Archive for 'Bull Market'

Investing in the markets can be a confusing, complicated journey with a learning curve that can take years. There must be a thousand different trading systems out there and all of them proclaim to be “The Answer”. Sometimes the best way to go about anything is to just use a simpler approach. Here’s a method  that uses just two funds and it’s been beating Vanguard Funds and ETFs.

In Oct. 2015, I wrote A Simple SPY Top-Off Portfolio, proposing a simple 2-fund strategy that should outperform the S&P 500 by a few percentage points a year. The idea is simple: allocate 1/3 of your assets to a 3x daily S&P ETF (e.g. the ProShares UltraPro S&P 500 ETF (NYSEARCA:UPRO)) and the remaining 2/3 to some sort of bond fund to generate additional returns.

In that first article, I suggested using a short-term bond fund like Vanguard’s Short-Term Bond Index Fund (MUTF:VBISX) to get a safe 1-3% annual advantage over the S&P, but also noted that you could “up the ante” by using a longer duration bond fund. The trade-off is that you’re more likely to occasionally underperform the S&P, since longer duration bond funds are more volatile than short-duration ones.

I actually implemented a 1/3 UPRO, 2/3 long-term bond fund (VBLTX) strategy for quite a while in my own portfolio, with excellent results. I recently decided to split the 2/3 allocation between VBLTX and the Vanguard High Yield Corporate Fund (MUTF:VWEHX), but that’s another story.

Performance vs. all Vanguard funds and ETFs

I’m still really high on the 1/3 UPRO, 2/3 bond idea, so I decided to look at how its performance compares to Vanguard’s entire lineup of mutual funds and ETFs. UPRO was introduced on June 25, 2009, so I’ll look at performance since then.

For Vanguard mutual funds and ETFs, I got a comprehensive list from Vanguard’s website: Of the 176 products (55 ETFs and 121 non-money market mutual funds), 129 operated during the time period of interest and were thus included.

UPRO/VBLTX had better raw returns than all 129 of the Vanguard products. Its CAGR was 21.3%; the top 3 Vanguard CAGRs were the Vanguard Consumer Discretionary ETF (NYSEARCA:VCR) at 19.8%, Vanguard Information Technology ETF (NYSEARCA:VGT) at 18.3%, and Vanguard Industrials ETF (NYSEARCA:VIS) at 17.7%.

As for max drawdown, only 39 of the 129 Vanguard products had a smaller MDD. At 14.3%, UPRO/VBLTX actually had a considerably better MDD than the Vanguard S&P 500 ETF Index Fund (MUTF:VFIAX) (18.7%).

My UPRO/VBLTX strategy also had an excellent Sharpe ratio of 0.097. That was better than all but 16 of the 129 Vanguard products. Notably, the 16 products with better Sharpe ratios all had much smaller raw returns than UPRO/VBLTX. The Vanguard Wellesley Income Fund (MUTF:VWINX) had the highest CAGR at 12.2%.

On backtesting/overfitting

A natural criticism of these results is that I developed the strategy in Oct. 2015, but the time period examined here goes back to June 2009. In general, it’s fairly easy to develop strategies that beat pretty much everything looking backwards. Prospective outperformance is harder to achieve.

Compared to VFIAX, the UPRO/VBLTX strategy had a higher CAGR (20.6% vs. 16.9%), smaller MDD (11.3% vs. 12.7%), and better Sharpe ratio (0.111 vs. 0.091).


Compared to all 129 Vanguard funds, UPRO/VBLTX had the 9th highest CAGR, 49th smallest MDD, and 4th highest Sharpe ratio. Again, none of the products with a higher Sharpe ratio had anywhere near the CAGR of UPRO/VBLTX (VWINX highest at 8.8%).

I would also add that this strategy is very simple and, in my view, theoretically sound. All I’m doing is using a 3x daily ETF to free up 2/3 of my assets to generate additional returns. It does not require “optimizing” any parameters using historical data that might be sub-optimal going forward. I suppose the choice of VBLTX is somewhat tied to the backtested time period, but VBLTX is not some obscure fund that happened to perform well since 2009; it is one of three Vanguard bond funds that targets a particular duration.

Driven by a bull market?

Skeptical readers might also point to the fact that we’ve been in a raging bull market in both stocks and bonds since 2009. Conventional wisdom says it’s easier to beat the market during a bull market than during a bear market, and I would agree with that.

