This is a simplified variation of S&P's Diversified Trend Indicators Index. It utilizes ETFs instead of futures.
In the original S&P's index, commodities and financial futures are classified and properly allocated. We adhere to the original asset allocation.
1.The asset allocation
We divide funds into two asset classes: Commodities and Financial. In each class, the allocation percentages are based on the S&P document.
The asset allocation is as follows:
|
Commodities 50% |
Energy 18.75% |
Powershares DB Energy (DBE) |
|
Industrial metal 5.00% |
Powershares DB Base Metal (DBB) |
|
|
Precious metal 5.25% |
Powershares DB Precious Metal (DBP) |
|
|
Agriculture 21% |
Powershares DB Agriculture (DBA) |
|
|
Financial 50% |
Euro 13.00% |
CurrencyShares Euro Trust FXE |
|
Japanese Yen 12.00% |
CurrencyShares Japanese Yen Trust FXY |
|
|
British Pound 5.00% |
CurrencyShares British Pound Ster. Trst FXB |
|
|
Swiss Franc 2.00% |
CurrencyShares Swiss Franc Trust FXF |
|
|
Australian Dollar 2.00% |
CurrencyShares Australian Dollar Trust FXA |
|
|
Canadian Dollar 1.00% |
CurrencyShares Canadian Dollar Trust FXC |
|
|
U.S treasury Bond 7.5% |
iShares Lehman 7-10 Year Treasury IEF |
|
|
U.S treasury Note 7.5% |
iShares Lehman 1-3 Y SHY |
2. Position determination
The monthly percentage change of a sector’s price is compared to past monthly price changes exponentially weighted to give greatest weight to the most recent return and least weight to the return seven months prior.
the weights are as follows:
|
NUMBER OF MONTHS |
WEIGHT |
|
7 |
2.32% |
|
6 |
3.71% |
|
5 |
5.94% |
|
4 |
9.51% |
|
3 |
15.22% |
|
2 |
24.34% |
|
1 |
38.95% |
3. Monthly rebalancing
We rebalance the portfolio monthly by resetting every sector to their original percentage and do the position determination again.
Similar Funds:
- Rydex Managed Futures Strategy (RYMFX)
Similar Ideas:
- S&P Commodities Trend Indicators: it is really the commodity part of this strategy.
- Trend Following has been extensively used in commodity trading. This is the first comprehensive and diversified index to utilize such strategy. See this Wiki "Trend Following" for more information.
- Another similar Trend Following strategy in ValidFi is Turtle Strategy.
See Also
- Standard and Poor's: "Standard and Poor's Diversified Trend Indicators", Janaury 2008.
- Alpha Financial Technologies: "Standard and Poor's Diversified Trends Indicaor", Alpha Financial Technologies also develops S&P Commodity Trends Indicator (CTI) and S&P Financial Trends Indicator (FTI).
- Murray Coleman, "Mutual fund mixes bonds, commodities and currencies", marketwatch.com, March 6,The story on the Rydex Managed Futures (RYMFX).
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