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We have compared the performance of fifteen buy and hold portfolios from investing luminaries (see here and here). Each of the portfolios was measured for performance against SIBs and their relative merits examined. We now move into a playoff round where we will compare the portfolios with each other and see if we can find an eventual winner and look at why they won and what we can learn from this.

When we were testing the portfolios against SIBs, we introduced a tactical asset allocation strategy which usually turned out to have the best performance. For this series of peer comparisons, we are only going to use a buy and hold strategy. When we find the eventual winner, we will then perform a final comparison with tactical asset allocation and see what we conclude.

The portfolios have been sorted alphabetically and we are going to start with the top part of the alphabet. The portfolios will be listed by decreasing number of asset classes and decreasing number of funds. We would expect that the portfolio with the greatest number of asset classes to have the highest returns and we will test that to see to what extent it is true.

Table of Lazy Portfolios and their classes and funds

Portfolio

Classes

Funds

ETF Equivalent

Fund Advice

5

11

Y

Gibson

5

6

y

Five SIB SAA

5

5

Y

Aronson

4

11

y

Armstrong

4

7

y

Four SIB SAA

4

4

Y

Burns/Tobias

3

3

Y

  • Paul Merriman's FundAdvice.com website has indexed porfolios for several fund companies. The basic strategy is the same as with all the other Lazy Portfolios, here with 11 no-load index funds

  • Gibson's 5 Equal Asset Allocation Strategy comes from Roger Gibson’s widely read "Asset Allocation: Balancing Financial Risks.”

  • The MyPlanIQ five asset SIB has index funds for each of the asset classes represented and rebalances monthly – this is primarily a benchmark portfolio

  • Ted Aronson and his AJO Partners manage about $25 billion of institutional assets. Aronson puts his family's taxable money in this well-diversified portfolio of no-load index funds

  • Frank Armstrong, author of The Informed Investor, proposed his portfolio for an MSN Money article

  • The MyPlanIQ four asset SIB has index funds for each of the asset classes represented and rebalances monthly – this is primarily a benchmark portfolio

  • Scott Burns has covered personal finance and investments for nearly 40 years and ranks as one of the most widely read personal finance writers in the country/ Andrew Tobias, a Harvard alum and writer of 12 books including The Only Investment Guide You'll Ever Need.


Table of Lazy Portfolios and their Annual Returns

Portfolio/AR(%)

1 Yr

3 Yr

5 Yr

Inception

Five SIB SAA

14.27

1.73

7.67

8.38

Four SIB SAA

10.76

0.17

7.11

7.40

Fund Advice

10.85

0.24

6.06

6.75

Armstrong

11.69

(1.76)

5.15

5.55

Burns/Tobias

0.45

(2.32)

4.54

4.48

Aronson

8.46

(1.10)

3.48

3.59

Gibson

8.63

(4.72)

0.08

3.43

The returns are now presented in order of highest to lowest of the five year returns. How do the returns compare to what we would have expected.

  • There was a wider spread than expected on the four and five asset class portfolios and the Burns/Tobias three asset class, three fund portfolio performed better than expected

  • A five asset class portfolio came out on top – that was expected. The fact that an index based portfolio won out it also not surprising as index funds often outperform funds with active management

  • The fact that a four asset portfolio beat a five asset portfolio demonstrates that picking the right funds in an asset class is important and that index funds deliver good results

  • For a very simple three asset portfolio, the Burns/Tobias performance came higher in the league table

  • The most surprising result is that the Gibson portfolio performed so poorly. When breaking down the long term results of this portfolio, the selection of asset classes has given the portfolio a modest return with a low drawdown index. In the significant market downturn over the past few years, it suffered (as did most buy and hold strategies) badly and has returned to its modest gains whereas other portfolios have had a higher drawdown ratio but a faster recovery

Table of Lazy Portfolios and their Draw Down Ratios

Portfolio/DD

1 Yr

3 Yr

5 Yr

Inception

Aronson

6%

30%

30%

30%

Fund Advice

9%

38%

38%

38%

Gibson

7%

38%

38%

38%

Four SIB SAA

9%

40%

40%

40%

Five SIB SAA

8%

41%

41%

41%

Scott Burns

9%

41%

41%

41%

Armstrong

11%

44%

44%

44%

We list the draw down ratios for each of the portfolios and it’s clear that with the recent turbulence, all of them are higher than would be desired.

We will select the top two – which are the four and five asset SIBs to move to the final round where they will be put against the best two funds from the bottom half of the alphabet.

Takeaways

  • Asset classes and number of funds in each class are an indicator of better returns but it’s not the only thing

  • Index funds continue to show good results against managed funds

  • or those investing in the very long term, looking at the draw down index is important because it will help you live with the fund selection you have made

  • ETFs can be used to implement any of these strategies

Disclosure: No positions

Source: Lazy Portfolios - The Playoffs