Sy Harding’s Seasonal Timing Strategy (ETFs, Backtest, Performance, Risk) Last Updated on August 23, 2023 The Seasonal Timing Strategy by Sy Harding is an active, but simple strategy that uses market timings and can be implemented using asset classes and portfolios. Using this strategy, you do not need to be in the market 100% of the time and expose yourself to additional risk, unlike passive/lazy strategies. You enter the market when the Seasonal Timing Strategy gives an entry signal and exit when the strategy gives an exit signal. In this article, we will describe in detail the structure of the Seasonal Timing Strategy and backtest it on historical price data. Looking ahead, we can say that according to our backtests over the past 16 years, the improved (yes, we improved it) Seasonal Timing Strategy has the following performance stats: Compound annual return (CAR): 2.95%; Maximum drawdown (MDD): -13.67%; CAR/MDD ratio: 0.22; Standard deviation: 5.84%; Sharpe ratio (with a risk-free rate of 3%): -0.01. Related reading: – You might be looking for a specific investment strategy? (We have hundreds) Table of contents: Who Is Sy Harding Sy Harding published investment research on a financial website, Street Smart Report. His firm provided investment research to institutions and serious investors for 26 years. He was frequently ranked in the ‘Top Ten Market Timers in the U.S.’ by Timer Digest. Sy passed away at the age of 80 on April 21, 2015. Until a sudden illness, Sy lived a vigorous life and continued to publish his highly respected market insights until a few weeks before his death. Sy’s previous experience was in engineering, when he owned and built two high-tech manufacturing businesses. He believes it was natural from that background that his investment research would involve technical analysis, charting, and the fundamentals that affect markets and stocks. In 1997, he stopped managing money for others to focus on converting the firm’s newsletter into a comprehensive financial website advisory service to take advantage of the Internet and its potential to become an important method of providing financial research information in greater quantity and detail than could be incorporated into a newsletter. What Is The Seasonal Timing Strategy Portfolio Since we need to have a portfolio to backtest this timing model, we will use the following five asset classes with equal portfolio weights: Asset Class Portfolio Weight U.S. Stocks 20% Foreign Stocks 20% U.S. Bonds 20% U.S. REITs 20% World Commodities 20% Stocks In The Seasonal Timing Strategy Portfolio Stocks are equity securities representing an ownership share in a corporation and giving the right to receive dividends if paid. Historically, stocks have shown the highest returns, outperforming all other asset classes such as bonds, gold, and real estate. The Seasonal Timing Strategy Portfolio includes the following types of stocks: U.S Stocks – U.S. large- and mid-cap growth and value stocks that virtually replicate the benchmark S&P 500 stock index; Foreign Stocks – non-U.S. large- and mid-cap stocks of different countries outside US that are have a low correlation with U.S. stocks. For stocks, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history: Portfolio Sector ETF Name ETF Ticker U.S Stocks SPDR S&P 500 ETF Trust SPY Foreign (International) Stocks iShares MSCI EAFE ETF EFA Bonds In The Seasonal Timing Strategy Portfolio Bonds are fixed-income debt securities that are less profitable and more reliable than stocks. Bondholders are paid before shareholders; thus, it involves less risk than stocks. Adding bonds to a portfolio reduces its overall return but makes the portfolio less volatile and more resilient to drawdowns during periods of crisis. Bonds have a low correlation with stocks, which improves portfolio diversification. The Seasonal Timing Strategy Portfolio includes the following types of