Our current three positions are TMF, SSO, and IFN. We made no position changes this week. TMF remains a great performer and IFN showed some serious life on Friday. Both US and global equity markets sold off considerably this week.
This Week’s Strategy Lesson: Year in Review (Part 1)
2014 is now officially in the books. We thought it was a good idea to go over some of the basic performance numbers from 2014 this week and then next week try and answer the question: “Was 2014 a usual or unusual year for the model?”
ETF Sector Plus
The sector models had a great year overall with both the Basic and the stops & Targets beating out the S&P500 by a very nice margin. The Basic closed the year up 45% while the Stops & Targets closed up 18.5%. The majority of the gains were made in the first half of the year with the second half having considerably more volatility.
The models produced these gains on a number of great trades in healthcare, energy, real estate, and technology. We only had one significant losing trade. It should be noted that we sold TECL for the loss of 12% in mid-October and immediately rotated into DRN which we closed out for nearly an 18% gain.
Most of the performance differences between the Sector Basic and Stops & Targets can be attributed to significantly higher amount of cash in the Stops & Targets model following the sell-off in October.
ETF Country Plus
The country models also had great performance in 2014. The country models tend to have lower overall performance and significantly lower volatility than the sector models. However, thanks to large trades in treasuries and India, the basic model closed out the year up nearly 28%. The Stops & Targets model lagged behind in the second half of the year because the position in TMF went to cash after being stopped out. The Stops & Targets model closed the year up 13.7%.
The country models had a lower than usual number of trades, but to great effect. Trades in Egypt and Spain started the year off strong followed by trades in India and U.S. Treasuries. We had a number of small losing trades but they were kept small with the largest being a 6% loss in a China trade.
ETF Complete Portfolio
The ETF Complete Portfolio is based on the combination of the Stops & Targets versions of Sector and Country models with the addition of the Global Macro model. The Global Macro model tends to be the least correlated with the oval market. However, the Global Macro model ended the year barely up 2% and giving back most of its performance for the year in the market selloff in October. Between having 1/3rd of the Complete model in Global Macro and a significant amount of cash in the other Stops & Targets model, the Complete Portfolio ended the year with a decent 11.7% gain but only barely edging out the S&P 500.
In the global macro, great trades in the first half of the year in Coffee (JO) and volatility (VXX, XIV) were followed by several bad trades in those same instruments.
Next week we will look at some additional performance and risk metrics and compare the 2014 performance to those in the historical backtest of the models. We are excited about the possibilities for these models in 2015 and we would like to wish all of our subscribers a wonderful 2015.
The Current Condition of the Model
For the country model, we are in TMF, SSO, and IFN. Our position in TMF continues to be a great trade/hedge. Santa Clause was missing in action as the broader markets sold off considerably this week and closed out December in the negative. 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
Trader & Analyst
MarketGauge