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ETF Core Strategies

Aim: To trend-trade general equity ETFs so as to ride rallies and buck busts in the Australian share market.

ETF Rotation Strategies

Aim: To back the local and foreign sector ETFs with the strongest price gains over both short and long terms.

Core Strategies

ETF Core Strategies

This strategy trend-trades general equity ETFs in order to ride booms and abort busts on the Australian stock market.

It consists of a Conservative strategy that follows the index’s long term price cycles.

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The Conservative strategy has about two signal changes a year, typically one every six months. It is also possible to other ETFs such as Vanguard Investments Australia Ltd – Australian Shares Index Fund (code VAS), State Street Global Advisers, Australia Services Ltd – SPDR S&P/ ASX 50 Fund (code SFY), iShares MSCI Australia 200 ETF (code IOZ) and BetaShares and BetaShares FTSE RAFI Australia 200 ETF (code QOZ).

In addition there are high yielding ETFs that move in sympathy with the wider market so are also suitable for being timed using our signals. They are Russell Investments – High Dividend Australian Share ETF (code RDV), State Street Global Advisers – SPDR MSCI Australia Select High Dividend ETF (SYI), Vanguard – Australian Shares High Yield ETF (VHY) and iShares – S&P/ASX High Dividend ETF (IHD)

ETFs have the advantage of being:

  • simple (buy and sell just like shares),
  • liquid (trade on the ASX throughout the day),
  • transparent (portfolio information is available daily),
  • accessible (provide instant market exposure with just a single trade),
  • low cost (no “active management” fees since they reflect a stock index) and
  • tax complaint (e.g. eligible for self-managed super funds).

So this strategy isn’t time consuming or onerous to operate. And if you would prefer someone else to operate it on your behalf that is possible through using a managed service offered by a registered broker to MarketTiming subscribers (see Question 4 of the Common Questions section).

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).

Our Conservative market timing strategies offers bruised investors a way back into the share market by providing the comfort that they each have an inbuilt mechanism for protecting capital in a stock market crash. Since timing is based on gauging the direction and momentum of the market these strategies alert investors to leave the market when these indicators turn negative.

Modern market timing is like a lifeguard who gives someone the confidence to go back into the surf after they have been dumped. They do this by assuring swimmers that they are watching the waves and will blow the whistle if conditions become dangerous. Swimmers only have to agree to one condition – to swim between the flags and not to take excessive risks.

MarketTiming is similar. It expects adherents to heed signals on general market risk and to minimise specific company risk by using only managed funds that invest in 50 or more shares.

Worrying about when to enter or leave the share market is not a concern for investors using a good market timing service since they are told when to act by email alerts. They sleep well at night knowing that 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.

The proponents of a buy and hold approach to shares 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.

cycle-of-investor-emotions

It’s the reason more and more investors are turning to MarketTiming as they can’t stand the thrill of the 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.

Using the Conservative Strategy

Note that there can be large variations in the time duration between signal changes. For instance it typically has two signal changes a year, but in practice it can range from nil to seven signal changes per annum.

When the Australian share market is attractive we issue a Buy signal. You then invest in a general Australian equity fund listed on the Australian Securities Exchange using an online trading platform offered by a discount stockbroker such as CRM Markets, E-Trade or Comsec. Alternatively, VFS Group Pty Ltd, a registered financial services company, offers a low cost managed account that will apply MarketTiming buy and sell signals to an equity ETF on your behalf. This is useful for investors who don’t have time to personally respond to market timing signals or are out of internet range or in the wrong time zone because of interstate or overseas travel.

When it’s not safe to be in shares, we issue a Sell signal so that you can divert your hard earned savings from shares to a cash management account or trust where they are sheltered from any stock market contractions. Again the best form of cash deposit is not for us to say. Online share trading accounts usually offer a linked cash management account.

MarketTiming’s share strategies can also be used for risk-managing a private superannuation account, whether it’s a self-managed fund or part of a pooled industry, retail or corporate accumulation fund. In the latter case there is usually a choice between different investment options such as

  • Ultra-Conservative (100% income assets such as cash deposits and fixed interest securities),
  • Conservative (70% income assets and 30% shares),
  • Balanced (50% income assets and 50% shares),
  • Diversified or Growth (30% income assets and 70% shares)
  • and High Growth (10% income assets and 90% shares).

When the Conservative strategy’s signal is Buy an investor could opt for the Balanced, Diversified or High Growth options so as to have a higher stake in shares. When it’s Sell, the investor could opt for the cash option so as to minimise share exposure.

A more refined approach is to apply MarketTiming’s Conservative strategy signals to only the Australian share component of an industry, retail or corporate super fund. That’s because the Conservative strategy is designed for timing the Australian share market even though most share markets around the world have price trends that are positively correlated.

We must stress that we cannot advise you on how best to use MarketTiming’s signals for asset allocation since that will depend on your personal financial circumstances and risk profile. Please talk to your financial adviser before using MarketTiming’s signals for varying the asset mix of your private superannuation or other investment portfolios.

How to Trade

You can use your own online broking platform to trade ETFs using Conservative strategy signals published in the confidential part of our website reserved for subscribers. Any signal changes for either strategy are communicated to subscribers by MarketTiming email alerts at least ten hours before the start of trading on the ASX. Alternatively if you are a subscriber you can use a managed service that can apply MarketTiming signals for any of our ETF trading Strategies. Question 4b under the FAQs section of the MarketTiming website menu explains how to open a personal broking account that applies MarketTiming signals to ETFs.

Disclaimer

Market Timing Pty Ltd provides only ‘general advice’. As such, we do not take into account your objectives, financial situation or needs and risk tolerance. Speak to your financial planner for personal investment advice. 

ETF Core Strategies

Aim: To trend-trade general equity ETFs so as to ride rallies and buck busts in the Australian share market.

ETF Rotation Strategies

Aim: To back the local and foreign sector ETFs with the strongest price gains over both short and long terms.

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