Other Information

Why use MarketTiming

 

Empirical Evidence

Modern market timing is an evidence based approach to managing equity market risk which stock and sector diversification does not address. It should not be confused with traditional market pattern recognition (e.g. head and shoulder formations, Elliot waves, Dow Theory, Fibonacci numbers, etc) which has little academic foundation.

Modern market timing relies purely on reacting to any changes in the market’s trend and momentum instead of trying to forecast its direction using fundamental ratio analysis or chart pattern recognition. It is grounded in reality rather than crystal ball gazing. By “reality” we mean reacting to what the market is actually doing rather than trying to analyse what it should be doing.

Modern market timing came of age with the advent of personal computers, powerful trading platforms and fast internet that allowed market enthusiasts, chart analysts and finance academics to test and refine a wide range of technical indicators on both historic and live market data.

Reputable studies show that quantitative models using widely accepted technical indicators can work. The leading advocate of buy and hold (Professor Jeremy Siegel, Stocks for the Long Term) acknowledges that a simple 200 day moving average was superior to buy and hold on both returns and volatility from 1886 to 2006. He also admits that the long held contention in academic circles that the market can’t be gainfully timed is ‘cracking’ since econometric research has shown that simple trading rules can be used to improve returns.

Other researchers [William Gordon, Robert Colby, Ben Stein and Phil DeMuth, Leslie Masonson, Deborah Weir and Steve Burns] have shown that buying and selling indexed stock market funds when their moving average unit price crosses over their daily price can not only beat buying and holding them by a wide margin over the long term, but can do so with much lower maximum drawdowns. In other words, they can achieve a higher risk adjusted return than a buy and hold approach to share investing which ignores market risk.

Authors of technical indicator texts [Alexander Elder, Tom DeMark, Charles Kirkpatrick, Joe Duarte, Stan Weinstein, Justine Pollard, Martin Pring and Robert Pardo] have demonstrated that both risk and return on such funds can be improved further through using a combination of directional indicators, momentum oscillators and volume measures for timing the market.

Back-Testing

MarketTiming’s Conservative strategy when back tested over the last 33 financial years shows superior results to buying and holding an indexed equity fund not only on the basis of return (i.e. capital gains), but also in providing lower risk (i.e. less downside volatility).

A back-testing of our Conservative timing signals from 1 July 1984 to 30 June 2017 shows the following simulated results:

  • An average annual return of +7.5% versus Buy and Hold’s +6.8%.
  • An average annual drawdown (risk) of -8.2% versus Buy and Hold’s -16.6%
  • Of the 14 (enter-exit) trades over this period, 71% were winning ones.
  • The average gain on winning trades was +34.3%.
  • The average loss on losing trades was only -5.0%.
  • Of the 15 (exit-enter) trades in the market, 33.3% avoided losses suffered by buy and hold.
  • The average loss avoided while out of the market was -15.9%.
  • The average gain missed while out of the market was +7.0%.

Of course past performance is not necessarily indicative of future performance. But when evaluating any new investment system an important consideration must be how it would have performed over an extended period covering both bull and bear markets.

Market Neutral

Market timing works in both rising and falling markets unlike buy and hold which relies on the market being on a long-term upward trajectory. The following chart of America’s S&P500 share index adjusted for inflation shows that its periods of decline (1907-21, 1929- 49, 1969-82 and 2000-09) amounted to 56 of the last 150 years (1877-2017). That’s over one in three years of that time frame.

Source: https://www.advisorperspectives.com/dshort/updates/2017/07/03/a-perspective-on-secular-bull-and-bear-markets

 

While America’s share market index has surpassed its record peak 2007, the share index for the rest of the world has struggled over the last three years to outstretch its previous high in 2007. See chart below.

Source: https://www.msci.com/documents/10199/99459e68-5e21-4888-ace6-72a3ffe9b1ab

 

There is no assurance the Australian share market will soon return to the extremely bullish conditions that predominated from 1982 to 2007. Even if it did it would still be subject to periodic crashes as the following table shows for the last 57 years. Note that there were 15 bear markets (happening on average once every 3½ years) with an average duration of about 10 months and an average fall in the All Ordinaries Index of almost one third from peak to trough.