I want to point out that while my strategy uses a leveraged ETF, its net leverage is no greater than the S&P’s. In fact, its net beta is slightly less than 1, since VBLTX has negative beta. So it’s not simply that the markets have been hot and therefore my high-beta strategy outperformed. If that were the case, my risk-adjusted returns would probably not be better than the S&P’s, and certainly not better than 87.6% of Vanguard’s products.

Fixing what isn’t broken?

As I mentioned earlier, I recently decided to split up my 2/3 bond allocation between VBLTX and the high-yield VWEHX. The rationale is robustness; it’s less likely for two weakly correlated (0.05) bond funds to hit a rough patch than it is for one. One drawback of VWEHX is that it isn’t nearly as negatively correlated with stocks as VBLTX is. However, it has a higher dividend yield than VBLTX (SEC yield 4.41% vs. 3.49%).


More about the two fund strategy

Zacks Top 5 Value Stocks for a Bull Market

With all the leading indicators being in tune with a great economic maestro, this current bull market has just been chugging along like a well oiled machine for over eight years now. Interest rates are low, inflation is lower, unemployment is almost a non factor and housing is rebounding to keep fueling this rising market. With all these factors moving in the plus side, it becomes a little more difficult to find those undervalued stocks but here’s a few picks to get you started. 

We are 8.5 years into the current bull market, so every now and then, somebody raises a red flag, and for a few days we are treated to reports about the possibilities of the next recession that could usher in another bear market. But that just doesn’t seem to be happening.

For one thing, the unemployment rate is at a 16-year low. For another, personal income and personal disposable income are both on the rise according to the Bureau of Economic Analysis. Rising prices, especially for food and energy did however result in a 0.1% decline in real income in August.

The Michigan Consumer Confidence Index (MCCI) suffered a slight setback in September due to concerns about the economy in the wake of hurricanes Harvey and Irma, dropping from 97.6 in August to a still-high 95.3. “Renewed gains in incomes as well as rising home and equity values have acted to counterbalance the negative impacts from the hurricanes,” Richard Curtin, chief economist for the Surveys of Consumers, said in a statement.

The housing market is in a multi-year expansion, partly because of the growing population and partly because millennials are finally settling down. The production side hasn’t been able to keep up, resulting in tight inventory and high prices. Hurricanes Harvey and Irma just made matters worse, further pressuring labor and materials supply and making production that much more difficult. While these factors made for a significantly weaker September, PWC principal Scott Volling expects a flatter market here on out with a rebound in the spring 2018 selling season.

As far as industrial production indicators are concerned, the ISM report has PMI, new orders and production indexes at 60.8%, 64.6% and 62.2%, all of which expanded from August to September. A contraction is not normally indicated until the PMI falls under 50%.

Why Value Investing Makes Sense Now

Value investing presupposes that there are companies out there that are capable of better and also taking the necessary steps to get there. So the idea is to build position in these stocks before the rest of the market does, thereby gaining the most from any subsequent upside. Naturally, the strategy is not for the rookie, but folks who have done the necessary research to identify these companies. The higher profits and ability to absorb volatility are the rewards.

Finding these stocks in a bull market can be tricky since valuations are generally on the high side. That’s where the Zacks Style Score system comes in handy. Coupled with a Zacks Rank #1 or #2 (buy rated stocks), a value style score of A or B should be able to help you make more money while avoiding value traps (getting into stocks with low valuation but because of limited potential).

5 Value Stocks to Buy Today

Here are some stocks that are worth looking at because they have a Zacks Rank #1 (Strong Buy) and Value Score A.

Alliance Resource Partners, L.P. (ARLP)

Alliance Resource is a diversified producer and marketer of coal to major U.S. utilities and industrial users. It currently operates mining complexes in Illinois, Indiana, Kentucky and Maryland. Some of its mining complexes are underground and one has both surface and underground mines. It produces a diverse range of steam coals with varying sulfur and heat content, which enables it to satisfy a broad range of specifications.

Bellway plc (BLWYY)

Bellway plc is engages in the building of residential houses and conducts associated trading activities. The company provides houses which includes detached, semi-detached, terraced properties, as well as town houses, apartments, bungalows and five-bedroom family homes. It operates primarily in England, Wales and Scotland. Bellway plc is headquartered in Newcastle upon Tyne, the United Kingdom.

