. He then establishes a position in each of the top three ETFs, provided he does not already have a position in them. 18. Three of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF ( VTI ), Vanguard FTSE All-World ex-US ETF … The Backtesting Results The Papa Bear Portfolio. While the drawdown was a bit higher than the Ivy Five System, it was still way less than the S&P 500, and the overall return was better than the Ivy Five System. George Vrba’s Best10 Portfolio Management System, VTI – Vanguard MSCI Total US Stock Market, GSG – iShares S&P Commodity-Indexed Trust. Remember, the study above is NOT the original rules for the Ivy Portfolio. It averaged an annual return of 14.7%, had a maximum drawdown of -28.7%, and a Sharpe Ratio of 0.82. Therefore, if we were starting or reviewing an Ivy Ten portfolio this weekend, it would place one third of its equity into each of those three ETFs. Here is an advance preview of the monthly moving averages we track after the close of the last business day of the month. Backtesting results of a portfolio with 10 ETFs. The model is invested in a portfolio asset when the adjusted close price is greater than the moving average and the allocation is moved to cash when the adjusted close price is less than the moving average. Remember, the study above is NOT the original rules for the Ivy Portfolio. GTAA 13: the timing version of the IVY buy and hold 13 using the 200-day (10 month) simple moving average based on dividend adjusted closing prices. While the drawdown was a bit higher than the Ivy Five System, it was still way less than the S&P 500, and the overall return was better than the Ivy Five System. The Ivy Portfolio. GTAA AGG 6 and GTAA AGG 3: portfolios that combine timing using the 200-day moving average plus momentum, described in this post. ... calculate a momentum score as the average of the 3-months, 6-months, and 12-months momentum ... we have low confidence that this will always be the case moving forward. We’ve also included a … It was simply trying to improve on a buy and hold approach to the general market. Let’s see. Most of the trading systems I have written about have been very similar. It averaged an annual return of 14.7%, had a maximum drawdown of -28.7%, and a Sharpe Ratio of 0.82. Global Financial Data. What About The Original Ivy Portfolio? ETFreplay.com is a research, analysis and backtesting website for Exchange Traded Funds. First let’s start with the necessary Amibroker AFL (formula language) so we can run our back-test. In my research and writing, I generally focus on very simple systems. How To Back-Test A Portfolio Of Stocks Using Amibroker AFL. For the testing of this theory, the author started with the version of the Ivy Portfolio which trades 5 asset classes based on their 10-month moving averages. Each position accounts for 1/3 of the account equity. Required fields are marked *. As with the paired switching approach, each ETF is purchased only once a month, on the last day, in this case only if its adjusted closing price exceeds the 10-month simple moving average (SMA). He formed a simple algorithm to calculate the relative strength of each ETF and then invests in the top three ETFs. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. Of all the systems that I have looked at, the biggest outlier was George Vrba’s Best10 Portfolio Management System. The IVY 5 portfolio would run you 0.26% per year in fees while the IVY 13 would run you 0.21% per year (the commodity ETF fees make a big difference). 17. He also uses the 100 day simple moving average (SMA) as a trend filter to make sure that he is always trading with the trend. This made me wonder how well the original rules held up during 2015. What About The Original Ivy Portfolio? The table below shows the current 10-month simple moving average (NYSE:SMA) signal for each of the five ETFs featured in The Ivy Portfolio. His Ivy Five system trades the following ETFs: He also proposed a bigger version of this system that trades these ten ETFs: Swanson was able to backtest both systems from the middle of 2003 through the end of 2010. The Ivy Portfolio The above table shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio. Quotes are not sourced from all markets and may be delayed by up to 20 minutes. ... in the timing versions the trading happens whenever there is a cross of a 10 month moving average. Anyone with a high school math education could perform the required calculations and the process could be made even easier with a simple Excel spreadsheet. In order to demonstrate how to calculate the monthly rankings, I buildta simple Excel spreadsheet and looked up the price data for each of the 10 ETFs. I input the current price, the price from 20 trading days ago, and the price from 3 months ago. We draw on ideas contained in a paper entitled " A Quantitative Approach to Tactical Asset Allocation ". Here is what his formula looks like: Overall Rank = (20 Day Return * 0.5) + (3 Month Return * 0.5). Here is an advance preview of the monthly moving averages we track after the close of the last business day of the month. If the bottom were to suddenly fall out of a market, I wouldn’t want the systems to wait until the end of the month to recalibrate and go to a cash position. We also examine the effects of departures from the original system including adding more asset classes, introducing various portfolio allocations, and implementing alternative cash management strategies. 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