ETFs FAQs

What is NGT ETFs trading and what sets us apart?

For more conservative investments compared to our options system. 

 

Every Friday, we send our ETF subscribers an email with trading signals and updates on the trades.  The signals provide a list of percentage allocations for the ETFs in the system.   Trading signals might also come on other days of the week depending on market conditions. 

Why use us?

1.  Our system rocks.  Our ETF systems aim to capture the returns of equities but with the risk profile of bond funds.  We include two ETFs systems in your subscription:

  • The "IWM-TLT Swap" system:  You can read about it here.  This system provides a variable allocation to the IWM ETF (Russell 2000 small caps) or the TLT ETF (20+ year U.S. treasury bonds) depending on recent price performance.  The returns are similar to IWM, but with much lower drawdown, so you can rest easy.  

  • The "Simplified Diversification" system:  We wrote about this one here.  This system trades five different ETFs and allocates money according to where they stand relative to a 10-month moving average.  We use a cascading allocation flow designed to provide equity-like returns with bond-like risk.

You can see the performance of both systems on our ETFs Performance page. 

2.  Personal service.   We always respond to your emails.  We don't use bots or sales agents.  If you have a question, ask us and we will answer you.  We want to get to know you and build a community here at NGT.

Can you have your cake and eat it too?

Yes you can!  For many years, we have studied ways to provide returns similar to the stock market but with much less risk. One of the most common ways to do this, as promoted by many financial advisors, is to place some percentage of your savings into stocks and some into bonds. Major investing firms like Fidelity, Vanguard and Schwab provide online tools to help you determine what percentage of stocks and bonds you should own based on your risk tolerance and investing timeline. A common principle is to place 60% of your savings into a broad stock fund, and 40% into a broad bond fund. The returns of this fixed-allocation strategy often lie between the overall returns of the stocks and bonds underlying the strategy.

We developed trading strategies that have let the investor have her cake and eat it too. Rather than providing middling returns and risk, these strategies provided the best of both worlds: returns of the stock asset but with the risk profile of the bond asset. 

The results in the 12-year test:

  • IWM-TLT swap: +13.5% per year return, with a maximum drawdown of less than 25%

  • Simplified Diversification: 9.25% per year returns, with maximum drawdown of less than 12%

  • Compare to:  S&P 500 (SPY ETF) buy-and-hold: 10.35% per year return, but with drawdown over 45%.

How does the ETF system subscription work?

You will get an email every Friday with updates on the system. 

You will get additional emails from time to time from each of the two ETF systems as follows:

  • the IWM-TLT swap system is checked daily and can give a signal any day of the week, depending on the market activity.  But on the whole we get about 10 trades per year on average.  When there is a signal, that means you switch the percent allocation of IWM and TLT in your portfolio according to the email.

  • the Simplified Diversification system provides signals only on the last day of each month.  We will provide an email on that day with the correct percent allocations of the five ETFs.     

Once you update your allocations according to the signal emails, then you just wait for the next signal.  No worries!

How does the IWM-TLT swap system work?

The IWM-TLT swap system invests you in a certain percentage of IWM and TLT based on their relative 85-day price performance.  The system is updated once per month on the last trading day of the month.  When IWM has a higher performance metric, then you will own a higher percentage of IWM, but if TLT has the higher metric, than you would own a higher percentage of TLT.  Overall, returns were higher than the underlying IWM alone and, perhaps more importantly, the risk profile was substantially reduced. For example, maximum drawdown on the system was about 25% compared to more than 55% if you held IWM alone. You could have had the lower 25% drawdown if you could held bonds alone in TLT, but then you would only have yielded 6% annual growth since 2003. The system provided the higher returns like the stocks (+13% / year) but with the lower risk like the bonds (<25% drawdown).

We also incorporate allocation caps and hysteresis into our system, similar to what we describe in this article.

How does the Simplified Diversification system work?

We have often studied portfolios comprised of one stock ETF and one bond ETF like the IWM-TLT swap system.  We found that diversification can be improved by adding assets that inversely correlate with other assets. Adding too many assets, however, can be cumbersome. Thus, we found a basket of only five ETFs that provided several dimensions of diversification.  For example, in the last year, we have seen a tremendous shift of money from growth to value and back to growth.  Thus, in the portfolio we studied, our stock assets consisted of:

  • For value: VOE (Vanguard Mid-Cap Value ETF)

  • For growth: VIG (Vanguard Dividend Appreciation ETF)

 

We also sought to diversify our non-stock asset. We chose to add gold, which often inversely correlates to bonds in certain interest rate environments.  We also diversified our bond duration by including long bonds and short bonds. Thus, for the bond part of our portfolio, we chose:

  • Long bonds: TLT (iShares 20+ Year Treasury Bond ETF)

  • Gold: IAU (iShares Gold Trust ETF)

  • Short bonds: AGG (iShares Core US Aggregate Bond ETF)

 

We also added a filter, the 10-month simple moving average (SMA), as a tool for risk reduction. This simple rule proposes to exit an asset (go to cash) when the asset trades below its 10-month SMA and stay long the asset when it is above that moving average. We like its simplicity and have found over the years that it reduces risk without substantial impact on returns.

We use a cascade approach similar to the one presented in our article here.  

Why does your system work so well?

Both systems rely on inverse correlations among their assets to maximize returns under most market conditions.  The IWM-TLT swap system relies one-dimension of correlation, while the Simplified Diversification system relies ten dimensions of correlation.  We also try to follow the money, i.e., we invest in the best performing assets at the time. The momentum factor has been well tested for decades. 

How much money should I put in your trade signals?

Unlike the Options system, which requires a minimal of $10,000 to do correctly, the ETF systems can be traded with very little principle.  We recommend at least $500 for the IWM-TLT swap and $1000 for the Simplified Diversification system.