Almost one year ago, I wrote about an Asset Class Rotational Model that trades ETFs. I recently got an email from someone asking me about it, and the email reminded me that it would be a good time to check in on how the system has performed over the past year.
The quickest way to understand how the system works is to read Mebane Faber’s article: A Simple Momentum System for Beating the Market.
I have re-run the test, with the same rules as when I ran it last on 2.19.12.
- Commissions and slippage were not included
- No implementation of a moving average filter
- No return on cash
- The top 5 ETFs were held
With $SPY achieving an 11% return over the same time frame, results are not stellar.
However, if we look at the Asset Class ETF Rotational System 2012 results (assuming the system ran without stopping since beginning in 2003), it returned 10.6% vs. 11.47% for $SPY. This is not quite as bad, but once commissions and slippage are factored in, we could safely shave another 1% off the return. All the caveats of the original post still apply.
The good news is that the system appears to be working fine; it just couldn’t beat its benchmark.
Later this week I’ll add a moving average filter and then use Faber’s suggestion of limiting total positions to 3 rather than 5. One addition I would really like to test is to make sure the system is not picking ETFs that are highly correlated. I’m not sure how to implement this in AmiBroker, so if anyone wants to work with the code to implement it, send me an email to woodshedder73 at gmail.