Rules-Based Strategy Update: Global Value Strategy July 2019
I track Meb Faber’s Global Value strategy here on Robotic Investing. It is a solid value based approach to global investing. I want to see how it performs over time as if I was using the strategy myself.
The Global Value strategy buys country index funds with the lowest valuation based on the CAPE ratio. It is truly a value strategy and requires a long holding period as it takes time for value to be realized by the market.
This strategy is based off of the research done by Meb Faber and presented in his book, Global Value.
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Global Value Strategy Rules-Based Investing
The Global Value Strategy portfolio trades based on specific rules that tell the investor what sectors to hold each month. Here are the rules of the strategy:
- Trades country specific ETFs.
- When ready to build a Global Value Investing, go to the Research Affiliates website and enter the Asset Allocation tool under the Tools menu.
- At the bottom of the screen, click on the Download link. Open the Excel file that is downloaded.
- Navigate to the “Expected.Returns.All” sheet, and sort the list by the “Expected Return (Nominal)” column. I set up data filters on the heading row, and the sort highest to lowest.
- Buy Rules: Buy the ETFs for the 10 individual countries with the highest expected returns. Buy each ETF using an equal weighting.
- Sell Rules: One year following the set-up of the portfolio, download a new version of the above spreadsheet and sort by expected returns as above. If any countries have fallen out of the top 10, sell that country specific ETF.
- Rebalance: Replace any sold countries with the new countries that are now in the top 10. You should always have ten ETFs in your global value investing portfolio.
Monthly Signals: Global Value Strategy Investing
As this is a yearly strategy, and July 2019 is the 1-year anniversary date for the portfolio. The portfolio was adjusted to include the 10 individual countries with the highest expected returns. The portfolio sold Australia and Indonesia and bought China and the United Kingdom.
Strategy Tracking & Performance: Global Value Strategy
Here is the portfolio tracker and performance chart for the Global Value strategy. I use the Morningstar Portfolio Tracker to track all the systems at Robotic Investing. As you can see the strategy lagged the S&P500 a bit over the month, but let’s give it more time to see how it really does.
This portfolio was started on July 2nd, 2018.
Note: When reviewing the performance chart, compare only the Total Return to the Index return. The personal return is inaccurate due to how Morningstar handles cash.
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