Here is an advance preview of the monthly moving averages we track after the close of the last business day of the month.
In the chart to the right, the second of the three tables previews the 10-month SMA timing signals for the five asset classes highlighted in the Ivy portfolio. Based on the 10-month simple moving average, before the close on the last day of the month, one of five Ivy portfolio ETFs - Invesco DB Commodity Index Tracking Fund (DBC) - is signaling "cash", up from last month's final zero "cash" signal.
The third table previews the 12-month SMA timing signals for the Ivy ETFs to include a slightly longer time frame. Based on the 12-month simple moving average, before the close on the last day of the month, one of the five Ivy portfolio ETFs - Invesco DB Commodity Index Tracking Fund (DBC) - is signaling "cash", up from last month's final zero "cash" signal.
The tables also show the percentage above or below the moving average for each fund. If a position is less than 2% from a signal, it is highlighted in yellow to put a bit more emphasis on those funds that are close to reversing positions.
Our inclusion of the S&P 500 index updates is intended to illustrate a popular moving moving-average timing strategy. The index signals also give a general sense of how US equities are behaving. However, for followers of a moving average strategy, the general practice is to make buy/sell decisions on the signals for each specific investment, not based on a broad index. Even if you're investing in a fund that tracks the S&P 500 (e.g., Vanguard's VFINX or the SPY ETF) the moving average signals for the funds will occasionally differ from the underlying index because of dividend reinvestment, which is not factored into the index closes.
The Ivy Portfolio
The Ivy Portfolio is based on the asset allocation strategy used by endowment funds from Harvard and Yale. It is an equally weighted portfolio constructed with 5 ETFs that feature a mix of different asset classes. By allocating across different asset classes, diversification is achieved and risk is reduced. The different asset classes and their corresponding ETFs are below.
- Domestic stocks, represented by Vanguard Total Stock Market ETF (VTI)
- International stocks, represented by Vanguard FTSE All-World ex-US Index Fund (VEU)
- Bonds, represented by iShares 7-10 Year Treasury Bond ETF (IEF)
- Real estate, represented by Vanguard Real Estate ETF (VNQ)
- Commodities, represented by Invesco DB Commodity Index Tracking Fund (DBC)
The process of using the Ivy Portfolio is quite simple. First, compose a diversified portfolio from each of the major asset classes held in equal weight (see above). Then, compute a moving average of closing prices over the prior 10 months for each fund (or desired time frame). Lastly, observe the portfolio at the end of each month (note that for the advance preview we are observing the portfolio after the close on the 2nd to last business day of each month). If a fund closes out the month below the level of its moving average, sell it and hold cash, repurchasing only when it closes back above its moving average at the end of any subsequent month. Similarly, if a fund closes out the month above the moving average, hold it.
After the end-of-month market close, I'll update the monthly moving average feature with charts to illustrate.
These moving-average signals have a good track record for long-term gains while avoiding major losses. They're not foolproof, but they essentially dodged the 2007-2009 bear and have captured significant gains since the initial buy signals after the March 2009 low.
