Some ETFs Look Pricey Because They Are

July 02, 2015


3-Way Asset Strategy (Stocks, Bonds & Gold) 1969 To Present

The concept here is simple, and often simple is best. The assets used in the three-way asset strategy are the S&P 500 Total Return Index for stocks, Barclays Capital Long-Term Treasury Total Return Index for bonds, and Gold Spot for gold.


Here is how it works:

  • Stay fully invested in any of the three assets provided each asset’s three-month moving average is above its 10-month moving average.
  • If, for example, gold is the only asset with its three-month price trend above its 10-month, then the model will be 100 percent long gold. If stocks and bonds are above, but not gold, then 50 percent is positioned in each. If all three are in a positive uptrend, then a third is allocated to each.
  • It's that simple. The model’s returns are better and much less volatile than the S&P itself.


The red line in the following chart shows the performance from 1968 to present when holding the asset classes (S&P 500, long-term bonds and gold) when the three-month moving average is above its 10-month moving average.


It also shows how a three-way model can do well against the stock market as represented by the Standard and Poor's 500 Total Return Index. You’ll see that currently the model is allocated 50 percent S&P 500 Index and 50 percent long-term Treasury bonds. Gold has been in a downtrend for some time. 



Source: NDR


Specific ETFs

To implement the strategy, there are a number of ETFs that may be used. For equities, consider one of the following cap-weighted S&P 500 Index-based ETFs:


Or you might consider smart-beta S&P 500 Index-based ETFs if you believe they will outperform the traditional cap-weighted approach, such as:


For gold, consider the gold ETFs:


And for long-term Treasury bond exposure, consider:


A strategy such as this might fit along with your other core portfolio holdings. The idea is that it manages downside risk quite well. For your single-ETF holdings, there are ways you may risk-protect those positions as well.


Consider the following:


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