Avoiding the worst of each bear market, while enjoying the best of each bull share market, is the appeal of an objective market timing system that gauges the All Ords index’s trend and momentum.

Bear Market

Duration

% Decline

Sep 60-Nov 60

2 months

-23.2%

Feb 64-Jun 65

16 months

-20.0%

Jan 70-Nov 71

22 months

-39.0%

Jan 73-Sep 74

20 months

-59.3%

Aug 76-Nov 76

3 months

-22.0%

Feb 80-Mar 80

2 months

-20.2%

Nov 80-Jul 82

20 months

-40.6%

Sep 87-Nov 87

2 months

-50.0%

Aug 89-Jan 91

15 months

-32.4%

May 92-Nov92

6 months

-20.3%

Feb 94-Feb 95

12 months

-23.0%

Sep 97-Oct 97

1 month

-21.0%

Mar 02-Mar 03

12 months

-22.3%

Nov 07-Mar 09

16 months

-54.6%

Apr 11-Sep 11

6 months

-22.5%

Average

10.3 months

-31.4%

For prudential reasons alone, investors who are unsettled by bear market falls averaging 31% every 3½ years should consider applying slow trend-trading (using exchange traded funds) to at least a portion of their equity holdings so as to manage market risk. Unlike specific stock risk, general market risk cannot be addressed by simply diversifying share holdings.

Objective Guidance 

Investors, who have been burnt by a share crash often retreat from the market too afraid to re-enter it. Yet they know that over the long run shares give better returns than cash management trusts, fixed term deposits or fixed interest securities (e.g. bonds). 

A share index trend and momentum measuring system that signals when to buy and sell an equity ETF has an inbuilt stop-loss mechanism for protecting capital in a general stock market decline.

An investor knows their risk exposure to the overall share market is being independently and objectively monitored by a third party who will signal them to get out of the market when it looks dangerous and to return to it when it looks safe.  This helps avoid staying in a bull market too long after it breaks and shunning a bear market too long after it ends.

An objectively based market timing system can assist an investor to better cope with the typical emotions associated with a share market cycle as depicted below.

Source: https://wealth.barclays.com/ocp/en_gb/investment-ideas-and-strategies/home/barclays-views/understanding-the-cycle-of-investor-emotions.html

 

The proponents of buy and hold forget how difficult it is for ordinary investors to stay in the share market regardless of its conditions. The experience is not dissimilar to a roller coaster ride. When the market is rising the ride is pleasant and as it gets to the top of the incline the general feeling is euphoric. But when it starts falling fear sets in and as the pace quickens panic ensues. That’s why so many investors enter at the top of the market when confidence is high, but exit at the bottom when no end seems in sight. 

In the USA, equity mutual fund investors averaged a return of only 3.7% per annum during the thirty years to 2015 even though the S&P500 share index rose 10.4% per annum over this period[1].

A major cause of this underperformance was “panic selling, excessively exuberant buying and attempts at market timing” through “voluntary investor behavior”[2]. Indeed almost 43% of investor underperformance in the last twenty years could be attributed to such behavior. The other causes for underperformance were a lack of cash to invest, a need for cash withdrawals and fund expenses including management fees[3]

It seems many investors could not tolerate the steep rises and falls in the share market index. Others had shorter term objectives so could not afford to stay the course. 

It is the reason more and more investors are looking for a way to smooth their share market journey since they can’t stand the thrills and spills of a roller coaster ride. Also those in or towards retirement don’t have the time to recover from a bad share market crash. Their aim is to protect their capital so they can fund their needs when they no longer have a salary. 

The next chart shows a back-test of MarketTiming’s Conservative Strategy since mid-1984. Notice how the strategy’s simulated trading signals would not only have beaten the All Ords share index, but avoided most of the severe setback during the global financial crisis of 2008/09.

