Emerging Markets Lookback Period Fund Backtest Results Array

May 15, 2019 in Backtest | Emerging Markets

One variable to analyze more deeply is the 'Lookback Period' -- this is the period through which you filter out noise.  You obviously don't chase whatever performed best today vs yesterday (a 1-day lookback)... Nor should you chase whatever performed best over the past 5 years (laggard).   Academia has demonstrated in numerous research papers going back many, many decades over many different asset classes that the 3 to 12 month range is the value-added focus zone.  

Set-Up:  We test Emerging Markets over a 16-year period using both monthly lookbacks {3, 4, 5, 6, 7, 8, 9, 10, 11 & 12 months} --- and then also test weekly lookbacks {13, 17, 22, 26, 30, 35, 39, 42, 48 & 52} weeks.   The monthly tests use last day of month to execute rotation, when there is rotation.   The weekly tests use the last trading day of the week (ie, Friday close).    We use zero interest security (XZERO) as our holding when not invested (this is unrealistically conservative but it allows us to compare [3] month with [12] month lookbacks without the minor complication of changes in fixed-income total returns when out of the market).  

Results:  Generally speaking, emerging markets are better examined through a 4-5-month (17-22wk) range in terms of lookback period.  10-11 month were profitable but far less in total return over this period than the other time periods.    Weekly and monthly time periods show similar results showing that variation will occur – we are only looking for larger tendencies here.   Secondarily, 3 & 6 month (13-wk and 26-wk results) proved better than 9 & 12 month.   

VEIEX_16_Year_Backtest_Array_Slide.pdf (129.62 kb)

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Strategy Diversification: Combine a core allocation with regime based portfolio switching

May 07, 2019 in Regime Change

Back in 2010 we created our first multiple strategy module, the Advanced Relative Strength backtest, allowing subscribers to combine together different models into an overall portfolio.  To illustrate the backtest, we produced a simple example that employed two sub-strategies; a basic US equity model (MDY, IWM, SPY and QQQ) and an international model using smaller developed country funds (EWA, EWC, EWH and EWS).

The example below uses the same ETFs as that original illustration, but this time, rather than running each model concurrently, we have employed the SPY / EFA ratio moving average as a regime switch to dynamically alternate between the two portfolios.  When the SPY / EFA ratio is trending upwards (i.e. above its MA), the backtest invests in the US equity portfolio.  When the opposite is true, it switches to the International stock portfolio.  This regime approach is then mixed with a solid fixed income core portfolio (IEF and LQD) to form an annually rebalanced 60-40 strategy.

 


The Core-Regime Portfolios backtest is available to pro subscription members

 

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