IVY Timing Model Extensions – more asset classes

In my last post I updated the official numbers for the IVY timing model. The original version of the model consists of a diversified portfolio of 5 asset classes. In the research paper Mebane Faber also looks at several extension to the 5 asset class timing model that improve returns over the basic model. Here I discuss the first extension, its results, and a few barriers to actually implementing it in individual portfolios.

The extension to the basic IVY timing model is simply the addition of more assets classes. More diversification is usually better, as long as the asset classes are not perfectly correlated. And a tilt to factors that have been proved to outperform over time (size, value, and momentum) also will probably help returns. Also, the model goes more global. This new model consists of 13 assets classes with a minimum of a 5% allocation to any one asset class. The portfolio is as follows.

GTAA 13 asset class allocation july 2013

As the table above shows the 20% US equity allocation in the original model is broken up into asset classes based on small cap size, value, and momentum. The foreign equity allocation of 20% increases exposure to emerging markets. The 20% bond allocation noew includes allocation to foreign government bonds. The commodities allocation adds a more specific gold allocation. Finally, the REIT allocation remains the same. Lets look at how this expanded model performs versus the original.

GTAA 13 performance vs GTAA 5 july 2013

In the table above, B&H 5 is the IVY 5 asset buy and hold portfolio, GTAA 5 is the original IVY timing model, and B&H 13, GTAA 13 are the 13 asset class versions. The addition of more asset classes clearly improves performance. In fact its diversification that adds the most performance. Timing improves on that performance and more importantly reduces risk significantly – higher sharpe ratios and much lower drawdowns. And in case you’re wondering, yes, it does increase safe retirement withdrawal rates (more on that in a later post).

Fantastic. What’s not to like? Well, actually implementing the 13 asset class IVY timing model presents some issues. First and foremost is which ETFs do you use? We’re on our own here. Unfortunately, you can’t implement this model exactly in its current form. There are no ETFs that break out momentum into large and small cap (if anyone finds one please let me know). Also, remember the growth ETFs are not the same thing as momentum ETFs. But we can come pretty darn close to a solution. Below is my list of ETFs for the 13 asset class model. I use Vanguard ETFs when ever possible because they’re usually the best, have the lowest expenses, and are commission free at discount brokers. Thanks to reader, Kevin, for his list of the 13 ETFs.

GTAA 13 asset class ETF Implementation july 2013

The other issue with implementing the 13 asset class model is that you need to monitor the 200 day SMAs and the signals on your own. There is no website you can go to and simply get the signals like you can with the basic 5 asset class model. I and others publish an update every month. And remember these are dividend adjusted SMAs which are slightly different that SMAs based on closing prices. Its easy to do the calculations but its more work.

Is it worth the extra effort? That’s something only you can answer. Is that 1.56% extra return a year over the basic IVY worth it? Maybe. Personally, I haven’t decided that its worth it….yet. I only implement the basic IVY timing model in our IRAs. For now, I’d rather put in extra time into my active strategies like quantitative investing, option selling, picking great individual dividend stocks, etc…But I’ll probably change my mind at some point in the future.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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24 Responses to IVY Timing Model Extensions – more asset classes

  1. Pingback: Blog Post of Interest -

  2. Bryce says:

    I’ve already created a spreadsheet similar to the one on Scott’s Investments to monitor the GTAA 13. Every time you open the spreadsheet it updates itself (including the dividend adjusted SMAs). There is absolutely no work/manual calculations involved. Check it out here:


    To set the spreadsheet up, I went with the 12 ETFs provided by Kevin and your recommendation of BWX. I’d love it if we, as a community, could come up with what we thought were the best 13 to represent the various asset classes in the GTAA 13. I could then update my spreadsheet to reflect those choices. My only stipulation is like that of you and many others, to use Vanguard ETFs as much as possible.

    I’m anxious to hear your take on the GTAA Aggressive portfolio’s given their outstanding returns. I’m working on a spreadsheet that will automatically (hopefully) calculate the 1, 3, 6 and 12-month returns and then sort them based on the average.


