The goal of this model is to outperform the
market and reduce market exposure during unfavorable interest rate climates, by employing an active asset allocation strategy of trading between small-cap and large-cap, growth and value, domestic and
international equity ETF's.25% of the model is invested in an ETF containing real estate investment trust stocks such as ICF (iShares Cohen & Steers Realty Majors). This portion of
the model is never traded.
25% of the model is invested in an ETF containing investment-grade bonds such as AGG (iShares Lehman Aggregate Bond). This portion of the model is never traded.
25% of
the model is invested in an ETF containing one of four choices: Large Cap Value stocks, Large Cap Growth stocks, Small Cap Value stocks, or Small Cap Growth stocks. The choice of Large Cap vs Small Cap is
made once a year, and held throughout the year. The choice between Growth and Value is made once a month based on relative strength at the end of each month. Trades may be done as
frequently as once a month. The current selection for this portion of the portfolio is Small Cap Value - IWN (iShares Russell 2000 Value Index)
The last 25% of the ETF Strategy Model model is
invested in an ETF containing either U.S. or International stocks, as represented by either the SPY (S&P 500 Depository Receipts) or the EFA (iShares MSCI EAFE Index). EFA contains securities
representative of the MSCI (Morgan Stanley Capital International) Europe, Australasia and the Fareast (EAFE) Index. The choice between domestic or foreign is made once a month based on relative
strength at the end of each month. If the current choice is international, we will only switch to domestic if the interest rate climate is right. The current ETF selection for this portion of the
portfolio is EFA.
Since 1979, if one had traded according to the ETF Strategy Model, results would have exceeded the performance of the S&P 500 while significantly decreased the degree of
drawdown. For more information about the implementation of this model see Chapter 13 of