bonds: U.S Bonds – short-, medium- and long-term U.S. treasury, municipal and investment-grade corporate bonds. For bonds, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history: Portfolio Sector ETF Name ETF Ticker U.S Bonds Vanguard Total Bond Market Index Fund BND REITs In The Seasonal Timing Strategy Portfolio Real estate investment trusts (REITs) have the same rewards and risks as “traditional” stocks, but also have a historically low correlation with “traditional” stocks and various types of bonds. Including REITs in a portfolio reduces the overall correlation of portfolio assets and makes the portfolio more diversified and sustainable. For REITs, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history: Asset Class ETF Name ETF Ticker U.S REITs iShares U.S. Real Estate ETF IYR Commodities In The Seasonal Timing Strategy Portfolio Commodities are alternative types of investment and include metals, wood, oil, gas, grains, meat, and many other tangible commodities. The peculiarity of commodities is that their market dynamics do not depend on each other and do not depend on the market dynamics of stocks, bonds, REITs, and other “traditional” assets. Including commodities in a portfolio reduces the overall correlation of portfolio assets, making the portfolio more diversified and sustainable. For commodities, we have picked these ETFs, which are well diversified, have high liquidity, and a long performance history: Asset Category ETF Name ETF Ticker World Commodities Invesco DB Commodity Index Tracking Fund DBC Trading Rules Of The Seasonal Timing Strategy The trading rules of the Seasonal Timing Strategy are like this: Daily time frame is used; MACD indicator with standard fastEMA = 12, slowEMA = 26, and signalEMA = 9 period arguments are used; Buy rule: If it is October 16 the MACD indicator line is above its signal line, and we are out of position, then we buy the asset class on the same day at the closing price; Sell Rule: If it is April 21st and the MACD indicator line is below its signal line, and we are long, then we sell the asset class on the same day at the closing price. Backtesting Of The Seasonal Timing Strategy Let’s backtest the Seasonal Timing Strategy under the following conditions: Described ETFs with the appropriate weights are picked; Historical quotes are adjusted for dividends and fixed-interest payments; The backtesting interval is from 2007 to 2023. Portfolio equity curve: Portfolio underwater curve (drawdowns, i.e. decline in value from a relative peak value to a relative trough): Portfolio monthly and annual returns: Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yr% 2007 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.4% -0.2% -2.0% -0.9% 2008 -1.9% 0.9% 0.6% 4.4% 0.3% 0.0% 0.0% 0.0% 0.0% 1.6% -16.1% 5.4% -6.4% 2009 -9.1% -9.2% 4.9% 7.5% -0.4% 0.0% 0.0% 0.0% 0.0% -0.2% -2.1% 0.1% -9.3% 2010 -4.4% 2.6% 4.4% 2.5% 0.0% 0.0% 0.0% 0.0% 0.0% -0.4% 0.0% 2.0% 6.6% 2011 1.9% 2.6% -0.2% 3.3% -3.9% 0.0% 0.0% 0.0% 0.0% 3.9% -4.5% 0.7% 3.5% 2012 4.2% 2.8% 1.2% -1.3% -0.9% 0.0% 0.0% 0.0% 0.0% -0.9% 1.5% 0.8% 7.4% 2013 2.1% -0.9% 1.0% -0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.4% 1.0% 3.6% 2014 -1.7% 4.1% 0.1% 1.4% 0.4% 0.0% 0.0% 0.0% 0.0% 2.7% -0.8% -1.2% 5.0% 2015 -0.5% 2.7% -1.6% 1.8% -0.1% 0.0% 0.0% 0.0% 0.0% -0.0% -0.4% -1.6% 0.3% 2016 -3.8% -0.9% 5.6% 2.1% 0.0% 0.0% 0.0% 0.0% 0.0% -0.9% 0.6% 2.1% 4.7% 2017 -0.1% 1.0% -0.9% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.5% 0.4% 1.2% 2018 1.4% -1.8% 0.4% 0.8% 0.6% 0.0% 0.0% 0.0% 0.0% 0.0% -0.1% -5.8% -4.6% 2019 0.2% -0.0% 0.4% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.7% 0.1% 0.9% 2.2% 2020 -1.6% -5.6% -12.7% 5.2% 2.4% 2.2% 0.0% 0.0% 0.0% -0.9% 0.3% 1.9% -9.6% 2021 -0.3% 0.2% 0.9% 1.9% -0.2% 0.0% 0.0% 0.0% 0.0% 1.3% 0.0% 1.7% 5.7% 2022 -1.9% -0.7% 4.2% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 2.1% 5.8% -1.9% 7.9% 2023 0.2% -0.9% -0.0% 