Summary
This strategy is a proof of concept and not meant for actual investing. If you are looking for a minimalistic portfolio, we suggest using Easy Peasy.
- Objective: aggressive growth
- Type: trend-following strategy
- Invests in: ETFs tracking bonds, treasuries
- Rebalancing schedule: monthly w/ possible daily exit
- Taxation: 70% short-term capital gains
- Minimum account size: $1,000
Market Vane is a proprietary sentiment indicator for the U.S. stock market, which we first introduced in January 2021. Market Vane can be used for a wide array of investment applications. The Market Vane strategy denotes the simplest among them: a strategy switching between an ETF tracking the S&P 500 and another tracking 10-Year U.S. Treasuries.
Market Vane technically might change its asset allocation any day. However, it changes its asset allocation only infrequently, often holding positions for many months. Consequently, the strategy’s maintenance requirements are remarkably low.
Performance
This table shows the portfolio’s key performance metrics over the course of the simulation:
The following chart shows the portfolio’s historical performance and drawdowns, compared to their benchmark, throughout the simulation:
This chart shows the portfolio’s annual returns:
The following charts show the Monte-Carlo simulation of returns and drawdowns, the portfolios 12-months rolling returns, and how the portfolio is tracking to its benchmark:
Asset Allocation
The portfolio last required rebalancing after the exchanges closed on @last-rebal@. Due to fluctuations in asset prices, the exact allocations vary daily, even when no rebalancing occurred. The current asset allocation is as follows:
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Strategy Rules
The operation of the Market Vane strategy can be summarized as follows:
- hold S&P 500 while the Market Vane indicator is positive
- hold 10-Year U.S. Treasuries otherwise
For a detailed discussion of the inner workings, investors are encouraged to check the Market Vane indicator page and read our background article.
Diversification
Market Vane holds only a single ETF at a time, representing either the S&P 500, or 10-Year U.S. Treasuries. Because Market Vane can exit the stock market any day in case volatility spikes or the index suffers severe drawdowns, the strategy deals very well with any risks evolving over several days. Further, because U.S. Treasuries are among the most trustworthy investments available, and Market Vane only uses intermediate maturities, it is also relatively stable in environments of rising yields.
The Monte-Carlo simulation of historical returns shows that Market Vane‘s form of serial diversification greatly reduces risk, while, in the long term, offering a solid upside over the S&P 500.
Returns & Volatility
During bullish periods, Market Vane keeps up with the S&P 500. However, when the stock market turns sour, Market Vane quickly exits risky assets and flees into the safety of U.S. Treasuries. As a result, the strategy gains over its benchmark during pronounced downturns, with only brief periods of underperformance.
Account & Tax Considerations
While Market Vane trades only infrequently, it might hold assets for less than 12 months, leading to short-term capital gains. Consequently, the strategy works best in tax-deferred acccounts.
Because Market Vane holds only a single ETF at a time, a minimum investment of $1,000 is all it needs to get started.