Les Masonson

I bought Profiting from ETF Rotation Strategies in Turbulent Markets (2011) by Leslie N. Masonson to see if it validated my ETF rotation strategy, which it did. The author describes two rotation strategies for trading ETFs: relative strength and moving average. Both are momentum-based strategies. Either plan will handily beat a buy-and-hold scheme, whether measured by returns, drawdowns, or risks, and will make money in any market -- bull, bear, or stagnant. I use the relative strength strategy with my ETF portfolios.

This book appears to be available only as a Kindle eBook. I do not own a Kindle. Fortunately, Amazon makes it possible to read Kindle editions on my PC with a free application that can be downloaded from their website. Consequently, I downloaded the Kindle reader to my netbook computer. After installing the reader, I went to the Kindle Store and purchased Masonson's eBook. As a side benefit, I also received the Second Edition of the New Oxford American Dictionary, which came free with the PC Kindle application. It works like a charm with the Kindle app.

I was pleased to see that Masonson used the same websites that I use for researching and backtesting various ETF portfolios. The most useful website for Masonson and for me is ETFreplay. It allows users to backtest ETF portfolios with historical market data going back to 2003.

Masonson built a portfolio consisting of fifteen ETFs from six asset classes (US equities, foreign equities, US bonds, foreign bonds, commodities, and emerging markets). I prefer to use five asset classes (US Equities, foreign equities, bonds, commodities, and real estate), with one ETF per asset class, as promoted by Mebane Faber in his book, The Ivy Portfolio (2009).

Using his portfolio of 15 ETFs, Masonson opted to buy the top three ETFs at the end of the month. On the other hand, with my 5-ETF IVY portfolio, I have found better returns, lower volatility, and lower drawdowns buying only the top-1 ETF at month end.

Masonson promotes the use of stop orders to limit drawdowns and preserve gains. My personal experience with stops has been abysmal. I've thrown away more money than I've preserved or gained with my stop loss strategies. On the other hand, I've discovered that monthly rotation of funds using a relative strength strategy with a low volatility portfolio will automatically switch from a weaker to a stronger ETF at month end, generally before a renegade ETF can do much harm to my bottom line.

This is a short book. It cannot do much more than introduce the reader to two excellent ETF trading strategies. Mastery of the strategies awaits the reader who will follow through with research into the hyperlinks provided by Masonson.… (meer)