Strategy1 has been derived from the article “A Quantitative Approach to Tactical Asset Allocation” by Mebane Faber. Check his website and you will find the link to download the paper. The system trades a universe of 6 ETF’s representing various asset categories (listed below). It will trade once a week by allocating 100% of its equity to the fund that has the highest momentum (combination of 3 ROC settings). To filter out turbulent market conditions the RSI of the VIX index must be below a certain level. Trading signals will trade the Friday Market Close (MOC) and exit on Thursday’s Market Close (MOC).
The picture below summarises the performance of System 1. The format has been inspired by the setup used by David Varadi over at CSS Analytics.
- This system has been tested for the 7 ETF’s over the period 1 Jan 2003 – 18 June 2010. The start date of 1 Jan 2003 was chosen as most of ETF’s had some trading history by that date.
- The stats for the system are based on a fixed positionsize of $10.000. The results do take into account transaction costs based on Interactive Brokers fee structure, however slippage costs were excluded.
As of the last week of June 2010 the signals generated through this system will be provided live before Friday morning.
One can sign-up to this blog to receive the signals.