 

Independent Vetting

Since its launch in 2009 MarketTiming has been registered with www.TimerTrac.com, an independent registrar of trading strategy signals by market timing service providers worldwide.

This means anyone can verify the authenticity of our strategy buy and sell signal dates by checking with TimerTrac.com online.

TimerTrac.com has also monitored the performance of our Conservative strategy against American share indices such as the S&P500 index. Because the Australian share market generally moves in line with turning points in the American market, the Conservative strategy’s signals have performed well against US market timers according to TimerTrac.com

Indeed TimerTrac.com in its equity long only performance league table ranks our Conservative trading strategy as coming first in the last financial year (2016/17), 3rd in the last 3 financial years (2014/15 – 2016/17) and 3rd in the last 5 financial years (2012/13 – 2016/17). A total of 40 market timer strategies registered with TimerTrac.com are continually monitored for compiling this performance rank table.

An important test of any market timing service is whether it subjects itself to independent external verification of its past buy and sell signal dates and the performance of those signal instructions. MarketTiming does so through its registration with TimerTrac.com Many other market timers don’t do so.


What are the Risks of MarketTiming

We use medium to long-term computerized trading systems that are based on non-discretionary indicators of market trend and/or momentum. Unlike daily or swing traders we are slow traders focused on mitigating risk (namely avoiding market crashes) by staying on the right side of the markets trend.

Our primary objective is to significantly reduce downside volatility (i.e. market risk) thereby improving the reward to risk ratio of investing in indexed share funds listed on the Australian Securities Exchange (ASX). Our ideal outcome would be to match the All Ords index in bull markets and to beat that index in bear markets by exiting the market early when it breaks.

Also by using a widely diversified managed fund (e.g. an exchange traded index fund representing the top 50, 200 or 300 listed companies) to access the Australian share market we seek to reduce loss exposure to any one company (i.e. stock risk).

Nevertheless no investment system (other than keeping all your funds in short dated government Treasury bills) is completely risk free. Even a government guaranteed cash management account could suffer a delay in redemption of principal and a loss of interest if the deposit taking institution got into trouble.

The main risks with market timing an exchange traded fund (ETF) such as SPDR S&P/ASX 200 (share code STW) or Vanguard Australian Shares (share code VAS) are ranked by order of magnitude below. Quoted results are for the Conservative strategy based on both actual results (since 2009) and back-tested results (since 1984).

