Rules-Based Strategy Update: 12% Solution Portfolio September 2018
Here is the September 2018 update for the 12% Solution. The 12% Solution is based David Alan Carter’s. The portfolio is divided into 60% equities and 40% bonds, and momentum is used to determine which assets to buy in each allocation. For a more robust overview of the strategy, please check out this post.
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12% Solution Rules-Based Investing
The most important thing to remember is that the portfolio needs to be divided into two sections. 60% is allocated to equities and 40% is allocated to bonds.
Here are the ETFs that the system trades:
- IWM – Russell 2000 ETF
- QQQ – Nasdaq-100 ETF
- MDY – S&P MidCap 400 ETF
- SPY – S&P 500 ETF
- JNK – High Yield Bond ETF
- TLT – 20+ Year Treasury Bond ETF
Here are the system rules:
- The system works by getting into “Risk-On” trades and “Hedge” trades (at the same time). An investor’s portfolio is divided into a 60/40 split, with 60% of the available cash being deployed into the “Risk-On” trade which are equities. The other 40% is invested into “Hedge” trades which are bond ETFs.
- With the “Risk-On” trade, the investor buys one of four ETFs. The ETF that is bought has the best month momentum (performance) based on the past 3-months. These four ETFs track different equity portions of the market, so you are effectively buying the strongest trending of the four.
- The “Risk-On” trade has a threshold for investing in one of the four ETFs, or in cash. The best performing equity ETF is only bought if it has a positive return in the past 3-months.
- If none of the four ETFs pass the threshold, then the equity portion moves completely to cash.
- With the “Hedge” allocation of the portfolio the investor buys one of two ETF bond funds. The bond fund that is purchased is the one with the best momentum based on the same period as the equity ETFs.
I encourage readers of this blog to get the book, as David provides all the background and details on using the system.
Monthly Signals: 12% Solution Portfolio
Each month I generate the signals for the portfolio using TC2000. If you want to give TC2000 a try in order to generate the signals for the strategies on Robotic Investing, then use this link for $25 off.
There is no change for September 2018 – the system continues to hold QQQ and JNK.
In order to determine that QQQ and JNK are the two ETFs to hold for September, I used TC2000 to do a relative comparison graph. QQQ and JNK were the best performing assets. In addition, since the return for QQQ was positive (i.e. above 0), the system had invested in equities and not cash.
Strategy Tracking & Performance: 12% Solution Portfolio
Here is the portfolio tracker and performance chart for the 12% Solution Portfolio. The Morningstar Portfolio Tracker is used to track all the systems at Robotic Investing.
Each of the portfolios tracked use a hypothetical $50,000 starting value. This portfolio was started on July 2nd, 2018.
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