Update: Supercharged Index Investing January 2019
Rules-Based Strategy Update: Supercharged Index Investing January 2019
The Supercharged Index Investing strategy is an evolution of a classic buy and hold equity portfolio. Rather than just buying and holding the S&P 500, the Supercharged Index Investing strategy uses two tweaks to seek additional alpha.
The first tweak is that rather than just using SPY, which is a market-weighted index, the system uses RSP (Invesco S&P 500® Equal Weight ETF). RSP is an equal weighted ETF that which provides equal exposure to all of the stocks in the S&P 500. RSP has had better performance than SPY historically.
RSP is also combined with the mid-cap exposure via MDY (SPDR® S&P MidCap 400 ETF). Mid-caps have also had stronger performance than SPY. The combination of the two produces solid backtest performance, which is why I wanted to test that strategy as part of Robotic Investing.
The final tweak is that a market filter is used to get out of the market if a downtrend develops. Using the 10-month simple moving average, the Supercharged Index Investing sells both MDY and RSP is SPY drops below the average line.
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Supercharged Index Investing Rules-Based Investing
This portfolio trades based on specific rules that tell the investor what assets to buy and when. Here are the rules of the strategy.
- If the SPY is trading above its 10-month simple moving average, buy equal dollar amounts of MDY and RSP.
- If SPY drops below the 10-month moving average, then MDY and RSP are both sold and the portfolio goes to cash.
- Once SPY breaks above the 10-month moving average again, MDY and RSP are once again purchased and held until the 10-month average is broken again
Very simple system that is easy to trade. Using the market filter lowers drawdowns (see more in this post: Supercharged Index Investing strategy).
Monthly Signals: Supercharged Index Investing
Each month I generate the signals for the portfolio using TC2000. If you want to give TC2000 a try in order to generate the signals for the strategies on Robotic Investing, then use this link for $25 off.
There is no change for January 2019 – the system is in cash.
Using the chart in TC2000, it is easy to see that the SPY is trading above the 10-month moving average on a monthly chart:
Strategy Tracking & Performance: Supercharged Index Investing
Here is the portfolio tracker and performance chart for Supercharged Index Investing. I use the Morningstar Portfolio Tracker to track all the systems at Robotic Investing. As you can see the strategy lagged the S&P500 a bit over the month, but let’s give it more time to see how it really does.
Each of the portfolios tracked use a hypothetical $50,000 starting value. This portfolio was started on July 2nd, 2018.
Note: When reviewing the performance chart, compare only the Total Return to the Index return. The personal return is inaccurate due to how Morningstar handles cash.
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