Jay Kaeppel | Apr 13, 2017 12:49AM ET
Please note that the title includes the word “Simple” but does NOT include the words “Best”, “Infallible”, “World”, “Beater”, nor “You”, “Can’t” or “Lose”. The strategy discussed was first written about here and the mechanics remain unchanged.
See also Uptrend/Downtrend (and Sideways Trend ))
This simple system has three things going for it:
The System
In general:
So, the rules are as follows:
VWEHX is the Vanguard High Yield Corporate Bond Fund
VFIIX is the Vanguard GNMA Fund
Figure 1 below displays the growth of $1,000 invested in each fund since 1980 ONLY during the months of December through April (All data in this article is generated using Monthly Total Return Data from PEP database from Callan Associates).
Figure 1 – Growth of $1,000 in VWEHX (blue) versus VFIIX (red) ONLY during December through April; 7/31/80-3/31/17
*During the months of December through April VWEHX gained +472% versus +127% for VFIIX.
Figure 2 displays the growth of $1,000 invested in each fund since 1980 ONLY during the month of May through November.
Figure 2 – Growth of $1,000 in VWEHX (blue) versus VFIIX (red) ONLY during May through November; 7/31/80-3/31/17
*Between the months of May through November VFIIX gained +508% versus +250% for VWEHX.
Figure 3 displays the growth of $1,000 invested using the switching rules detailed earlier versus “splitting” $1,000 between VWEHX and VFIIX and holding both.
Figure 3 – Growth of $1,000 invested using “Switch” Strategy versus “Splitting” the money between VWEHX and VFIIX and holding; 7/31/80-3/31/17
Since 11/30/2017:
More importantly, since July 1980:
Summary
So is this “World Beater” of all bond trading systems? Hardly. Additionally, with concerns of higher interest rates it is fair to wonder how GNMA bonds will perform during the “seasonally favorable” months of May through November in a rising rate environment.
But this system does meet two criteria of any decent investment or trading method:
Jay Kaeppel
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