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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.

Does market timing work?

Absolutely. Indeed over the last decade the most successful share investors in America were those who timed their entry and exit from the market using signals produced by proven market timing models.

TimerTrac which tracks the signals of market timers who have agreed to be audited shows that 80% of timers issuing ‘equity long only’ signals outperformed the S&P500 index over the five years to June 2012.

Each of the top dozen ‘equity long only’ timers have had outstanding results beating a buy and hold strategy by between 16.9% and 40.5% over the 5 years to June 20012. Also for the same period the average beta volatility (i.e. risk) of these top dozen timers was substantially less than that of a buy and hold strategy using the S&P500.

It should be noted that US share investors who clung to a buy and hold strategy during the 2000s suffered huge capital losses that overshadow those of any previous decade including the devastating 1930s.

Reputable studies also show that quantitative models using widely accepted technical trend indicators work. Even crude moving average crossover strategies that don’t take account of market momentum and volume beat buy and hold consistently.

The leading advocate of buy and hold (Jeremy Siegel, Stocks for the Long Term, 2007) 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] have shown that buying and selling indexed stock market funds when their moving average unit price crosses over their daily price beats buying and holding them by a wide margin over the long term. 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.

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