Performance with Inflation-Protected Bond – Schwab US TIPS ETF (SCHP) (click to enlarge) Performance with Alternative Bond Fund The lowest return was 3% and the highest 63%. There were no negative returns over any 1-year period as shown in the histogram below. The average holding period of a position was about 3 months. The maximum loss for any position was -4.8%. Over the backtest period (Feb-2001 to Aug-2016) there were only 65 completed trades, 51 winners, and 14 losers. Although this model performed well over the last 15 years, there is no evidence that it would have produced similar returns before the backtest period, nor is there a guarantee that it will perform well in the future. Rising interest rates with concurrent diminishing returns from bonds may reduce the effectiveness of this model. iMarketSignals will report weekly the status of this timer. Table 1: Performance from February 2001 to August 2016.įrom the analysis it appears that the iM Composite Market Timer can profitably be used to switch between stocks and bonds. It clearly shows the improvements gained by adopting composite market timing. Table-1 below compares the Composite Timer and the component timers. The relative smoothness of the performance graph indicates that the six component models are indeed much diversified. See the Appendix for performance when using Inflation-Protected Bond – Schwab US TIPS ETF (SCHP). Performance of this model is not significantly affected by the choice of bond fund. Trading costs and slippage were not included. The simulation shows an annualized return of 19.7% with a maximum drawdown of -9.3%, and an average 4-times annual turnover. The red graph represents the performance of the model from Feb-2001 to Aug-2016. The simulated performance using this indicator and switching between SPDR S&P 500 ETF (SPY), the ETF tracking the S&P 500, and the iShares 7-10 Year Treasury Bond (IEF) is shown in the figure below. The model was backtested using the on-line portfolio simulation platform Portfolio 123, which also provides extended price data for ETFs prior to their inception dates calculated from their proxies. Performance of the Composite Market Timer is invested plus at least two of the four (3. Therefore, the minimum requirement for investment in stocks is when: No special curve-fitting or optimization routines where used.Īn entry signal for the stock market arise when the combined weight of the six models is equal to, or greater than 50. thru 6.) 12.5 each, totaling 100 for the six models when all of them were to simultaneously signal investment in the stock market. above each contribute 25, and the other four (3. The component models are weighted: models 1. This provides for greater tolerance and robustness in case of some temporary data distortion of a component timer. ![]() The correlation of the models’ simulated performances is low. Each component timer references a different causal set. The iM Composite Market Timer combines six timers based on the above indicators. Performance of the Hi-Beta and Lo-Beta stocks of the S&P 500, ( detailed description). ![]() ![]() Unemployment Rate (UNEMP) ( detailed description),.We introduced six such component timers using the following: Instead many uncorrelated market timing strategies can be combined into a robust composite market timing model. Relying on one market timer only, such as a moving average cross over, is risky. For this reason some investor use simple market timing, mostly momentum driven, to exit and enter the markets according to market direction. From 2001 to 2016 switching between bonds and stocks using a composite timer would have produced an average annual return of 19.7% versus only 5.2% for buy & hold stocks.įor the period 2001-2016 the buy&hold strategy no longer worked! It is likely that it will also not work in the future due to increasing stock market volatility.The risk can be reduced with a composite timer whose component timers use different, uncorrelated, financial and economic data. Reliance on a single market timer could be risky.
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