  • High probability – The possibility of false timing signals due to ‘whipsawing’ of the share market. A whipsaw occurs when a sell signal is followed shortly afterwards by a buy signal at a higher price. Such whipsaws occur when the market undergoes a plunge, but then quickly rebounds (the full cycle occurring within 50 trading days). Back-testing of our Conservative Strategy shows buy/sell losing trades produced an average drawdown of -5.0% with a maximum drawdown of -7.6% over the 33 financial years to June 2017. About 39% of buy/sell signals have been whipsaws whereas 66% of sell/buy signals have been whipsaws. The average sell/buy opportunity cost due to whipsaws has been -7.1% with the maximum gain missed being -14.1%. Also just as one can have successive wins one can also have successive losses. However, the average gain from winning buy/sell trades has been 34.3% which has exceeded the average drawdown from losing buy/sell trades of -5.0%. The average drawdown avoided on sell/buy trades has been 15.9% whereas the average gain missed has been -7.0%. These favourable outcomes arise because a correct signal is allowed to run its full course whereas a false signal is quickly aborted. By contrast, a set and forget approach to a share portfolio has no inbuilt safeguard to market busts. The costs of whipsawing should be viewed as an insurance premium for avoiding most market plunges which are typical in any year. Ordinary investors not familiar with market timing stop-losses tend to react to market swings by buying at the top (when euphoria reigns) and selling at the bottom (when despair sets in) with resultant massive losses.
  • High probability – The regular buying and selling of an ETF will trigger capital gains and losses with the net gain subject to full taxation in the year in which the transactions occur unless the gains accrue within a low or nil taxed superannuation fund. Of course any actively managed equity fund even if held permanently is subject to annual capital gains tax because its share portfolio will usually be turned over at least once a year. Only a passive index equity fund held in perpetuity chrysalises few capital gains.
  • Moderate probability – The spread between buy and sell prices on ETFs can widen when market activity is low. Market makers are meant to ensure little or no departure of an ETF from its underlying net asset value (e.g. the S&P/ASX 200 or 300 index), but in practice deviations of 0.5% are common and 1% – 2% occasionally happen. In the US, market arbitragers quickly close such gaps when they appear and this is increasingly happening in Australia as the ETF market grows and matures.
  • Moderate probability – There is always a possibility that the actual price at which an EFT is bought or sold proves much higher or lower than the closing price for the day on which the timing signal is based. Clients are then expected to act on the signal the next trading day. However, the price of the ETF used will fluctuate between a high and a low each day. To avoid the possibility of purchases or sales happening at these extremes some investors undertake their transactions in multiple lots during trading hours if their broker accepts this as one transaction for charging brokerage fees. For instance a client might instruct their broker to undertake one tranche at 10am, one at midday and one at 3pm so as to get a spread of the ETF’s prices during that day.
  • Moderate probability – Excess brokerage fees as a result of acting upon multiple timing signals during the year. On average MarketTiming’s Conservative strategy issues around 1 signal change a year (switching from an ETF to cash or from cash to an ETF) whereas MarketTiming’s Global and Local Rotation strategies each issue around 3 signal changes a year (switching from one ETF to another ETF). This means a typical discount broker such as Commsec (whose brokerage fee plus GST is 0.12% on investible funds over $25,000) might charge 0.12% per annum in brokerage on the Conservative trading strategy and 0.72% per annum on either of the Rotation trading strategies. Both the back-tested and actual performance results of our strategies cited elsewhere on this website are after 0.12% brokerage per trade has been deducted. Some online discount brokers (e.g. CMC Markets and Bell Direct) charge only a 0.10% brokerage rate per trade on volumes much lower than Commsec or E-Trade. On the other hand Australian equity ETFs have very low management fees (under 0.3%) so the total cost should still be less than buying and holding say an actively managed equity fund (whose average fee in 2015 was around 1.0% [4]).
  • Moderate probability – An individual investor misses a market timing signal change because they don’t check their Sunday MarketTiming Weekly Update bulletin email or the MarketTimingCurrent Signals webpage every weekend. When traveling a client should check for MarketTiming emails or its website Current Signals page each Sunday lest a signal changes.
  • Low probability – The share market has a “flash crash” as occurred on Black Tuesday 20th October 1987 when the All Ords index fell 27.8% from the previous day’s closing price. This was the most traumatic day in the history of the Australian Securities Exchange. A medium to long term trend trading strategy might not be fast enough to react to such an event. However, because MarketTiming uses a momentum oscillator to recognize a market spike as occurred in late 1987 it would switch to a more active trend-trading mode to exit the market early should such a spike reoccur. An inter-day flash crash is extremely rare, but nevertheless poses a risk especially if it were not preceded by a gradual fall in the share index (to trigger an active trend-trading sell signal) as happened in the 20 trading days prior to Black Tuesday 1987.
  • Low probability – The Company that manages the ETF becomes insolvent, though this should not affect the underlying value of the ETF’s assets because these are held are in a trust fund independent of the fund’s manager. Also ETF managers such as BlackRock, StateStreet and Vanguard have a long-standing reputation for being conservatively run which is reflected in their high credit ratings.
  • Low probability – The ASX closes down because of a breakdown of its IT systems, sabotage, natural disasters or war. If this happened all Australian shares would be affected. The ASX has security and back-up systems to minimise the probability of an interruption to its services.
  • Low probability – A client’s internet provider’s service ceases making it impossible to access either MarketTiming’s website or emails. In such cases clients should phone or email The Constant Investor and ask for the latest MarketTiming strategy signals.
  • Low probability – A client’s computer malfunctions meaning MarketTiming’s website or emails can’t be read. To prevent such a possibility a client should have an alternative device such as a smart phone or tablet or access to a business centre with online computers.
  • Low probability – The MarketTimingcomputer model malfunctions or breaks down causing a loss of signal capacity. MarketTiming has backup systems in place. Should one system go down (e.g. due to an electricity blackout) the other system will keep running. Our share price database is updated daily and the veracity of our models is checked continuously.

