The ETF Country models, along with the ACWI index, pulled back this week. The pullback was focused around Asia where we are over-weighted in our portfolios so our portfolios pulled back a little more than the benchmark. The Country Basic is still outperforming the benchmark on the year while the Country Stops & Targets is lagging behind by around 2%.
The U.S. markets gapped down to open the week and then proceeded to track sideways. Economic data remains mixed with the latest GDP number showing the U.S. economic output contracted by 0.7% over the previous quarter.
We had a live coaching last Friday to go over some changes to the ETF family of models. The changes do not directly affect the Country models. The recording should be made available on the website shortly.
This Week’s Strategy Lesson: New Changes to the Sector Models (Part 1)
This week we are rolling out a few changes to our ETF models. The changes will affect the Sector models and the Complete model. We have received a number of questions and requests from our members over the last year and a half regarding the use of leveraged ETFs in our portfolios.
The leveraged ETFs play an important role in the returns and overall rotation strategies. However, a few of our members either cannot trades these ETFs or would prefer a lower volatility option.
Towards that end, we are both adding to and overhauling the available sector models. This will involve adding two new models, dropping one, and changing the names of the models to reflect the new structure.
First, we are releasing a brand new model called: Sector Conservative. This model uses the same concepts of trend strength and rotation but changes the instrument list. It has 18 different ETFs including some broad and specific sector ETFs as well as a selection of long and short index and treasuries ETFs. None of these ETFs employ leverage. This model uses pure rotation with no stops or targets. Performance-wise, it will represent the most conservative of the sector models.
Secondly, we are releasing an additional brand new model called: Sector Moderate. This model takes its holdings from the rankings and holdings of the Sector Conservative model, however, its trades a leveraged ETF variant when one is available. For instance, if the Conservative model is holding SMH (semiconductors) the Moderate model will hold SOXL (3x semiconductors).
This model has the traditional stops & targets we have in the other models. Performance-wise, this model will hold the middle ground and represents an improvement over the old Sector Stops & Targets based on a number of metrics.
Finally, we are renaming the old Sector Basic model to: Sector Aggressive. The only thing changing here is the name. The components and rotation methodology remain unchanged. Performance-wise, this model had the highest historical return but also the highest volatility and largest potential drawdowns.
The old Sector Stops & Targets model is being dropped from this list. The new Sector Moderate model fills the same space and offers a similar performance profile with moderately improved risk characteristics.
The one change to the ETF Complete Portfolio is we will now be substituting in the Sector Moderate for the sector portion of that portfolio instead of the Sector Stops & Targets model.
The chart above gives the basic annual returns of all the sector models. Additional information will be available on the website. Also, we had a live coaching session last Friday to go over the changes. If you were unable to attend, the recording will be made available on the website shortly.
In the next couple of strategy articles, we will be going over in greater detail the changes to the models and the performance profiles of each. We are excited about these changes. We feel that the new structure and changes will provide you with additional flexibility and options for how you follow and trade these models.
The Current Condition of the Model
There were no position changes this week. Our three positions are FXI, EWH, and EWJ. Both models are in all three positions.
Stay tuned to daily updates for any position changes.
Here is a summary of the weekly performance of all the ETFs that the strategy monitors.
Best wishes for your trading,
James Kimball