Beijing Enterprises Holdings Ltd. (BJINY)

Beijing Enterprises Holdings Limited distributes and sells natural gas in the People’s Republic of China. Its city gas segment is a natural gas supplier and service provider. It also has other operations. Water and environment-related services include investments, design, construction and operational management as well as production of key equipment and facilities and related overall engineering works.

The toll road business is made up of three major highways, including the Beijing Capital International Airport Expressway, Airport North Freeway and Shenzhen Guanshun Road. The beer business is an important revenue center for Beijing Enterprises Holdings.

The technology business of Beijing Holdings is comprised of a combination of electronic payment and information technology, with a portfolio of investments in solid waste disposal, environment-related services and technology incubation. Beijing Enterprises Holdings Limited is based in Wanchai, Hong Kong.

Signet Jewelers Limited (SIG)

Signet Jewelers Ltd. is engaged in retailing of jewelry, watches and associated services. The company operates primarily in the United States, the United Kingdom, the Republic of Ireland and the Channel Islands. Signet Jewelers Ltd., formerly known as Signet Group PLC, is based in Hamilton, Bermuda.

Santander Consumer USA Holdings Inc. (SC)

Santander Consumer USA Holdings Inc. is a technology-driven consumer finance company which focused on vehicle finance and unsecured consumer lending products. The company’s vehicle finance products and services include consumer vehicle loans, vehicle leases and automotive dealer floorplan loans. Santander Consumer USA Holdings Inc. is headquartered in Dallas, Texas.

Zacks Value in a Bull Market


Zacks Bull of the Day 8-17-15

This Bull of the Day is in the Health and diet category that’s been pushing past all expectations and is now considered a strong buy. Check out Tracey Ryniec’s  post below

Nutrisystem, Inc. is on the right side of the health and wellness debate. This Zacks Rank #1 (Strong Buy) just raised full year guidance for the second time this year.

Nutrisystem is famous for weight loss programs including Nutrisystem My Way, its 28-day food delivery program. Feeding on the healthy food frenzy sweeping the nation, the company’s meal choices including 100 foods which do not contain artificial preservatives or flavors.

Plans can also be customized for specialized diets, including those with Type 2 diabetes or pre-diabetes.

Another Beat and Raise

On July 29, Nutrisystem reported its second quarter results and beat the Zacks Consensus Estimate by 4 cents. Earnings were $0.41 compared to the consensus of $0.37.

Revenue rose 17% to $130.3 million as both direct and retail channels remained strong. Diret rose 15% year over year while retail grew 43%.

Gross profit margin jumped 80 basis points to 52%.

Full Year Guidance Raised

Very few companies are beating and raising this year in tough market conditions, but momentum from early in the year continued. It raised full year guidance for the second quarter in a row.

Earnings are now expected to be in the range of $0.87 to $0.97 up from its previous guidance of $0.81 to $0.91. Guidance is now up sharply from earlier in the year when the company was only looking for $0.73 to $0.83.

Zacks Bull of the Day

How to Achieve 80%+ Winning Stock Trades

Winning Stock TradeAfter a pretty impressive Bull Market run of over 1400 days, the S&P 500 seems to be in a sideways pattern for the moment and it has a lot of investors nervous. The old adage of “what goes up, must come down” comes into play. Is the market regrouping or headed for a major correction?  No one really knows and some people like Andy Crowder really don’t care. In his mind, it doesn’t matter if the Market moves up or down, he still makes money.

The S&P 500 has entered the third longest bull market in U.S. stock market history.

What is even more amazing is that during this bull market run the S&P has gone approximately 1,450 days without a 10% correction. The steady climb higher has no doubt made almost everyone exposed to equities a winner since 2009.

But the charge upward has slowed down dramatically over the past eight months. Since the beginning of November 2014, the S&P 500 has pushed higher roughly 5%, and most of those gains came in the last two months of 2014.

The market has remained relatively flat in 2015, vacillating between slightly positive and negative. There is no doubt that uncertainty has entered the market.

So, as an investor, are we supposed to sit on our laurels and allow Mr. Market to dictate our returns?

We all look like financial geniuses when the market is going higher. Investors take all the credit for their success when the market is soaring, but blame other factors, such as geopolitical concerns or central bankers, when investments sour. The talking heads make sure the culprits are front and center to make the blame game that much easier.

But, I don’t really care.

See the rest of Andy’s article