Friday, May 31, 2013

T2 XLF (Financials) Portfoliio

This is a strategy previously mentioned...the goal is to select a sector ETF that is performing well and then construct a rotational momentum portfolio based on that ETF's components.  As with all momentum models the caution is to exercise stops when they fire thus preserving accrued gains and avoiding drawdown givebacks.
In that vein here's a look at the XLF portfolio based on the top ten holdings with SPY as a benchmark.

The problem with this approach (there's always a problem) is that we have now added volatility by trading stocks...a situation that is reflected in the standard deviation metrics and the RSQ value of .63 for the model..considerably less than the SPY at .84...and which can be seen by simply looking at the 2 year comparative chart below.

Just for fun you can run a top 1 sort of this portfolio and check out the 70% return over 2's the drawdown that's of concern with that sort and hence the ongoing caution to strictly honor the money management stops when they trigger. From a practical standpoint this means paying close attention on a day by day basis to how the markets are behaving...a requirement that most long term investors will not find attractive.
Click once on chart to enlarge and clarify.