Very Simple Asset Class ETF Momentum Strategy (VSACEMS)

A subscriber requested evaluation of a streamlined version of the Simple Asset Class ETF Momentum Strategy (SACEMS) that considers only three exchange-traded funds (ETF):

• SPDR S&P 500 (SPY)
• iShares Barclays 20+ Year Treasury Bond (TLT)
• iShares iBoxx $ Investment Grade Corporate Bond (LQD)

To evaluate, we test a strategy that each month picks the one of these ETFs with the highest total return over a set momentum ranking (lookback) interval. We call the strategy Very Simple SACEMS (VSACEMS) Top 1. We consider lookback intervals of one to 12 months. We then select one of these lookback intervals and generate performance statistics similar to those for SACEMS. We consider three benchmarks:

1. SPY – buy and hold SPY.
2. SPY:SMA10 Cash – Hold SPY (3-month U.S. Treasury bills) when SPY is above (below) its 10-month simple moving average (SMA10) at the end of the prior month.
3. SPY:SMA10 TLT – Hold SPY (TLT) when SPY is above (below) its SMA10 at the end of the prior month.

Using monthly dividend-adjusted prices for the above three assets during July 2002 (limited by TLT and LQD) through May 2023, we find that: (more…)