Research Study: Major Trend Relative Strength With Our Top 10 Exchange Traded Funds (ETFs)
Mr. Colby's weekly Top 10 ETFs ranked by the Major Trend Relative Strength outperformed the S&P 500 significantly since August, 2004, as demonstrated in his ongoing research study.
To arrive at the Top 10 ETF investments, Mr. Colby first calculates a six-month rate of change (approximately) of price for more than 140 actively-traded Exchange Traded Funds (ETFs). Next, he adds in filters to dampen random noise. He then ranks all the ETFs in his universe from highest rate of change to lowest rate of change. Finally, he selects the highest ranked 10 ETFs each week. These Top 10 are the best performing ETFs, the ones with the highest major trend momentum.
When an ETF becomes strong enough to rise into our Top 10, we "purchase" that that ETF, using Friday's closing price, and we give it a 10% weighting in our hypothetical portfolio. We hold that ETF until it drops down and out of our Top 10, then we "sell" it out of our hypothetical portfolio. We rebalance our hypothetical portfolio each week, giving each of the Top 10 ETFs a 10% weighting.
Mr. Colby also tested holding the highest ranking twenty and thirty ETFs, but both tests produced lower returns when compared to the portfolio with only the Top 10 ETFs. Because each ETF is composed of a basket of stocks, we assume that our hypothetical portfolio of ten ETFs offers some degree of portfolio diversification. (For actual investing, we also take care to see that there is not excessive concentration in any one industry or sector.)
Please note that this is a high-volatility strategy: the stocks that go up the most when the stock market is in a bullish trend often go down the most during market corrections to the downside.
This research study is a cornerstone of our actual investing method; however, as you will read in our client agreements, we reserve the right to increase cash and/or fixed-income securities weightings in our clients' accounts in order to preserve capital in risky or down-trending (bearish) market environments. Long experience has taught us that in order to grow capital, we must first preserve and protect it.
Please note that this Top 10 ETFs research study is not investment advice. Your use of this research information means that you have read, understood, and accepted our Disclaimer, below.
According to CFTC Rule 4.41, hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
The information in this report is intended for sophisticated traders and investors who understand the risks of trading in the financial markets. The information and data herein are based on sources available to the public. The contents are not investment advice.
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Robert W. Colby Asset Management, Inc. (Colby) hereby certifies that the views expressed in this research report accurately reflect the personal views of the Company's Chief Investment Officer, Robert W. Colby, CMT, and/or other trained members of Colby, about any and all of the subject markets or securities. Colby is engaged in investment management as well as the conduct and publication of professional-quality, independent technical analysis research and, as a matter of policy, always makes best efforts to be as objective and unbiased as possible.
Any and all statements referring to Robert W. Colby Asset Management, Inc., performance are intended to be accurate and complete and to disclose all material facts necessary to avoid any unwarranted inference. Any and all investment performance data shown reflect all accounts in our recommended investment program. (Some clients, at their own choosing, may hold securities that are not included in our recommended investment program, or they may choose to deviate from our program in some other way; therefore, their performance results may deviate from our recommended investment program, for better or worse, and are not included in our performance data.) Our performance data reflects the deduction of advisory fees, brokerage or other commissions and fees, and any other expenses that accounts have actually paid. Our performance data reflects the reinvestment of dividends, interest, and other earnings. Our investment strategies and all fees are explained on our website and in our disclosure documents and also are available on request. The industry standard benchmark for performance comparison is generally the S&P 500 Index, although that and all other price indexes have certain limitations in that they differ from our recommended investment program in volatility, asset mix, diversification/concentration, dividends, interest, trading costs, fees, and other factors. Unlike the S&P 500 Index, which passively reflects the price performance of 500 large-capitalization stocks, our recommended investment program is concentrated in relatively few securities and actively aims first for capital preservation and second for capital appreciation. We work continuously to achieve these goals. We try to anticipate and adapt to change. Regulators point out that there can never be any guarantees in investing; there is always risk and the possibility of loss; changing market conditions are beyond anyone's control; and past performance is not a guide to future performance.
Colby's technical analysis is prepared using widely-available public data that is generally accepted as reasonably reliable, although Colby cannot guarantee accuracy or completeness of data and analysis and no representation is made to that effect. Colby's technical analysis is based primarily on analysis of the current price and volume performance of a security relative to other securities and in the context of its historical patterns of performance, in accordance with the Body of Knowledge and Code of Ethics endorsed by the Market Technicians Association, the globally-recognized, professional regulatory organization for technical analysts established in 1973. (See: mta.org.)
Past Performance is not a guide to future performance. Investments discussed in this report are not suitable for all investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular investor. Every investor should consider whether any suggestion or recommendation is appropriate given his particular circumstances. Technical analysis alone should not be relied upon as the sole basis for making investment decisions. All publicly available information regarding the security in question should be reviewed, including the fundamentals of the security and other information provided in any filings with the Securities and Exchange Commission (SEC).
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