Lazy Portfolios -- The Finals

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Includes: AGG, BWX, DBC, EEM, EFA, GLD, RWX, TIP, VB, VO, VTI
by: MyPlanIQ

We have compared the performance of fifteen buy and hold portfolios from investing luminaries. Each of the portfolios was measured for performance and we are now reducing it down to the top four which will each undergo more in depth analysis.

The returns are now presented in order of highest performance both in terms of returns and volatility.

RETURNS

Portfolio/AR(%)
1 Yr
3 Yr
5 Yr
Inception
12.49
7.40
8.99
7.31
14.27
1.73
7.67
8.38
12.54
1.61
7.44
8.26
10.76
0.17
7.11
7.40
15.55
0.80
6.41
6.16
15.10
(0.24)
6.21
7.10
10.85
0.24
6.06
6.75
12.98
(0.34)
5.64
6.72
11.69
(1.76)
5.15
5.55
15.34
(1.93)
4.74
4.66
9.23
(2.28)
4.68
4.59
0.45
(2.32)
4.54
4.48
12.45
(6.26)
3.55
6.74
8.46
(1.10)
3.48
3.59
8.63
(4.72)
0.08
3.43
Click to enlarge


DRAW DOWN RATIOS

Portfolio/DD
1 Yr
3 Yr
5 Yr
Inception
Harry Browne
5%
15%
15%
15%
Aronson
6%
30%
30%
30%
Fund Advice
9%
38%
38%
38%
Gibson
7%
38%
38%
38%
Swensen Six
8%
39%
39%
39%
Six SIB SAA
8%
39%
39%
39%
Schultheis
9%
39%
39%
39%
Seven-12
8%
40%
40%
40%
Four SIB SAA
9%
40%
40%
40%
Five SIB SAA
8%
41%
41%
41%
Scott Burns
9%
41%
41%
41%
Gone Fishin'
9%
42%
42%
42%
Wasik`s Nano
9%
44%
44%
44%
Armstrong
11%
44%
44%
44%
Lowell
16%
57%
57%
57%
Click to enlarge
The winners have been selected based on overall performance.
  • The Harry Browne portfolio is the clear leader in both categories and immediately makes it through

  • Although three SIB portfolios performed well, it is needless to have more than one represented and the six asset SIB was selected over the five asset SIB because it has better volatility properties in return for slightly lower returns

  • The next two to make it through are Swensen Six and Seven-12

Click to enlarge:

Comparison of the FinalistsClick to enlarge

Full Details

Portfolio details

7-12 is widely diversified and has similar properties to the SIBs. The asset classes are good, its lower performance at this level is likely due to the overweighting of U.S. equities and underweighting of real estate and international equities. With the range of funds, this portfolio would be ideally suited for a tactical or core-satellite strategy.

Click to enlarge:

7-12 FundsClick to enlarge
Swensen Six is a four asset class portfolio which makes it simpler and it tracks the six asset SIB very closely. This delivers good performance with a relatively simple set of funds

  • 30% Total Stock Market Index (VTSMX)

  • 20%REIT Index (VGSIX)

  • 20% Total International Stock (VGTSX) or (15% VGTSX/5% VEIEX)

  • 15% Inflation Protected Securities (VIPSX)

  • 15% Long Term Treasury Index (VUSTX)

Six SIB SAA performs well given it is such a simple portfolio. It has some undesirable volatility properties and is best suited for a tactical or core satellite strategy. In the longer term, the greater number of asset classes (including commodities) will be a hedge against continuing different market conditions
  • 12% VTSMX (Vanguard Total Market Index)

  • 12% VGTSX (Vanguard Total Intl Stock Index)

  • 12% VGSIX (Vanguard REIT Index)

  • 12% VEIEX (Emerging Markets Index)

  • 12% BDC (Commodities index)

  • 40% VBMFX (Vanguard Total Bond Market Index)

In his Fail-Safe Investing book, Harry Browne proposed this 'permanent portfolio'. A mutual fund PRPFX was constructed and named after his theory. It is a very simple portfolio
  • 25% in U.S. stocks, for returns during times of prosperity – e.g. VFINX.

  • 25% in long-term U.S. Treasury bonds for deflation protection.

  • 25% in cash in order to hedge against periods of “tight money” or recession

  • 25% in precious metals (gold) to provide protection during periods of inflation

It is extraordinary that this portfolio should come out on top, but it does. This is a very conservative portfolio with 50% of the assets in cash or fixed income and just two asset classes. Whether by luck or judgment, this portfolio has the right blend to take the best path through the storm. Gold and long term treasury bonds have defied conventional wisdom in their recent behavior and result in outstanding performance – clearly above everything else. Whether this will continue remains a question.

Still, beating everything else is tactical asset allocation with a SIB. It provides higher returns with lower volatility and demonstrates the importance of having some form of momentum modeling in an investment strategy. A core-satellite is a way of entering the market.

Takeaways

  • Harry Browne’s permanent portfolio is the clear winner of the lazy portfolios but there should be concern as to whether the conditions that has enabled it to deliver such sterling results will continue

  • Tactical asset allocation of some form should be employed as it continues to deliver higher returns with lower volatility – a core-satellite strategy may be a good way of introducing this to a portfolio

  • All of the other portfolios perform well – asset allocation is critical and is better than assembling a set of highly recommended funds with no overall asset strategy

  • ETF’s can be used to implement any of these strategies

Disclosure: None