Trading unlisted managed equity funds has timing risks since there can be a few days delay between receiving a new buy or sell signal and having such a fund implement it by issuing units or redeeming cash.

A similar delay can occur with a super fund when you ask it to change your nominated strategy (from say a high growth to a cash option).

In the case of listed investment companies the main risk is that the market price of the shares may be quoted at a premium or discount to their net asset backing. Also in both these cases unless the funds are indexed to the S&P50, 200 or 300, their price movements may differ from those of the general share market thereby making MarketTiming’s signals less relevant.

How has MarketTiming performed?

Conservative Strategy

The following tables show both the back-tested performance results of MarketTiming’s Conservative strategy since 1 July 1984 and the actual results since 29th December 2009 when MarketTiming’s public website was launched.

No account is taken in the tables of dividends or tax, but brokerage of 0.12% has been applied to each buy and sell trade made at the closing price on the trading day following a buy or sell signal.

Capital Gains of Conservative Strategy, 1 July 1984 to 30 June 2017

(Back-tested Results, excluding any income distributions)

Share Fund Strategy

MarketTiming                Conservative Strategy

Comparative Buy                        and Hold Strategy

Average Annual Return (a)

7.5%

6.8%

Average Annual Risk (b)

-8.2%

-16.6%

Average Annual Signals (c)

0.9

NA

NA: Not Applicable

Capital Gains of Conservative Strategy, 29 Dec 2009 to 30 June 2017

(Actual Results, excluding any income distributions)

Share Fund Strategy

MarketTiming                Conservative Strategy

Comparative Buy                        and Hold Strategy

Average Annual Return (a)

1.5%

2.5%

Average Annual Risk (b)

-9.0%

-27.2%

Average Annual Signals (c)

1.1

NA

NA: Not Applicable

 (a) As measured by the Compound Annual Growth Rate (CAGR), which shows the average annual rate of return on an initial investment. The higher this annual growth rate the greater the return achieved by the investment strategy.

(b) As measured by the Average % Drawdown. A drawdown is any retracement in an investment’s value from its preceding peak value. The lower the negative value the lesser the drawdown’s severity and the less stress experience by the investor.

(c) Average number of Strategy signal changes a year.

Back-tested Results since 1984

Back-testing of the Conservative strategy from July 1984 to June 2017 shows it would have beaten a Buy and Hold approach to a listed fund replicating the All Ords index by an average of 0.7% per annum.

By mitigating the worst downturns in the share market over the period the Conservative strategy’s average annual maximum drawdown would have been 9.0% versus 27.2% for a Buy and Hold strategy. In other words the Conservative strategy’s downside risk was a third that of Buy and Hold.

The chart below illustrates the change of signals under MarketTiming‘s Conservative Trading Strategy since 1st July 2004. It is based on purely back-tested results using the Conservative Strategy’s current model.

The Conservative strategy’s signals apply to any exchange traded fund whose unit price moves broadly in line with the Australian All Ordinaries share index (such as the SPDR S&P/ASX 200 share fund designated by the ASX code STW).

The blue parts of the share index indicate when the strategy was on a ‘Buy’ signal, and the red parts indicate when the strategy was on a ‘Sell’ signal. This chart is updated half yearly.

Conservative Trading Strategy Signals, 1 July 2004 to 30 June 2017
(Back-tested results)

Evident are two different types of red or ‘Sell‘ sections on the chart: (i) exits from the market during major market declines, and (ii) exits during market falls that end up being reversed fairly quickly. The first type of ‘Sell‘ signal is where the Conservative strategy would have saved capital during a market downturn. The second type of ‘Sell‘ signal comes at a cost because the signal has proven to be false. However, at the time, there was no way of knowing this in advance so stepping out of the market when it dipped was necessary insurance against the risk of a market crash.

