Fidelity Strategy: First of the Month ETFs
Author: rmpwealth
Creation Date: 5/23/2010 2:05 PM
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rmpwealth

#1
Fidelity's most current client e-mailing included the subject strategy, authored by James Altucher on 05/18. At the end of the article, the author suggested we test the strategy in Wealth Lab Pro, and furnished the code to do so.

I copied/pasted the code into a new W-L Strategy Window, compiled it (successfully, per W-L), but the strategy will not run unless I enter a symbol. Problem is, the strategy and code already have their symbols embedded (I think). I tried manually entering all six of the symbols that are embedded in the code, but the results from running the that strategy are not even close to the results published by the author, so I must be doing something wrong. Can you help?

Here is the code.

CODE:
Please log in to see this code.
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Eugene

#2
What are the exact trading rules?
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rmpwealth

#3
Following is a cut & paste of the second half of the article. First he gives the Rules; then he lists the Symbols; then he gives the results (but for some reason that graphic didn't copy); then he gives the code (which I already pasted above). Hope this helps. If you want the entire article, including the philosophy of the strategy, let me know.



First of the Month ETFs Trading Strategy

What you trade:

Select two emerging markets ETFs and up to four bond ETFs. This strategy assumes that equity funds will get a bump from new flows following a strong month. We use emerging markets ETFs because historically they have tended to be a little more volatile than U.S. equity ETFs. While this increased volatility could add risk, including the risk of loss, to your holdings, it also provides increased potential for gains in a short time period.

The trading rules:
If either of the emerging market funds gained on the last day of the month, then:

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BUY whichever funds posted a gain at the close on the last day of the month.
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SELL at the close on the first day of the month. (In other words, you buy and hold for one day.)

Or, if any of the bond funds experienced a price gain on the last day of the month, then:

*
Short the relevant bond funds at the close on the last day of the month.
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COVER at the close on the first day of the month.

If both an emerging markets fund and the bond fund posted a gain, execute trades on all the relevant funds.

That’s it. You’re in the market only one day each month. And some months you’re not in the market at all.

A Hypothetical Backtested Example
To see how this strategy might have performed over time, we conducted a backtest using real pricing data from Fidelity Wealth-Lab Pro, a research tool available to certain Fidelity customers to help them design and test their investment strategies.1 We backtested this strategy for the eight-year period ending April 29, 2010. We chose eight years rather than ten because some of the ETFs did not exist ten years ago.

The funds: In this example of the strategy, we use the following iShares ETFs.

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Emerging market equity ETFs: iShares Trust MSCI Emerging Markets Index (EEM) and iShares Turst MSCI EAFE Index Fund (EFA).
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Bond ETFs: iShares iBoxx $ Invest Grade Corp Bond Fund (LQD), iShares Trust Barclays Treasury Inflation Protected Securities Bond Fund (TIP), iShares Barclays Aggregate Bond Fund (AGG) and iShares S&P National Municipal Bond Fund (MUB).

The result of this backtest are shown below. Over the eight years ending April 29, 2010, the strategy provided positive returns. These results don’t take into account any trading commissions or other account related expenses. Trading commissions and other expenses would reduce your returns. Commissions for trading ETFs vary and are subject to change at any time.

Results of Hypothetical Backtested Example – First of the Month Trading Strategy

backtest

Graphic of Results Table didn't copy

These results are extracted from the backtest feature of Fidelity’s Wealth Lab Pro.1 The example assumes a $10,000 position size for each trade and was executed for the eight-year period ending April 29, 2010. It assumed no trading commissions, other fees or taxes. If it did, results would be lower. More details of the results of this “first of the month” trading strategy can be obtained by accessing the backtest feature of Fidelity’s Wealth Lab Pro and following the directions at the end of this article for testing this strategy. Maximum Drawdown is the greatest high to low decline in the simulated strategy during the backtest period. It can help you evaluate the downside risk associated with a strategy and whether the amount of volatility is within your risk tolerance. Profit per Day is the profits generated by the strategy divided by the total number of days in the market. It can help you evaluate the efficiency of a strategy, and is a useful way to compare different strategies that use the same position size settings. As with all hypothetical trading strategies, actual results will depend on many factors including, but not limited to the specific securities chosen for the strategy, prices and values at the time trades are placed and market events and conditions beyond the control of an investor. Backtested results have the benefit of hindsight and may not be replicated in the real world. Past performance is no guarantee of future performance.
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avishn

#4
You need to create a dataset with six symbols from the strategy and then run the strategy on that dataset.
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rmpwealth

#5
Thanks. That seems to work. I now get results that are similar to the author's (although I would have expected to match his results exactly).

However, the item that struck me was that even though the strategy showed a Net Profit ($13,272 in the author's example; only $10,798 in my run), B&H on my run showed $26,949! Judging by that, the strategy itself is not so good, unless its objective is to accomplish something other than Net Profit.
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avishn

#6
This strategy has extremely small exposure (~2%, or less than a day every month on average), so I don't think B&H's net profit (100% exposure) is a good benchmark.
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avishn

#7
Considering the way that strategy is written (it is executing trades in the past), I have a question for Eugene or Cone -- what's the best way to determine if current day is the last trading day of the month?
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Eugene

#8
QUOTE:
what's the best way to determine if current day is the last trading day of the month?

Please see this Wiki KB article:

WealthScript Techniques | Handling remaining trading days in Strategy
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jozef

#9
I am not totally sure about the rules.

If either of EEF || EFA rises the last business day, which one will u buy the next day? The one that rose more?

And again, if any one of AGG LQD MUB TIP rises, short sell the one that rose the most?
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rmpwealth

#10
My interpetation of the rules is that trades should be executed for whichever symbols meet the criteria. For example: If EEF rises the last business day, buy EEF; if EFA rises the last business day, buy EFA; if both rise, buy both; if neither rises, buy neither. Ditto (but short)for the bond funds.

NOTE:
QUOTE:
which one will u buy the next day?
: The symbols should be purchased at close of the last business day of the month; not the next day. All symbols that were purchased at close of last business day of month then should be sold at close the following day (i.e. -- first day of month).