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Dual Momentum July Update

Scott’s Investments provides a free ” Dual ETF Momentum ” spreadsheet, which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum . Antonacci’s book, ” Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk “, also details Dual Momentum as a total portfolio strategy. My Dual ETF Momentum spreadsheet is available here , and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual Momentum”. Relative momentum is gauged by the 12-month total returns of each ETF. The 12-month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of the iShares Barclays 1-3 Treasury Bond ETF (NYSEARCA: SHY ). In order to have an “Invested” signal, the ETF with the highest relative strength must also have 12-month total returns greater than the 12-month total returns of SHY. This is the absolute momentum filter, which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns. An “average” return signal for each ETF is also available on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3-, 6-, and 12- (“3/6/12”) month total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6, and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF. Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12”). The test results were posted in the 2013 Year in Review and the January 2015 Update. Below are the four portfolios along with current signals: (click to enlarge) As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker-specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity, and Vanguard. It is important to note that each broker may have additional trade restrictions, and the terms of their commission-free ETFs could change in the future. Disclosures: None Share this article with a colleague

Will China Pull Back Up SLV?

China’s possible economic slowdown may have contributed to the recent fall in the price of SLV. China’s demand for silver is expected to grow this year in part due to an increase in installation of solar panels. The physical demand for silver is less likely to impact the price of SLV. While all eyes are set towards the Greek debt crisis, the price of the iShares Silver Trust ETF (NYSEARCA: SLV ) has come down in the past few weeks. Some attributed the fall in prices , in part, to fears of an economic slowdown in China. Nonetheless, China’s demand for silver is still expected to rise this year. But will China pull up the price of SLV? As I have pointed out in the past, the physical demand for silver, while plays an important role in moving the price of silver, is still only secondary to the changes in the demand for silver for investment purposes. The same goes for China’s growing demand for silver. One of the main growing industries in China where the demand for silver has increased is in the photovoltaic business, i.e. the installation of solar panels. So far this year, China was able to ramp up its installation capacity – it reached 5.04 GW in the first quarter. This year, China set a high target of installing a total of 17.8 GW of solar PV. If so, this will account for nearly a third of the global solar PV installations for 2015. How much silver is needed to reach this 17.8 GW goal? According to PV-Tech , it takes nearly 80 tons of silver, or 2.8 million ounces of silver, to generate one gigawatt of electricity from solar. Considering China aims to install 17.8 GW, this means it will need around 50 million ounces of silver. On a global scale, with an estimate of 55 GW, the world’s demand for silver in the PV solar industry will be around 154 million ounces – nearly two and a half times the amount of silver consumed in this industry back in 2014; it’s also 14% of total physical demand of silver. Last year , however, this industry accounted for only 5.6% of the physical demand of silver. Moreover, the demand for silver in this industry has gone down since its peak year – 2011. Color me dubious, but I’m a bit skeptic that China will be able to reach such a high target, let alone need to ramp up its solar industry capacity so rapidly especially now that oil prices have gone down. Keep in mind, in previous years, the role of PV solar was small from the total global demand for silver. And China’s demand for silver, while important, hasn’t driven up the price of SLV in the past few years. But even if you do believe China’s demand for silver will rise and its economy isn’t slowing down, it’s still a stretch to consider this turn of events will increase the price of SLV. Thus, it’s less likely that China, even if it does increase its demand for silver, will drive up SLV. I think the drama in Greece, which has raised the uncertainty in the financial markets mainly in forex, and the potential change in the Federal Reverse’s policy in the coming months are likely to lead the way in moving the price of SLV. When it comes to the Fed, even though Yellen keeps promising it will raise rates this year, the market isn’t convinced: According to the bond market, the implied probabilities of a rate hike in September have fallen to only 14% and 50% in December. The minutes of the FOMC meeting revealed that some members still think it could be too soon to raise rates: “Most participants judged that the conditions for policy firming had not yet been achieved; a number of them cautioned against a premature decision.” Other members thought the conditions for a rate hike is plausible in the very near term: “Some participants viewed the economic conditions for increasing the target range for the federal funds rate as having been met or were confident that they would be met shortly. They identified several possible risks associated with delaying the start of policy firming. One such risk was the possibility that the Committee might need to tighten more rapidly than financial markets currently anticipate – an outcome that could be associated with a significant rise in longer-term interest rates or heightened financial market volatility.” The Greek saga could also push the rate hike to 2016 if Greece were to exit the EU; a Grexit could further raise the uncertainty in the financial markets and provide an excuse for the doves in the Federal Reserve to err on the side of caution by keeping rates low until the beginning of 2016 and see how the Greek exit plays out. China is expected to increase its demand for silver and the solar industry will likely to take a bigger role in the physical demand for silver. It’s still possible that China’s demand will grow slower mainly if its economy slows down. But as for the price of SLV, it seems less likely that even a higher growth path for China’s silver consumption will drive up, for extended periods, the price of this precious metal. (For more please see: ” Is SLV about to change course? “). Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

