- Frank GrossmannModerator11/07/2014 at 5:35 amPost count: 147
The returns of the first 5 months of 2014 are disappointing for all stock market rotation strategies. The only strategy which is right on track is the Bond Rotation Strategy.
However if we look back, then we see, that we already had several similar periods, and so I do not think that this is the end of these rotation strategies. Best is to look at the charts on my web site. They are updated until 1st of June. The last 5 month don’t look very special if you look at the charts.The reason for the lower performance is that we are since several months in a low volatility market without having any stock market ETF with a strong momentum. All 5 world markets made about 5-6% this year. There is no single market which really outperforms the others. The same is for Treasuries. They showed a nice rebound from the bad 2013 performance, but it would need declining stock markets with a real market correction and then Treasuries would show a really strong longer term up trend. The strongest years of the rotation strategies have always been years with strong market trends. It does not matter if it is a strong up or a strong down trend. During strong market corrections like 2008, Treasuries had a strong up trend and during the first years after the 2008 financial crisis, the stock markets had a strong up trend. Now 6 years after the 2008 crisis and after the strong year 2013 we have reached a point, where markets are going more like sideways and investors switch between stocks “risk on” and Treasuries “risk off”.In general you can say the the rotation strategies can not perform better than the single ETFs in the strategy. In a choppy sideways market, they can even underperform a simple buy and hold strategy, but the good thing is, that most of the time, there are some markets with a strong up trend and if they are there, then the strategy will switch to these ETFs.The only thing you could do this year to get better returns was to combine the stock ETFs with a treasury hedge like I proposed it beginning of the year with the short TMV hedge.Year to date a short TMV position is up 30%, so the 20% short hedge added 7.5% to the strategy performance.Sometimes, you just have to live with lower returns, but at least, due to the rotation you can be pretty sure, that you will not lose your money during the next market correction.
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