The chart below shows MarketTiming’s Conservative trading strategy would have outperformed a buy and hold approach to an indexed share fund, especially when the market crashed after November 2007. It is based on back-tested results though these resemble actual results since the Conservative strategy was launched in December 2009. 

Each strategy assumes an initial investment on the 1st July 2004 of $10,000 in an exchange traded equity fund (whose unit price moves in tandem with the Australian All Ordinaries share index). No account is taken of dividends or tax, but brokerage of 0.12% is applied to each buy and sell trade transacted at the closing price of the fund on the trading day following a buy or sell signal change.

As with any trading or investment strategy, MarketTiming’s past performance (whether back-tested or actual) is not necessarily indicative of future performance.

Capital Gain of MarketTiming’s Conservative Share Strategy versus a Buy and Hold Strategy, 1 July 1984 to 30 June 2017
(Back-tested results excluding any income distributions)

 

The next chart shows the maximum percentage drawdown (i.e. downside risk) each year of MarketTiming’s Conservative strategy was much less that of a Buy and Hold strategy over the same period. It is based on back-tested results though these resemble actual results since the Conservative strategy was launched in December 2009. 

Risk of MarketTiming’s Conservative Share Strategy versus a Buy and Hold Strategy, 1 July 1984 to 30 June 2017
(Back-tested results excluding any income distributions)

 

Actual Results since 2009

The following charts show the actual results of the Conservative strategy since its public website started on the 29th December 2009. They show trading signals, capital gains and downside risk.

Conservative Trading Strategy Signals, 29 Dec 2009 to 30 June 2017
(Actual results)

 

Capital Gain of MarketTiming’s Conservative Share Strategy versus a Buy and Hold Strategy, 29 December 2009 to 30 June 2017
(Actual results excluding any income distributions)

 

Maximum Drawdowns of MarketTiming’s Conservative Share Strategy versus a Buy and Hold Strategy,29 December 2009 to 30 June 2017
(Actual results excluding any income distributions)

 

Note that the Conservative strategy has lagged a Buy and Hold strategy by 1.0% per annum since December 2009. Yet the Conservative strategy experienced only one third the average annual risk (i.e. average annual maximum percentage drawdown) of a comparative Buy and Hold strategy over this period.

It is normal for a trend-following strategy such the Conservative one to lag a Buy and Hold approach to a listed share fund during a secular bull market such as experienced since March 2009. That is because market pullbacks or corrections that do not amount to crashes during such a period can cause price whipsaws.

Note that a fall in the share price index from peak to trough of less than 10% is considered a “pullback”, a fall of 10% to under 20% as being a “correction” and a fall of 20% or more as constituting a “crash”.  The Conservative strategy can only overtake a Buy and Hold strategy during a bear market marked by a crash when it sells an equity ETF at a price above that at which it re-buys it after the market has bottomed. At other times when shares are enjoying a bull market the Conservative strategy will at best match the performance of a Buy and Hold strategy.

As such the Conservative strategy is a hedging strategy against crashes, not a speculative strategy for beating Buy and Hold during booms. Back-testing shows it would have beaten a Buy and Hold strategy since 1984 by avoiding the worst of crashes (with the exception of the flash crash of 1987) which a Buy and Hold strategy, by its nature, cannot do.


Performance Reports

More detailed Performance Reports of both the back-tested results (since July 1984) and the actual results (since Dec 2009) for the Conservative strategy can be viewed below:

These Reports are updated every six months (July and December).

Disclaimer:

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific MarketTiming strategy (including the ETFs recommended or referred to on this website directly, or indirectly via link to any unaffiliated third-party website) will replicate past actual or back-tested performance results.

The material on this website is general advice only and does not take into account your personal financial circumstances, needs or objectives. Before acting on this information, you should consider whether the advice is suitable for you and your personal circumstances.