HEDJ Vs. DBEU: Same Vista, Different Perspectives

Summary Two well-structured funds but with two different approaches. One is very comprehensive the other selective. One hedges the Euro, the other hedges non-Eurozone currencies as well. The EU is going through some tough times. However, investors should look for potential opportunities rather than avoiding the region altogether. There are two funds which cover all of Europe. The Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ) is quite comprehensive with approximately 448 holdings as well as having multiple currency hedges. The second fund is the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) . It is far more selective, holding approximately 134 securities and hedges only the Euro. The WisdomTree fund has been established longer having been incepted 12/31/2009 during the most troubled financial crises years. Deutsche Bank X-Tracker fund is more recently establish, incepted on 10/1/2013. (click to enlarge) The funds allocate sectors differently. For example, WisdomTree allocates its top three sectors, Industrials, Consumer Staples and Consumer Discretionary nearly equally. The Deutsche X-Tracker fund’s most heavily weighted sectors are Financials, followed by nearly equal in Health Care and Consumer Staples. (click to enlarge) The Deutsche X-Tracker fund’s heaviest concentrations are Great Britain, France, Switzerland and Germany while WisdomTree’s distribution is most heavily concentrated in Germany, France, Spain and the Netherlands. (click to enlarge) Five of the X-Tracker top ten holdings are global Health Care giants. They account for just over 43% of the 10 heaviest weighted holdings. On the other hand, the WisdomTree fund is less defensive and more diversified. No single top 10 holding comprises more than 13% of those 10 heaviest weightings. (click to enlarge) Since the funds came to market several years apart, their side by side performance comparison must be broken up into parts. The WisdomTree Hedged Europe Equity fund began trading January 7 of 2010, closing at $47.48. The X-Tracker fund began trading 3 years and 9 months later, October 1 2013 closing at $25.22. HEDJ’s closing price on the first day of DBEU’s trading was $53.80. The first of the two tables below shows HEDJ’s performance from its inception to the day of DBEU’s inception and then HEDJ’s performance over the entire life of the fund. Annualized Returns for HEDJ 1/1/10 through 10/1/2013 From 12/31/2009 to 7/6/2015 Dividend 2.67% 3.35% Stock 3.31% 4.50% Total 5.76% 7.29% The second table compares the two since DBEU’s inception date of 10/1/2013. Annualized from 10/1/13 HEDJ DBEU Dividend 4.82% 6.12% Stock 7.26% 3.27% Total 11.87% 9.27% HEDJ tracks the parent company’s WisdomTree Europe Hedged Equity Index . On the other hand, DBEU tracks Morgan Stanley Capital International MSCI Europe Hedged Equity Index. It’s important to note that both funds are passively managed. Here is a brief comparison of each of the top five holdings by sector weighting as of July 7, 2015. Top 5 Comparison Table WisdomTree HEDJ Top Five Holdings by Weighting X-Trackers DBEU Top Five Holdings by Weightings Anheuser-Busch Inbev (NYSE: BUD ) Consumer Staple P/E 18.68 Price to Cash Flow 12.11 Dividend Yield 2.11% Pay Out Ratio 26.69 Growth 5.07% Fund Percent Holding 5.733% Native Currency Euro Nestle ( OTCPK:NSRGY ) Consumer Staple P/E 15.22 Price to Cash Flow 22.03 Dividend Yield 3.20% Pay Out Ratio 0.00 Growth -0.59 Fund Percent Holding 2.768% Native Currency Swiss Franc Telefonica (NYSE: TEF ) Telecom Services P/E 20.84 Price to Cash Flow 5.18 Dividend Yield 6.52% Pay Out Ratio 0.00 Growth -2.82% Fund Percent Holding 5.517% Native Currency Euro Novartis (NYSE: NVS ) Health Care P/E 22.79 Price to Cash Flow 21.41 Dividend Yield 2.70% Pay Out Ratio 0.00 Growth 1.74 Fund Percent Holding 2.687% Native Currency Swiss Franc Banco Bilbao Vizcaya Argentari (NYSE: BBVA ) Financial P/E 17.37 Price to Cash Flow 11.91 Dividend Yield 4.71% Pay Out Ratio 33.28 Growth -26.32 Fund Percent Holding 5.021% Native Currency Euro