Global Market Rotation Strategy

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Global Market Rotation Strategy 2017-04-20T02:16:30+00:00

Project Description

The Global Market Rotation Strategy (GMR) is one of our core investment strategies. The strategy invests on a monthly basis in one of five global markets.

See our original white-paper here.

December 2016 Update:

We are enhancing the Treasury hedge. Before we allocated part of the portfolio to longer-term Treasuries, namely the 3x leveraged ETF version, TMF. From now on we will be allocating to the best Bond ETF as chosen by our Bond Rotation strategy. BRS choses from the JNK, CWB,PCY and TLT ETFs. You can find more information in this post.

December 2015 Update:

We are adding currency hedged ETFs in the universe that our algorithm can see. That means that we allow our algorithms to choose between a non-hedged ETF like EWG or a hedged ETF like HEWG. This allows our algorithm to input dollar strength as an additional parameter and be able to respond accordingly. This does not change the current logic, which is to bet on the best performing regions or countries. What it does is that it allows, in the case of extended dollar strength, to partially neutralize foreign currency risk for our U.S. based investors.

 

The strategy is a very conservative approach to maximize your portfolio return and on the same time minimize the risk of losses during financial crisis. During the 2008 financial crisis the S&P500 lost more than 55%. During this difficult time this strategy switched to secure US Treasury’s (TLT) or even to cash (SHY). The Global Market Rotation strategy ended the year 2008 even with a solid gain of 50.5% compared to a loss of -36.8% for a S&P500 investment. The return to risk ratio (Sharpe Ratio) of this Strategy is 1.4 compared to 0.37 for a S&P500 investment. This means that since 2003 you made 27.5x more money with this strategy compared to an average S&P500 investment and this with considerably less risk.

As of December 2016 we are replacing the Treasury hedge (TLT) with the best Bond ETF picked by our Bond Rotation strategy. If our BRS model picks JNK as the best bond ETF, then the Global Market Rotation strategy will be hedged with that ETF and not Treasuries.

As of December 2015 we have added currency hedged ETFs in the universe that our algorithm can see. That means that we allow our algorithms to choose between a non-hedged ETF like EWG or a hedged ETF like HEWG. This allows our algorithm to input dollar strength as an additional parameter and be able to respond accordingly. This does not change the current logic, which is to bet on the best performing regions or countries. What it does is that it allows, in the case of extended dollar strength, to partially neutralize foreign currency risk for our U.S. based investors.

 

Research is undertaken to ensure that the diversified mix of asset classes is appropriate for the desired level of risk. Specific ETFs are screened and chosen to best represent the asset class, while also maintaining low management fees and index tracking error.

 

These Markets are:
EEM – iShares MSCI Emerging Markets
DBEM – Emerging Markets Equity Fund
EPP – iShares MSCI Pacific ex-Japan
DBAP – MSCI AC Asia Pacific ex Japan Hedged Equity Fund
FEZ – SPDR Euro STOXX 50
HEDJ – Europe Hedged Equity Fund
IHDG – WisdomTree Int’l Hedged Quality Divident ETF
MDY – S&P MidCap 400

During market corrections we invest in:

CWB – SPDR Barclays Convertible Bond

JNK – SPDR Barcap High-Yield Junk Bond (4-7yr)

PCY – PowerShares Emerging Mkts Bond (7-9yr)

TLT – iShares Barclays Long-Term Trsry (15-18yr)

 

 



Risk and Performance Profile

Risk Score:?
Performance:
3 Months12 MonthsSince Inception
Return
CAGR
Volatility
DrawDown
Sharpe
Annual Performance vs. Benchmark

The Global Market Rotation Strategy (GMR) is one of our core investment strategies. The strategy invests on a monthly basis in one of five global markets.

These Markets are:

  • US Market (MDY – S&P MidCap 400 SPDRs)
  • Europe (FEZ – SPDR Euro STOXX 50, until July 2013 IEV S&P Europe 350)
  • Emerging Markets (EEM – iShares MSCI Emerging Markets)
  • Latin America (ILF – iShares S&P Latin America)
  • Pacific region (EPP – iShares MSCI Pacific ex-Japan)

(updated December 2016) During market corrections we invest in the Bond Rotation Strategy best bond ETF from:

  • CWB – SPDR Barclays Convertible Bond
  • JNK – SPDR Barcap High-Yield Junk Bond (4-7yr)
  • PCY – PowerShares Emerging Mkts Bond (7-9yr)53 TLT – iShares Barclays Long-Term Trsry (15-18yr)

The strategy is a very conservative approach to maximize your portfolio return and on the same time minimize the risk of losses during financial crisis. During the 2008 financial crisis the S&P500 lost more than 55%. During this difficult time this strategy switched to secure US Treasury’s (TLT) or even to cash (SHY). The Global Market Rotation strategy ended the year 2008 even with a solid gain of 50.5% compared to a loss of -36.8% for a S&P500 investment. The return to risk ratio (Sharpe Ratio) of this Strategy is 1.4 compared to 0.37 for a S&P500 investment. This means that since 2003 you made 27.5x more money with this strategy compared to an average S&P500 investment and this with considerably less risk.