Over the last year we have developed an ETF universe that provides a wide range of opportunities. We did the universe first -- then did back testing over some crucial market periods. One conclusion from the testing was that it did not pay to reach. If there is nothing to like, then stay in cash.
Of the three systems we use (described a bit more last week) the TCA-ETF method trades most actively. This system takes a three-week time horizon and compares prospects for each ETF to the mean expected return. A score of 50 means that the expected return is one standard deviation above the mean. The system is mostly based upon momentum, but it has an element of cyclical behavior and also an anticipatory factor -- thus TCA-- Trend, Cycle and Anticipation.
Our testing shows that the system does much better than buying and holding the underlying sectors, but not as well as our own "long only" program. The advantage of the TCA-ETF method comes in dealing with risk. Overall drawdowns are lower when you are willing to go to cash and/or buy the inverse ETFs.
As is the case with any system, you sometimes get a period of lower performance, but it must be weighed as part of the overall risk/reward of the system.
Normally I like to feature a sector each week, but with everything in the Penalty Box, there is nothing to highlight!
Summary
The weekly ETF update is available over the weekend for those subscribing to the email list (etf at newarc dot com). Here are the ratings as of Thursday's close. (The index inverses went into the PB on Friday, so we now have no position).
Those interested in a more complete description of our methodology can check any of our prior updates.
There are continuing signs of improvement. If the market holds on, we expect to see some fresh buys this week.
Bruce -- There are many ETF approaches with some similarities. We try to make our own method as strong and helpful as possible. I check out alternative methods as a matter of professional interest, but it is not my place to comment.
Good question.
Thanks,
Jeff
Posted by: oldprof | March 28, 2010 at 12:08 PM
Ron - I'll have more on my friendly bet with Mish in the employment preview this week. Measured in popularity, his site is certainly at or near the top.
Thanks for your interest!
Jeff
Posted by: oldprof | March 28, 2010 at 12:06 PM
do you follow Copernicus or/and understand his methodology for picking the number 1 and number 2 ETF's?
Posted by: Bruce Russell | March 23, 2010 at 07:31 AM
As always, I appreciate your blog. I was interested in your comment that you have a bet with Mish. I unsubscribed to his blog because he is always bearish -
maybe he is attracts more readers?
Posted by: Ron Glandt | March 22, 2010 at 08:50 PM
Great post! Thanks much for sharing the information!
Posted by: renaissance costume | March 22, 2010 at 05:22 AM