Roche Holdings ( OTCQX:RHHBY ) Health Care P/E 24.54 Price to Cash Flow 18.98 Dividend Yield 3.01% Pay Out Ratio 73.94 Growth 1.46 Fund Percent Holding 2.329 Native Currency Swiss Franc Siemens ( OTCPK:SIEGY ) Industrial P/E 12.89 Price to Cash Flow 9.46 Dividend Yield 3.70% Pay Out Ratio 46.28 Growth 2.23% Fund Percent Holding 4.937% Native Currency Euro HSBC (NYSE: HSBC ) Financial P/E 13.23 Price to Cash Flow N/A Dividend Yield 5.65% Pay Out Ratio 58.31 Growth -14.86% Fund Percent Holding 2.035% Native Currency Great British Pound Daimler ( OTCPK:DDAIY ) Consumer Discretionary P/E 11.09 Price to Cash Flow 6.53 Dividend Yield 3.11% Pay Out Ratio 33.19 Growth 10.97% Fund Percent Holding 4.642% Native Currency Euro BP PLC (NYSE: BP ) Energy P/E 44.12 Price to Cash Flow 5.92 Dividend Yield 5.95% Pay Out Ratio 163.64 Growth -16.11% Fund Percent Holding 1.462% Native Currency Great British Pound Data from Reuters; Data TTM unless otherwise indicated It’s interesting to note that all 10 of WisdomTree’s top holdings are headquartered in the Eurozone. On the other hand, only four of X-Tracker’s top ten holdings are headquartered in the Eurozone. Royal-Dutch Shell is headquartered in both London and the Netherlands. The rest are headquartered in non-Eurozone Great Britain or non-EU member Switzerland. According to X-Trackers and WisdomTree, both hedge with forward contracts, although WisdomTree hedges only the Euro. What this implies is that U.S. Dollars invested in the WisdomTree fund may be more exposed to currency fluctuations since 9 of the 28 EU members are not Euro zone countries, although one of the nine, Denmark maintains a very close Euro peg and the Czech Republic maintains a conversion cap. The last comparisons are made of a few average metrics. The top ten holdings of the WisdomTree Fund outperform the X-Tracker fund in every category. However it is important to observe that HEDJ has a higher beta whereas the X-Tracker fund performs virtually with the market. Top Ten Averages P/E Price/Cash Flow Dividend Yield Payout Ratio Growth Beta HEDJ 18.191 10.816 4.085 37.50 2.004 1.295 DBEU 25.219 14.367 3.987 71.732 -3.19 1.044 There are a few ‘outliers’ in each fund, dual-listed companies, for example DBEU holds Investec, headquartered in South Africa and Carnival Cruise headquartered in U.S. Lastly, 81 of the 134 holdings in the WisdomTree fund also are held in the X-Tracker fund; in other words just about 61% of the WisdomTree fund intersects the X-Tracker fund. To sum up each fund covers Europe, though one is far more broad based than the other, although there is some overlap of each fund. The WisdomTree Fund is a more selective fund, whereas the X-Tracker fund is a broad representation of the entire European market. Also, the investor needs to weigh-out the need for currency hedging. Hedging mitigates the risk but does not eliminate it and the hedge might work against the portfolio under some circumstances. The WisdomTree fund hedges only the Euro; the X-Tracker Funds hedges the Euro, Swedish Krona, Great British Pound, Danish Krone, Swiss Franc and Norwegian Krone. The Europeans will not be too quick to give up on their long awaited and hard won economic union. Modern Europe in spite of all its shortcomings has a state-of-the-art infrastructure, an overall advanced economy and culture. More than likely Europe will resolve its current issues as well as those in the future. The question for the investor is how to be properly positioned: through the selective WisdomTree European Hedged Equity Fund or the broader based Deutsche X-Tracker MSCI Europe Hedged Equity ETF? The WisdomTree fund has the potential to outperform the market quicker. However, the higher volatility incurs higher risks. On the other hand, the X-Tracker fund’s volatility matches the market hence minimizes the risk. Either one of the funds will eventually reflect better times. The investor would be wise to at least consider investing in a European fund, but to completely ignore Europe would be foolish. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.