RM Portfolios Update: February 2018

Each month I will share the monthly performance of the Vanguard Portfolio ETFs and our version of the Dual Momentum Strategy. I also share the Dual Momentum signal for the current month based on my relative and absolute momentum criteria using my favourite Canadian-listed ETFs.

If you run a passive portfolio using multiple component ETFs, you can learn how to design a Couch Potato portfolio by reading this post or the Canadian Couch Potato blog.

Starting this month, we are going to start following a leveraged strategy which combines short-term bonds and leveraged stock ETFs. This is based on the Leveraged Portfolios post which I shared earlier this February.

It's important to understand there are many strategies you can use to be a successful investor of long periods of time. Choose a proven approach, make sure it is appropriate to your risk tolerance, and stick with the strategy regardless of recent performance.

Vanguard All-in-One Portfolio ETFs

These Vanguard ETFs hold multiple assets inside a single ETF. It's nearly a perfect solution for investors who want to buy just one ETF and hold it forever without worrying about re-balancing, tax trigger issues, and excessive costs. These ETFs are completely managed for you at a very low 0.22% fee. Read my post reviewing these products to get an idea of how they are designed.

Here are the February monthly returns of these portfolio products (benchmark data).

Vanguard Growth ETF:  -0.64%
Vanguard Balanced ETF:  -0.48%
Vanguard Conservative ETF:  -0.33%

The decision between choosing the Growth ETF, Balanced ETF, or Conservative ETF depends on your tolerance for risk and your investment time-line. The Growth ETF should have the highest returns and highest draw-downs over time while the Conservative ETF will show lower returns with more stability. The Balanced ETF is in between the other two.

Dual Momentum Strategy (RM Style)

Dual Momentum is a strict, rules-based investing approach which uses an easy performance evaluation to decide your investment holding for each month. Most months the holding will stay the same; trades occur around two times per year on average. By evaluating just once each month, you can eliminate the negative effects of market noise and spend very little time investing.

The Dual Momentum strategy—as tested by Gary Antonacci of Optimal Momentum—has shown fantastic results of complete market cycles. Read his website, book, and research papers to get a full understanding of how the strategy works.

See our version of Dual Momentum performance for 2017 by visiting the Portfolios page.

YTD Performance:  +2.68%
Last month's performance:  -0.14%
Current recommendation: XEF.TO (no change from last month)

When determining our monthly position, we consider the past performance of just three eligible holdings: XUU.TO, XEF.TO, VSB.TO. The best performer based on specific criteria becomes the only holding for the next month.

Leveraged Barbell Portfolios

The Leveraged Portfolio strategy uses a unique mix of short-term bonds and leveraged stock ETFs to achieve growth while limiting downside risks. It's essentially a barbell strategy where all the risk and growth is contained in a small portion of the entire portfolio.

If you choose to implement the strategy, make sure you treat each account as a whole portfolio. Do not put bonds in one account and leveraged stock ETFs in another account!

Leveraged portfolios are re-balanced just once per year. For this reason, I will always track the Year-to-Date returns only.

Canadian-listed ETFs (2x Leverage Stock ETFs)

HSU.TO (50%) & XSB.TO (50%):  +1.03%
HSU.TO (30%) & XSB.TO (70%):  +0.63%

U.S.-listed ETFs (3x Leverage Stock ETFs)

UPRO (40%) & BSV (60%):  +0.43%
UPRO (30%) & BSV (70%):  +0.13%

These allocations are just a few examples of how Leveraged Barbell Portfolios can work. Leveraged ETFs amplify positive and negative returns so they should always be paired with low-risk assets to meet your personal risk tolerance. In a non-registered account, you may use margin debt to purchase your stock index ETF for somewhat better tracking.

Comments & Questions

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6 Replies to “RM Portfolios Update: February 2018”

  1. You may want consider UPRO in place of SPXL… lower fees, and this shows up over the long term (ratio chart on StockCharts).

    1. Daren (Editor) says:

      Thanks Victor! I will certainly change that.

  2. Any reason you left out Emerging Markets (looking at XEC.TO) from your DM portfolio?
    If plotted alongside XUU and XEF, XEC is the winner for the most part of the last year. Lost gains.

    1. Daren (Editor) says:

      Victor, Emerging Markets have certainly been on a tear lately!
      However, adding more ETFs translates to roughly 70% more trades, more whip-saw trades, and larger drawdowns. Plus it’s barely more profitable over the long term. I don’t focus on the possible gains in any one year, focus on the losses avoided over decades.
      Based on some backtests I’ve been doing more recently, it actually seems a better strategy would be substituting EM instead of DM and stick with two equity ETF (US & EM). I’m not sure it’s sustainable though because nearly all of that gain came from the massive EM run from 2003-2008, along with the commodity and BRIC craze. It’s hard to say if that is repeatable.
      As I said before, I am sticking to DM for this model I share at the moment because it keeps things simple to manage and the results are very positive. If we had a cheap ex-US ETF listed in Canada I would go with that instead, but it’s not there at the moment.
      I don’t profess that anything I share is “the best”, I don’t have all the answers, but the blog info is free and possibly worth more than that. 🙂

    2. Thanks Daren for your lengthy response.
      I too feel that holding all the ETF at the same time it is way easier to manage and understand. I start looking at DM recently (this is how I found your blog, great job you are doing with it anyway, hopefully you’ll keep it alive for the long haul) and it is interesting, I envision it kind of as “skatesurfing” the waves and jumping from crest to crest – if that makes any sens.
      I will make a mix of DM / CCP / MI (that is Me Investing) strategy with the trio of ETF already mentioned XUU,XEF,XEC. Throw in some 10 vs 200 averages and sit back, relax and see where it takes me.

    3. Daren (Editor) says:

      Victor, yes that’s not too far off from what I’m doing. I run two separate strategies that don’t interact with each other at all.
      In my registered accounts I do my own version of Dual Momentum (similar in philosophy to how Gary Antonacci presents it in his book, but a bit more responsive and using Canadian ETFs).
      In my non-registered account I do a trend following strategy with leverage and use of price breakouts and long moving averages.
      To me running two strategies means less correlated returns and limited drawdowns while still getting decent performance and response to market conditions. I also am not interested in trading every day or even every week.
      Jumping from crest to crest is a good analogy, kind of like those guys on Jet-skis in the 90s movies haha!

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