Adding VUG and VTV to SACEMS

A subscriber suggested adding U.S. large-capitalization growth and value funds to the asset class proxy universe in the Simple Asset Class ETF Momentum Strategy (SACEMS) to capture associated growth and value streakiness. To investigate, we select Vanguard Growth Index Fund ETF Shares (VUG) and Vanguard Value Index Fund ETF Shares (VTV) as growth and value proxies. We compare performance statistics for SACEMS Top 1, equal-weighted (EW) Top 2 and EW Top 3 portfolios for:

1. SPY – Baseline SACEMS with SPDR S&P 500 ETF Trust (SPY) as a proxy for U.S. large-capitalization stocks.
2. SPY/VUG/VTV – SACEMS with VUG and VTV added.
3. VUG/VTV – SACEMS with VUG and VTV but without SPY to limit the overall tilt toward U.S. large-capitalization stocks.
4. VUG – SACEMS with VUG substituted for SPY to assess the benefit of growth alone versus value-growth switching.
5. QQQ – SACEMS with Invesco QQQ Trust (QQQ) substituted for SPY to compare VUG versus QQQ as large-capitalization growth stock proxies.

We focus on gross compound annual growth rate (CAGR), maximum drawdown (MaxDD) based on monthly measurements and annual Sharpe ratio (with excess annual return calculated using average monthly yield on 3-month U.S. Treasury bills during a year as the risk-free rate for that year) as key performance statistics. Using monthly dividend-adjusted returns for baseline SACEMS assets, VUG, VTV and QQQ during February 2006 through February 2025, we find that:

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