Ed Mamula.com

Highest absolute return : Tie between A7 Mom and Pop and 60/40

Best risk adjusted return : A7 Mom and Pop *

*All tracked systems had negative returns in June;  Nothing worked!  I give the “risk adjusted” edge to Mom and Pop because it lost the least and had lower volatility than the 60/40 portfolio.

Cumu $ = Cumulative Growth of $1 since A7  live trading inception (11/30/2010)

Returns and volatility calculated at ETFReplay.com (05/31/2011 – 06/30/2011), rounded to nearest .1%

Benchmarks:

(GTAA) Cambria Global Tactical ETF

MarketSci TAA (please visit to see the full track record for MarketSci TAA; this page only documents returns since inception of A7, which is rather ill-timed for MarketSci)

Okay, so June was the second month in a row where there were very few winners, despite the rather meteoric rise of the equity markets during the last week of the month.

A7 lost 2.5%, which makes it the worst of the systems followed here, though not by a large margin, but the volatility of A7 was atrociously high compared to every other system tracked here.

I must confess that in my taxable account, which is the one that this young buck has the most emotional attachment to,  I actually gained 0.54% in June due to some reasonably lucky IWM call buying..but that is a topic for another post.  I consider this a “confession” because this purchase was only loosely related to the A7 system, and is not something I intend to repeat in the near future.

For July, A7 is in the very unusual position of holding both REITS (VNQ) and US Bonds (BND).  Most of the time, if A7 is in BND, it isn’t long before it’s in BSV as well, attempting to sidestep a decline.  The only other time that BND has been paired with “risk” asset other than DBC was in April 2009, when it was paired with VWO, and VWO gained over 17% in a month as the markets rocketed off of the March 2009 low…so as is often the case, I truly do not know what to expect in July…hopefully this month I will do more watching and less option trading.

Automatic 7 (A7) is a Tactical Asset Allocation trading system inspired by Mebane Faber’s and Eric Richardson’s Ivy Portfolio. 

A7′s investable universe consists of the following 7 ETFs, plus cash.

VTI (US Stocks)
VEU (Non-US Stocks)
VWO (Emerging Market Stocks)
VNQ (US Real Estate Investment Trusts “REITS”)
DBC (Commodities)
BND (US Bonds)
BSV (US Short Term Bonds)
Cash

The basic, absolute return seeking version of A7 holds the top 2 out of these 8 assets based on proprietary momentum rankings.
A7 rotates at the close of the last trading session of each month.

“A7 Mom and Pop” is a more conservative version of the A7 program that holds the same two assets as A7 does, but also always allocates some capital to US Bonds (BND) and US Short Term Treasury Inflation Protected Securities (“TIPS”) via the STPZ ETF.  The allocation to BND and STPZ floats around a bit, but it is essentially attempting to maximize the portfolio’s Sortino ratio, which, to date, has meant that it allocates anywhere from 40-100% to bonds and/or cash in any given month.

Updated backtests and actual results will be posted here once enough data has been collected to provide meaningful performance statistics.

My goal with A7 is to outperform Mr. Faber’s GTAA ETF.  If A7 cannot outperform GTAA consistently, then all of my assets will be invested in GTAA and I will find a new hobby.    My intution on GTAA is that it is a fine product, but it is perhaps too expensive and too complicated.  I suspect that a small time asset manager (<$5 million USD) can get better results with a simpler approach.   Complication is sometimes a necessary byproduct of scale…and as I write this, GTAA manages $180 Million USD.  I should also note that as assets under management for GTAA have grown, they have already once cut their expense ratio.