Today, I'll present “the short version” of the results from the minimum mean-absolute deviation portfolio.
My data set (i.e. universe) consists of the past 252 daily adjusted closing prices for the following assets in each of the following classes:
- Fixed-Income/Bond Assets (TIP, SHY, IEF, TLT, AGG)
- Commodities (IAU, SLV, GSG, BDC, USO)
- Global Equities/Emerging Markets (FXI, EFA, EEM, IEV, IOO)
- US Equities (OEF, IVV, ISI, IYY, JKD, [JKG, JKJ)
- Leveraged Assets (i.e. Double Longs) (DDM, SSO, QLD, MVV)
- Inversely Correlated Assets (i.e. Shorts) (DOG, SH, PSQ, MYY)
- Inversely Correlated and Leveraged Assets (i.e. Double Shorts) (DXD, SDS, QID, MZZ)
- US Equity Sectors (XLF, IYM, XLE, VNQ, XLI, XLY, SMH)
My model constraints:
- Target Portfolio Return (annualized) = 10.00%
- Maximum Allowable Number of Assets allowed in Portfolio = 5
- Maximum Allocation for Single Asset = 100.00%
- Maximum Allowable Number of Bond Assets = 1
- Maximum Allowable Allocation in Bonds = 60.00%
- Maximum Allowable Number of Commodity Assets = 1
- Maximum Allowable Allocation in Commodity Assets = 10.00%
- Maximum Allowable Number of Short/Leveraged Assets = 1
- Maximum Allowable Allocation in Short/Leveraged Assets = 10.00%
- Maximum Allowable Number of Sector Rotation Assets = 2
- Maximum Allowable Allocation in Sector Rotation Assets = 20.00%
Today's results for the MAD portfolio:
Exchange Traded Fund Name
iShares Barclays 1-3 Year Treasury Bond Fund
iShares Silver Trust
iShares Morningstar Mid Core Index Fund
ProShares UltraShort S&P500
SPDR Consumer Discretionary Select Sector Fund
Target Portfolio Return/Standard Deviation (annualized) = 10.00%/3.24%
Benchmark (S&P500) Estimated Return/Standard Deviation (annualized) = 23.50%/17.23%
- Performance results are annualized based on 252 trading days worth of adjusted daily returns. Other analysis periods will yield different results.
- Weights are not dependent on the initial investment.
Had we allocated our money into the assets listed above 252 days ago, our performance would have looked something like this (click to enlarge):
Today's pick summary:
The bond pick has changed from the iShares Barclays Aggregate Bond ETF (AGG) back to iShares Barclays 1-3 Year Treasury Bond ETF (SHY). The bond pick from this model portfolio has been regularly bouncing between the AGG and SHY, with the proportion in bonds remaining at the maximum allowed allocation of 60%. As the threat of rising prices, inflation, and possibility of sovereign debt defaults increases, the future seems to belong to those who wait and see in cash. Emerging market bonds anyone? Regardless, the current hindsight monitor has this portfolio in 60% bonds.
The commodities pick remains the iShares Silver Trust ETF (SLV) and the allocation has increased from last week's 8.01% to 9.29% this week, but the estimated annualized return has dropped from 102% to 97%. While the gold ETF (IAU) is still a great performer over the previous year, it's performance still isn't touching SLV.
The US Equities pick remains the iShares Morningstar Mid Core Index ETF (JKG) with the weight going from last week's 15% down 5 percent to 10.77% this week, it still looks like a solid performer. It still looks like the mid/small core ETFs have given the best returns given the equity risk premium. As emerging market performance wanes, emerging market bond assets continue to these funds might continue to outshine their larger cap brethren. Might.
The short/leveraged position (SDS) continues to remaining steady at about 9% for the past few months. While nobody I speak with is a fan of the “Put 10% of your nest egg into a loosing bet” camp, this might be a good segue for the covered call tactic. If any reader is interested in working on this with me, please send a message to email@example.com.
Finally, the sector rotation pick has switched from 7.13% Semiconductor HOLDRs (SMH) back to 10.76% Consumer Discretionary Select Sector SPDR ETF (XLY). These two assets have been neck-and-neck for a place in the portfolio with the allocation between 7% and 10% during the past few months. Recall, that with these assets, we're looking for a tactical allocation pick and I'm not comfortable applying my lazy once-a-month method just yet. Stay tuned.
Thanks for your time.
Disclosure: I am long SLV, IAU, EEM, AGG, SH.