    • libertatemamo says:

      Hey Bryce,

      That’s awesome. Thanks for putting the spreadsheet together. I’ll check it out today.

      I love the idea of collaborating on choosing the best ETFs for the different IVY models. The toughest challenge is picking ETFs to replicate the large cap momentum and small cap momentum allocations of the IVY 13. The ETF I chose MMTM is one of only 3-4 that I’ve found. And its a small ETF, $10M of assets. Kevin’s choice of Vanguard growth ETFs is different than momentum but may work. Growth and value correlations are lower with growth outperforming over certain periods and vice versa but over the long term growth is an underperforming factor.

      Maybe you, Kevin, and I (and whoever else wants to chime in) can tackle a certain asset class, e.g. US equities, Foreign equities, Bonds, and commodities, and do a comparison of the ‘best’ ETF offerings in that asset class. With the basic requirements being low cost and commission free. Just and idea. I’ve been starting some work on an income/dividend version of the IVY 13 as well. Lots of options here.

      I’ll be posting in GTAA Aggressive next. It could be interesting esp the GTAA Agressive Top 6 that has a higher sharpe ratio. I want to see the impact the extra return with the larger drawdown has on retirement withdrawal rates before I come to a conclusion.


      • Bryce says:

        I added the GTAA Aggressive data to my spreadsheet. One sheet shows the returns for the various time periods and the sheet following sorts the ETFs by average return. All you would have to do is take the Top 6 or Top 3 on the chart depending on which Aggressive Portfolio you wanted to implement.

        I also did some research on ETFs to find the best ones for the different asset classes. I’ll list the ones that I found that deviate from those on your list:

        US Equity Momentum – MTUM (0.15%) instead of MMTM (0.35%); I also found EEH which is a Large-Cap momentum ETF. Both MTUM and MMTM are Multi-Cap. I don’t know if we should treat MTUM as Small-Cap and pair that with EEH, or just invest in MTUM and basically have only 12 ETFs (like in your “Real World” allocation.

        Foreign Developed Market – VEA instead of VGK

        Foreign 10yr Govt Bonds – IGOV (0.35%) instead of BWX (0.50%)

        Gold – IAU (0.25%) instead of GLD (0.40%); Another one to consider is SGOL (0.39%). The vault location for it is in Switzerland versus the U.S. for IAU and the U.K. for GLD.

        Let me know what you think.


        • libertatemamo says:

          Thanks again Bryce. I got some work to do to catch up to you…. 🙂

          Looks like some good alternative ETF choices. I’ll take some time this week to delve a little deeper into them.

          Momentum is the toughest allocation. There are no great momentum ETFs yet. MTUM has a very short history and is very small. If it doesn’t grow there’s a good chance it ends up on the ETF death list.


          • libertatemamo says:


            Just did some research on ETFs for the GTAA 13 model. All the ETF choices look pretty good to me. But I think there is a better choice for the international bond ETF. Last month Vanguard launched an international bond ETF, BNDX, at 0.2%, better than IGOV and knowing Vanguard they will drive this lower as AUM grows.
            Also, while I’m not crazy with having a growth stock ETF in there it seems like the best choice until we get a pure small cap momentum ETF. Also, the growth index Vanguard tracks has some nice safeguards against holding junk stocks.


          • Bryce says:

            To me it looks like the index https://indices.barcap.com/index.dxml that BNDX tracks is more of a total bond market index (includes corporate issues) whereas the index http://us.spindices.com/indices/fixed-income/sp-citigroup-international-treasury-bond-ex-us-index that IGOV tracks is a pure play on international treasury bonds like the model calls for. What do you think?

            Also, if you already haven’t discovered it, http://etfdb.com/ is a great site to research ETFs.


          • libertatemamo says:

            Yep. IGOV is closer to the model. But I do like the credit risk exposure. And there is credit risk exposure in the US bond allocation. And of course the fact its Vanguard. I guess sticking with IGOV is the best thing for now. If I do GTAA 13 I may divide the int’l bond allocation into IGOV and BNDX.