You should also read MarketTiming’s Financial Services Guide before deciding to use any of its strategies for trading ETFs. In addition you should read the Product Disclosure Statement for any ETF recommended by MarketTiming before purchasing that ETF.

MarketTiming’s FSG can be downloaded from http://markettiming.com.au/wp-content/uploads/2015/12/Financial-Services-Guide-Market-Timing_19-June-2017.pdf and the PDS for each ETF can be downloaded from the website of the ETF provider.

MarketTiming is a division of Kohler & Co (trading as The Constant Investor) whose Financial Services Guide can be downloaded from https://theconstantinvestor.com/wp-content/uploads/FSG_The_Constant_Investor-19_June_2017.pdf


Global and Local Rotation Strategies

Performance Results  

MarketTiming’s ETF Rotation strategy commenced on the 1st July 2013 using a momentum model developed by David Vomund of Vomund Investment Management, USA.

The strategy was split into separate Global and Local Rotation strategies in late December 2014. The menu of ETFs was changed too as was the momentum model used for selecting the preferred ETF in each strategy. This was done following exhaustive back-testing of what worked best with Australian listed ETFs. The Market Timing – Current Signals section of this website displays the menu of ETFs in the Global and Local Rotation strategies used since December 2014. 

A further adjustment to the momentum model used for both Rotation strategies was made in late December 2015. The current momentum model was used for all back-tested results shown below.

Back-tested Results since 2008 (Global) and 2012 (Local)

The back-tested performance results of MarketTiming’s present Global and Local ETF Rotation strategies are shown below.

Capital Gains of Global Rotation Strategy, 11 July 2008 to 30 June 2017

(Back-tested results excluding any income distributions)

Share Fund Strategy

MarketTiming Global Rotation Strategy

Comparative Buy and Hold Strategy

Average Annual Return (a)

12.3%

4.5%

Maximum Trade Drawdown

-3.7%

NA

Average Annual Signals

2.3

NA

NA: Not Applicable

 

Capital Gains of Local Rotation Strategy, 27 Jan 2012 to 30 June 2017

(Back-tested Results, excluding any income distributions)

Share Fund Strategy

MarketTiming Global ETF Rotation Strategy

Comparative Buy and Hold Strategy

Average Annual Return (a)

9.5%

2.7%

Maximum Trade Drawdown

-3.7%

NA

Average Annual Signals

3.0%

NA

NA: Not Applicable

This simulation exercise shows that $10,000 applied to the Global Rotation strategy on the 11th July 2008 (the earliest date for which the Global strategy ETF menu was available) would have increased by an average rate of 12.3% a year to $28,282 (before dividends and after brokerage of 0.12% per trade) by the 30th June 2017.

By contrast if $10,000 was equally split between the five ETFs in the Global Rotation menu on the 11th July 2008 and each of these ETFs were held until the 30th June 2017, their total value would have increased at an average annual rate of only 4.5% (before dividends and after brokerage of 0.12% on their initial purchase).

The same amount of capital invested in the Local Rotation strategy on the 27th January 2012 (the earliest date for which the Local strategy ETF menu was available) would have grown by an average rate of 9.5% a year to $16,395 (before dividends and after brokerage of 0.12% per trade) by the 30th June 2017. 

If $10,000 was equally split between the five ETFs in the Local Rotation menu on the 27th January 2012 and each of these ETFs were held until the 30th June 2017, their total value would have increased at an average annual rate of only 2.7% (before dividends and after brokerage of 0.12% on their initial purchase).

The average number of signal changes a year would have been 2.3 for the Global Rotation strategy and 3.0 for the Local Rotation strategy. Over the period the maximum drawdown for any trade for the Global strategy would have been -3.7% and for the Local strategy -5.4%.

