SACEMS Applied to Mutual Funds

A subscriber inquired whether a longer test of the “Simple Asset Class ETF Momentum Strategy” (SACEMS) is feasible using mutual funds rather than exchange-traded funds (ETF) as asset class proxies. To investigate, we consider the following set of mutual funds (partly adapted from the paper summarized in “Asset Allocation Combining Momentum, Volatility, Correlation and Crash Protection”):

1. Vanguard Total Stock Market Index Investor Shares (VTSMX)
2. Vanguard Small Capitalization Index Investor Shares  (NAESX)
3. Fidelity Diversified International (FDIVX)
4. Vanguard Long-Term Treasury Investor Shares (VUSTX)
5. Fidelity New Markets Income Fund (FNMIX)
6. Vanguard REIT Index Investor Shares (VGSIX)
7. First Eagle Gold A (SGGDX)
8. Oppenheimer Commodity Strategy Total Return A (QRAAX) until in October 2011, and BlackRock Commodity Strategies Portfolio Institutional Shares (BICSX) thereafter
9. 3-month U.S. Treasury bills (Cash)

We rank mutual funds based on total (dividend-adjusted) returns over past (lookback) intervals of one to 12 months. We consider portfolios of past mutual fund winners based on Top 1 and on equally weighted (EW) Top 2 through Top 5. We consider as benchmarks: an equally weighted portfolio of all mutual funds, rebalanced monthly (EW All); buying and holding VTSMX; and, holding VTSMX when the S&P 500 Index is above its 10-month simple moving average (SMA10) and Cash when the index is below its SMA10 (VTSMX:SMA10). Using monthly dividend-adjusted closing prices for the above mutual funds and the yield for Cash during March 1997 through April 2021, we find that: (more…)