I have always been fascinated by investment strategies.
That’s because each investment strategy offers a glimpse into a different methodology that tries to explain and profit from the financial markets. The biggest fallacy among investors is that there is a one size fits all strategy — a “Holy Grail” that will unlock secrets of the financial markets.
As any grizzled market veteran will tell you, the opposite is true. As trading coach and “Market Wizard” Van Tharp observed, there are an infinite number of profitable trading strategies in the world. You just need to find the trading strategy that fits you and your unique personality and beliefs.
Richard Dennis, the founder of the famed Turtle Traders, famously said that he could publish the secrets behind his Turtle Trading system on the front page of The Wall Street Journal and it wouldn’t matter one bit. That’s because anyone who started using it on Monday would stop using by Thursday when the system generated its second or third losing trade.
While I paid $1,000 early in my investment career to get the secrets of the Turtle Trading System (today you can find them online for free), I don’t use the Turtle Trader system in my own trading. That being said, I have incorporated its insights into the ways that I manage money today.
Today, you have the luxury of not having to develop a complex trading system on your own.
You can simply buy one through an exchange-traded fund (ETF) that invests based upon a systematic strategy.
The list of strategies available in ETFs is long and growing rapidly.
Today, you can find ETFs that select stocks based on a broad range of criteria: value, growth, momentum, low volatility, or fundamental or technical analysis.
So it’s pretty likely that there is a strategy available that “fits you.”
Of course, investment strategies go in and out of favor. What worked last year is unlikely to work this year, and what is working today may not work tomorrow.
With that caveat, below are the top three performing ETF investment strategies that I monitor and their returns versus the S&P 500 year to date.
- iShares Exponential Technologies ETF (XT)
iShares Exponential Technologies ETF invests in nine different “exponential technologies”: big data and analytics, nanotechnology, medicine, networks, energy and environmental systems, robotics, 3-D printing, bioinformatics and financial services.
XT selects and weights these companies according to a Morningstar index. The resulting portfolio is very different from other funds investing in the global tech market.
The S&P 500 vs. XT year to date
XT’s top three holdings are Kite Pharma, Inc. (KITE), Wipro Limited (WIT) and Tesla Inc. (TSLA).
Year to date, the Exponential Technologies ETF has posted a total return (including dividends) of 20.00%. XT charges 0.47% in annual fees.
- iShares Edge MSCI USA Momentum Factor ETF (MTUM)
The iShares Edge MSCI USA Momentum Factor ETF tracks an index of large- and mid-cap U.S. stocks. These are selected and weighted based on price appreciation over 6- and 12-month periods, as well as low volatility over the past three years.
This ETF only holds between roughly 100 and 350 different stocks and makes large sector bets. As such, it carries higher-than-average market risk.
The S&P 500 vs. MTUM year to date
MTUM’s top three holdings are Facebook (FB), Amazon.com (AMZN) and Alphabet (GOOGL).
Year to date, MSCI USA Momentum Factor ETF has posted a total return (including dividends) of 19.86%.
MTUM charges a very reasonable 0.15% in annual fees.
- Direxion iBillionaire ETF (IBLN)
The Direxion iBillionaire Index ETF tracks an equal-weighted index of 30 U.S. companies. It selects these from the portfolios of 10 asset managers with a personal net worth of at least $1 billion.
Because it has only 30 names, the fund is highly concentrated
The S&P 500 vs. IBLN year to date
IBLNs top three holdings today are Facebook (FB), PayPal Holdings (PYPL) and Amazon.com (AMZN).
Year to date, Direxion iBillionaire ETF has posted a total return (including dividends) of 16.11%. IBLN charges a hefty 0.65% in annual fees.
In case you missed it, I encourage you to read my e-letter from last week about China’s investment woes over the past decade.
P.S. Over the past seven years, the amount of U.S. equity trading volume generated by algorithms has ranged as high as 73% annually. For many, that’s a frightening thought. But what if I told you there’s a new data-driven, algorithmic trading system — developed specifically for individual investors — that’s helping to churn out double-digit gains like clockwork? Click here now to learn all about it.