Actual Performance Results since Dec 2014

Capital Gains of Global Rotation Strategy, 26 Dec 2014 to 30 June 2017

(Actual results excluding any income distributions)

Share Fund Strategy

MarketTiming Global Rotation Strategy

Comparative Buy and Hold Strategy

Average Annual Return (a)

5.1%

4.2%

Maximum Trade Drawdown

-3.6%

NA

Average Annual Signals

2.4

NA

NA: Not Applicable

Capital Gains of Local Rotation Strategy, 26 Dec 2014 to 30 June 2017

(Actual Results, excluding any income distributions)

Share Fund Strategy

MarketTiming Local ETF Rotation Strategy

Comparative Buy and Hold Strategy

Average Annual Return (a)

-7.7%

-0.1%

Maximum Trade Drawdown

-12.0%

NA

Average Annual Signals

6.0

NA

NA: Not Applicable

Since the Global Rotation strategy was launched on the 26th December 2014 its actual results have done 0.9% per annum better than investing equally in each of the five ETFs in the strategy’s menu and holding them until 30th June 2017.

Unfortunately the same can’t be said for the actual results of the Local Rotation strategy over the same period which trailed a Buy and Hold approach to its menu of ETFs by 7.6% per annum. The sideways direction and momentum of the Australian share market since March 2015 has caused trading whipsaws rather than gains over this period.  

 

 


Disclaimer:

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific MarketTiming strategy (including the ETFs recommended or referred to on this website directly, or indirectly via link to any unaffiliated third-party website) will replicate past actual or back-tested performance results.

The material on this website is general advice only and does not take into account your personal financial circumstances, needs or objectives. Before acting on this information, you should consider whether the advice is suitable for you and your personal circumstances.

You should also read MarketTiming’s Financial Services Guide before deciding to use any of its strategies for trading ETFs. In addition you should read the Product Disclosure Statement for any ETF recommended by MarketTiming before purchasing that ETF.

MarketTiming’s FSG can be downloaded from http://markettiming.com.au/wp-content/uploads/2015/12/Financial-Services-Guide-Market-Timing_19-June-2017.pdf and the PDS for each ETF can be downloaded from the website of the ETF provider.

MarketTiming is a division of Kohler & Co (trading as The Constant Investor) whose Financial Services Guide can be downloaded from https://theconstantinvestor.com/wp-content/uploads/FSG_The_Constant_Investor-19_June_2017.pdf

Technical Notes on Performance Results

The following technical notes explain how the performance tables and charts were compiled.

  • The results for the Conservative strategy are based on the ASX All Ordinaries Index, and assume that the Exchange Traded Fund (ETF) vehicle used while in the market precisely matches movements in this index. The buy and hold results assume investment is solely through such an ETF.
  • The results for the Global and Local Rotation strategies are based on using the ETFs in each of their menus.
  • The results reflect both back-tested signals and actual signals for each MarketTiming strategy; Conservative equity ETF strategy, Global ETF Rotation strategy and Local ETF Rotation strategy. The periods used for back-testing and actual results are shown for each table and chart displayed above.
  • All performance results in tables and charts are calculated excluding both dividend based income distributions received while in the market and interest income received on cash balances when out of the market.
  • The market timing strategy results are calculated using the ASX closing price for the All Ords index (Conservative strategy) or ETF (Rotation strategy) for the trading day following a new trading signal. They are after brokerage fees of 0.12% per trade.
  • All capital gains are assumed to be re-invested. No account is taken of capital gains taxation since this may vary greatly depending on whether capital gains are realised over a short or longer term and whether they occur outside or within a superannuation fund. Clients should obtain their own tax advice.
  • The results shown are based upon data whose accuracy is deemed reliable but not guaranteed.
  • Performance returns cited are derived from our best estimates, but must be considered hypothetical since we do not track the actual prices investors pay or receive when applying our signals.
  • Finally, past performance is not necessarily indicative of future performance.

[1] Dalbar, Inc. Quantitative Analysis of Investor Behavior, 2016, pages 5 and 10.

[2] Ibid., page 10.

[3] Ibid., page 10.

[4] Financial Services Council/Morningstar, Australian Managed Funds Industry report, 19th July 2016, page 18)