0.1% 0.0% 0.0% N/A N/A N/A N/A N/A N/A -0.7% Performance statistics of the timing model strategy compared to the “Buy and Hold” strategy with the same portfolio: Statistical Metric Timing Model Buy and Hold Annual Return % 0.86% 4.57% Exposure % 35.17% 99.66% Risk Adjusted Return % 2.43% 4.58% Max. drawdown -32.89% -47.77% CAR/MaxDD 0.07 0.10 Standard Deviation 11.09% 16.19 Sharpe Ratio (3% risk-free) -0.19 0.10 Improved Seasonal Timing Strategy For stocks and bonds, the original MACD trading rules are not suitable because stocks and bonds are better to buy on market corrections. Let’s inverse trading rules that are related to the MACD indicator. Improved rules will be following: Buy rule: If it is October 16 and the MACD indicator line is below its signal line, and we are out of position, then we buy the asset class on the same day at the closing price; Sell Rule: If it is April 21st and the MACD indicator line is above its signal line and we are long, then we sell the asset class on the same day at the closing price. Portfolio equity curve: Portfolio underwater curve (drawdowns, i.e. decline in value from a relative peak value to a relative trough): Portfolio monthly and annual returns: Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yr% 2007 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.3% -2.5% 3.8% 2.5% 2008 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -2.7% 5.1% 0.0% 2.3% 2009 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -2.6% 6.2% 1.7% 5.2% 2010 0.3% 0.1% -0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 1.0% -1.5% 4.4% 4.3% 2011 0.5% 0.7% 0.0% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.9% -0.1% 2.2% 2012 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -1.1% -0.2% 0.5% -0.9% 2013 0.9% 0.4% 0.8% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% -0.8% 0.6% 2.8% 2014 0.3% 0.1% -0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 1.5% 0.8% 1.3% 4.2% 2015 0.5% -0.3% 0.1% -0.1% -0.2% 0.0% 0.0% 0.0% 0.0% 0.0% -0.7% -0.3% -0.8% 2016 0.2% 0.2% 0.2% 0.1% -0.0% 0.2% 0.0% 0.0% 0.0% 0.3% -0.8% 0.5% 0.9% 2017 1.0% 1.0% 0.7% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 1.2% 0.0% 4.7% 2018 0.5% -2.0% 0.1% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% -2.8% -1.2% -1.7% -6.6% 2019 6.4% 1.8% 1.4% 1.5% -0.0% 0.0% 0.0% 0.0% 0.0% 0.7% 0.4% 1.9% 14.8% 2020 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -3.4% 8.4% 1.2% 6.0% 2021 0.3% 3.1% 1.2% 2.7% 0.0% 0.0% 0.0% 0.0% 0.0% -0.3% -3.8% 3.0% 6.2% 2022 -0.4% -0.2% -0.5% -0.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% 0.1% -1.1% -2.2% 2023 5.7% -2.9% 1.5% 0.8% -0.2% -0.0% N/A N/A N/A N/A N/A N/A 4.8% Performance statistics of the improved timing model strategy compared to the “Buy and Hold” strategy with the same portfolio: Statistical Metric Timing Model Buy and Hold Annual Return % 2.95% 4.57% Exposure % 19.62% 99.66% Risk Adjusted Return % 15.01% 4.58% Max. drawdown -13.67% -47.77% CAR/MaxDD 0.22 0.10 Standard Deviation 5.84% 16.19 Sharpe Ratio (3% risk-free) -0.01 0.10 There are individual performance stats per asset class since inception: Ticker Exposure % CAR RAR Max. Sys % Drawdown CAR/MDD Anual Standard Deviation (%) Sharpe Ratio (3% Risk-Free Rate) SPY 23.32 5.11 21.93 -16.24 0.31 8.84 0.24 EFA 19.46 5.06 26 -20.78 0.24 8.78 0.24 IYR 18.21 3.01 16.51 -33.05 0.09 10.44 0 DBC 16.74 1.74 10.41 -29.87 0.06 7.96 -0.16 BND 26.4 0.55 2.08 -10.9 0.05 2.35 -1.04 Equity curve of the best-performed asset class (SPY): Conclusion On The Seasonal Timing Strategy The improved Seasonal Timing Strategy has a high risk-adjusted return of 15.01% compared to low maximum drawdown of only 13.67% with only 19.62% time exposure. The original timing model has shown the worst performance on stocks and bonds. That’s why we improved it. This timing model is a universal model that can be used for many other portfolios comprising other asset classes and ETFs.