There is an easy and risk-free way to supercharge the performance of your investment timing.

With our SuperModel, LBYC, Cash/Equity and BigMAC investment-grade timing models we showed you how to build a funds-grade macro investment model (Quattro) that traded the SA TOP40 to comprehensively beat the buy-and-hold strategy by avoiding bear markets and recessions.

You can supercharge this strategy by trading it with instruments that out-perform the TOP40 and that also benefit from being in cash during recessions and bear markets. We have found two such instruments that are very worth your while.

The first is the Momentum Invest small/mid-cap unit trust (JSE:RMEC) which incidentally is the top-performing local collective investment (unit trust) fund over the last 10 years and the 2nd is the J201 Mid-cap Index. In August 2012, RMB introduced the first of a kind in SA, namely the RMBMID Exchange Traded Fund (ETF) that tracked J201 by investing in the 60 shares ranked 41-100 in the Top-100.

The 10-year performance of these two alternative investment timing instruments is shown below spanning 2 bull markets and 2 recession-induced bear markets. Note that log-scales are used on vertical axis to highlight differences:
We note that both these instruments succumb to bear markets and recessions (although not as badly as the buy-and-hold) and both out-perform the JSE during bull markets. The ability of these indexes to outperform the JSE in both bear and bull markets makes them very desirable to the long term macro investor. If we have macro timing models that allow us to avoid recessions and bear markets then it stands to reason that these timing models would work even better with RMEC and J201.

Below is a chart of the JSE Buy-and-hold (no market timing) and RMEC (no market timing) and the Quattro Investment Timing Model applied to RMEC. Clearly, Quattro works even better with RMEC.

Note how RMEC started losing steam in late 2007, way before the ALSH index which was being propped up by large cap shares. Since Quattro started offloading into cash mid 2007 we note that its timing to get out the market was well suited to the flagging RMEC performance at the time. When the bull market is back and Quattro starts getting in again, we benefit from the out-performance of RMEC over the JSE or TOP40.

Here is the same exercise repeated with J201, assuming you deployed the new RMBMID ETF. Again we see that macro investment timing models work even better with J201.


Clearly, RMEC and RMBMID react very favourably to macro investment timing models as summarised below in the non-log scaled chart below:




Whilst the charts above demonstrate the performance with the Quattro multi-model, our benchmarks have shown that every one of our investment timing models benefits from the use of RMEC and RMBMID. These include the "Trading based" investment models such as Zweig Lazy-boy, Big-MAC and HedgeTrader as well as the SuperMODEL, LBYC and Cash/Equity macro models.

The RMEC performance is outstanding but bear in mind it is a unit trust and administration costs (Total Expense Ratios) and "switching costs" associated with timing actions into and out the market are likely to be much higher than the RMBMID ETF. However an examination of the funds fact sheet show that they hold onto GOLD and SILVER ETF/ETN's as well as other exotics together with the standard small/mid-cap equity share holdings and this is obviously how they get their out-performance.

Without a doubt, both RMEC and RMBMID are going to form a big chunk of our investment holdings from now on. We will probably take our TOP40 allocation and split it into three between RMEC, RMBMID and SATRIX40 from now on.

 
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