            I use etfdb a lot.

            On the commodities front, I’m looking into GCC as an alternative. Higher fees but better methodology, tracking, performance, and lower correlations than any other commodity ETF. It won commodity ETF of the year from Morningstar.


          • Bryce says:

            I wasn’t trying to sell you on IGOV over BNDX, I just wanted to point out the differences and get your thoughts. Me personally, I’d always rather go with a Vanguard fund if there is one available. Do you think it’s okay to go with a Total Intl Bond fund (BNDX) instead of an Intl Govt Bond fund (IGOV)? I’d be happy to change my spreadsheet if you think it is.


          • libertatemamo says:

            I know. I was just looking for a potential better option. I think its better to stick with IGOV for now. It doesn’t make too much difference to the fees of the portfolio. Also, with the longer history it will make implementing AGG3 and AGG6 easier. Seems like Vanguard is getting into int’l bonds so they could very well have a int’l gov’t bond offering soon.

            BNDX could be a nice addition after a year of history.


          • Bryce says:

            Good point about needing the history to implement the AGG3 or 6. It’s not like we have to stick with it forever anyway. We can always swap it out if something better comes along.

            Have you figured out the best commodity etf yet? GSG tracks the GSCI like the model calls for, however, most of the stuff I’ve read recommends either GCC or DBC (both of which track different indexes).

            FYI – interesting (but old) article on commodity etf’s http://www.barchart.com/articles/etf/commodityindex

            Also, a guy here is trying to argue that GCC (commodity etf of the year) doesn’t truly represent the market http://www.indexuniverse.com/sections/blog/16252-the-best-commodity-broad-basket-etf.html?showall=&fullart=1&start=2


          • libertatemamo says:

            All commodity ETFs leave a lot to be desired unfortunately.

            DBC does the best job of eliminating futures roll risk. GSG has the highest energy weighting, which is arguably the single biggest component that affects inflation. GCC has the lowest correlation to stocks, at least since the financial crisis. DBC and GSG have been highly correlated to stocks since the crisis so the diversification benefit has practically gone away. And of course they are all expensive.

            I’d say lets just stick with GSG for now. I’ll need to look into this deeper at some point. I’d like to run correlations against CPI and stocks and see how that comes out.


    • kevin D says:

      I love the spread sheet you put together. I have one question. I assume the returns your showing are YTD. Is that correct? I’d like to ask Paul to publish this spread sheet at the end of every month just like he does the IVY from Faber’s site. That would be extremely helpful.

      Thanks again and from time to time. From time to time I’ll be happy to contribute what little I can.

      Kevin D

      • libertatemamo says:

        I could just link to Bryce’s spreadsheet every month as long as hes OK with it. At least until we can finalize the 13 ETF list. Its not like I have that much traffic that we need to worry about the site not being available and such.


        • Bryce says:

          Kevin – the returns are based on the latest closing price.

          Paul – Yes, of course I’m okay with you including a link to my spreadsheet. Once we finalize the 13, I’ll need to capture the month end signals somehow.

          You’re correct on the short history of MTUM. However, it has 10x the assets of MMTM (which has only been around 5 months longer). I currently have VBK (Vanguard Small Cap Growth) in the US Small Cap Momentum slot. I realize that it’s not perfect, but I think it’s a fairly close match. Besides, the goal is for more diversification and it accomplishes that.


  3. torsverr says:

    Awesome spreadsheet!

  4. Pingback: IVY timing model extensions – weightings & momentum | Investing For A Living

  5. Hey all – I’ve been lurking about here for a few months and wanted to say thanks – this last exchange and Bryce’s spreadsheet are particularly helpful..

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  9. Raj Malhotra says:

    Hi guys,

    late to the party but r u still updating the strategy? how is it working?


    • paul.novell@gmail.com says:

      Yes. it is working fine. The blog has the latest updates and link to the sheet.


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