Moving Average ETF Backtest For Portfolios: New Functionality

Sep 20, 2010 in Backtest

If you have created a portfolio list on ETFreplay, we are building new applications to leverage your ETF lists.  (If you are unsure on how to create a personalized ETF list, click here for a quick video: Setting Up Portfolio Lists Short Tutorial Video )

We have two new modules out that we have been working on for the past few months.  These applications offer simplified views to help us try to understand larger forces at work in the global marketplace.  

Building upon academic research regarding the use of moving averages, these apps save investors time by allowing many calculations and quantitative analyses to be simplified into a few clicks.  We think that creating specific entry/exit rules and creating a detailed strategy report adds value to better understanding a concept. That is, we create apps that convert concepts into tangible, specific techniques.  The accountability of these techniques is built into the very architecture of the website. On any day, you are just a click away from an updated view of the profit and loss history of a particular strategy.

Importantly, this type of research should be used as a complement to other forms of research. We suggest you think about which types of ETFs you want to be involved with over the long-run and then use techniques such as relative strength and moving average backtesting to help you research methods that reduce risk of a large drawdown, while potentially offering to enhance your return as well.



The example below uses 4 key smaller developed markets outside Europe & the U.S.

1.  EWA   iShares MSCI Australia Index
2.  EWC   iShares MSCI Canada Index
3.  EWH   iShares MSCI Hong Kong Index
4.  EWS   iShares MSCI Singapore Index





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Comments (14) -

Sep 22, 2010 11:41 #

Really excellent work!
I have enjoyed the ease with which I can do tests and the wide range of perspectives to look at the market and relationships between etf's.
I hope that you continue the good work.

Jorge Netherlands

Sep 22, 2010 14:33 #

Good stuff as always!  Perhaps there would be value added by combining the Moving Average with the Relative Strength portfolio back-tests.

Terry United States

Sep 22, 2010 14:52 #

Yes Terry, good point.   Take the DB Agriculture Index (DBA) example we highlighted in August.   Its criss-crossed the longer-term moving averages a few times -- but it hasn't been a relative strength leader since Q1 2008 vs a broader list of market segments/asset classes:

Chris United States

Sep 22, 2010 20:59 #

Very helpful. Question: I see the monthly return assumes equal % weights for the ETFs in the portfolio each month. Does this imply monthly re-balancing, i.e. set the % weights of ETFs in the portfolio again equal each month?  Commissions would make that costly (example: 4 ETFs = 4 sell & 4 buy = 8 commission fees/ month).

Rudy Belgium

Sep 22, 2010 22:47 #

Excellent !!
Very usefull & helpfull
Thank You !

Moove France

Sep 22, 2010 23:16 #

It would be handy to see Portfolio MA Timeline results inside the Portfolio Moving Average results, maybe an option button.

Rudy Belgium

Sep 23, 2010 06:13 #

ETFreplay's apps really DO simplify analyses.  I applaud the work.  As someone new to  asset allocation, what are "other forms of research" might be a good compliment to ETFreplay tools?

I have been getting pretty backtest results using "Portfolio Relative Strength Backtest" on a Mebane Faber Ivy Portfolio diversified across 20 Asset Classes . I selected "Buy Top" 3 ETFs monthly.   When I rebalance at the end of the month, I want to exclude any of the 20 ETFs trading below their 10 Month SMA.  What is the best way using ETFreplay tools to insure that that happens.

Keep sharing the great tools and  knowledge.

Stuart Selig United States

Sep 23, 2010 07:49 #

Hi Stuart,

The website is about offering complementary tools for 'research' that come at the market from another angle than a typical fundamentally-driven investment process.   So 'other forms of research' partly refers to the ETFs you select for possible inclusion in your portfolios in the first place.  Most people have very good ideas of where they want to be invested (particular country funds, bond market duration targeting, corporate bonds vs treasuries,  preferred stock/REIT/Emerging markets of interest etc) .  So if you don't want to be in long-duration Treasury bonds -- then you can simply choose to exclude them in your portfolio lists --- yet you may include short and intermediate duration Treasuries as a low-correlation safe-haven option.    We have written on this specific topic numerous times.

So it sounds like you have already done this by selecting the 20 ETFs you chose that are of interest.  Once you are comfortable with a list, then you can proceed to backtest techniques that reduce risk and thereby improve the reward/risk relationship (sharpe ratio).  

Regarding the specific rebalance question -- what you could do is run backtests on various lists -- and each month keep a portfolio that is composed of the 3 picks from the first list -- and monitor this on the MA timeline as a portfolio.  It shows where the last close was in relation to the moving average quite clearly.

Hope that addresses your post.

Chris United States

Sep 23, 2010 13:43 #

Let me add my name to the chorus for the idea of combining the momentum and moving average models....

@Stuart Selig - what ETFs make up the Mebane 20 asset portfolio?  I'm familiar with the basic ones.

Damian United States

Sep 23, 2010 19:51 #

The IVY 20 includes US and foreign large, mid and small cap asset classes, US and foreign bonds and real estate, infrastructure, commodities and timber. I substituted CUT for his timber pick (TREE.L) All equal weighted.


Backtesting with ETFreplay using 6 month RS, 3 month RS, 3 month Volatility and buying the top 3 monthly generated strong results. I found code someone wrote to generate numerical 10 month SMA. Just switch replace VTI with the symbol you're looking up.

Stuart United States

Oct 08, 2010 06:46 #

The "Portfolio Moving Average Backtest" is great. Thanks. Is it possible to add another filter  -- "Buy Top" ranked ETFs in that portfolio?

Stuart United States

Oct 26, 2010 11:18 #

Great site!!!

Brgds Øystein

Øystein Norway

Nov 08, 2010 07:00 #

Could you also add Moving Average (MA) backtesting with 2 MA crossing as signal (e.g. 200 DMA + 20 DMA --- possibly even exponential MA).  

hugos Germany

Nov 17, 2010 20:34 #

Here is a moving average portfolio designed to be effective in both inflationary and deflationary markets. Inputs: DVY (for dividends), EEM (to capitalize on emerging market runs), IAU (gold, which can do well in both inflationary and deflationary times), IEF and TLT (medium and long term bonds for interest income during deflation), and XLU (for dividends). Running the data on a monthly schedule with a 10-month moving average, starting in 2005, and using SHY for cash, we get:

CAGR=11.20, Drawdown = -4.0, volatility = 8.6.

If you run this you can also note that the number of days held for all members of the portfolio was very similar.

Jim United States

Comments are closed