Further Analysis Of The 40 Stock Portfolio [View article]
BlueOkie,
Yes, the projected Return is plotted on the y-axis and Risk (Volatility or Standard Deviation) is plotted on the x-axis. The developer of the software I am using titles the x-axis as Volatility as the term conveys more meaning than Risk. The risk-free percentage I used for the above calculations was 0.09% and the projected return for the VTSMX was 7.0%. I prefer VTSMX to the S&P 500 at is is a broader measurement of the market and sets a higher bar.
A lot of calculations go into creating the efficient frontier graph, but it is highly dependent on the assets used to create the portfolio. The original analysis of the 40 stocks was posted in an earlier blog post over at ITA Wealth Management. In addition to the individual securities, constraints are placed on each asset class and each individual security. The software operates off these two sets of constraints with the asset class constraint taking precedent. For the individual stocks, I used a maximum constraint of 10%.
Yes, the Return and Volatility are bound together, but it is possible, with a lot of care and analysis, to increase the Return/Volatility ratio.
I am using a modification of the rotation system. For example, I use a 33-Day review period instead of end of the month. This shifts the potential transactions throughout the month so that end-of-the month market action has less impact. There are other advantages to this system that I go into on my blog.
Another change I make is to use the 195-Day Exponential Moving Average instead of the 10-month simple moving average. Again, I think there are several advantages to using the EMA.
A third change employs a momentum factor. From time to time I also discuss this on my blog.
I prefer to be invested in more than three or six ETFs. Again, it is a individual preference. I use the TLH Spreadsheet to track both performance and risk factors of the portfolio.
'Delta Factor' Projections For Sector ETFs [View article]
Jweissman,
While I cannot give you the correlation value between RSI and BPI, there is a strong relationship. The RSI, as I have it set, seems to be faster acting, or moves quicker than BPI. When it comes to the Bullish Percent Index, I pay most attention to what the NYSE is doing. When it comes to specific securities, I look at the RSI and "Delta Factor" indicators.
If one looks at RWX (#3) and VNQ (#4) you will note that both ETFs showed nearly identical growth percentages over the past 91 days. However, RWX had a greater growth percentage over the past 182 days, 14.6% vs. 12.2% for VNQ. In other words, RWX did not have the same momentum moving from the 182-day to 91-day period. That is why it receives a lower momentum percentage rating compared to VNQ. I hope I am making this a little clearer. It is not the absolute values that are critical, but rather the rates of change that determine momentum
Number 1 ETF, VHT, grew at 11% over the last 91 days and 14% in the last 182 days whereas number 2 ETF, VPU, grew at 14.2% in the last 91 days and 10.3% over the last 182 days. With those differences momentum of VPU is significantly greater than is the momentum of VHT.
VHT still ranks number 1 due to weighting factors of both performance and volatility.
Passive Investing Works: A 12-Year-Old Example [View article]
Having a plan does not exclude a portfolio from being passively managed. All portfolios (investors) have a plan, even if it is to not have a plan. As the saying goes, "To not plan is to have a plan."
Updating takes place when dividends are reinvested and rebalancing takes place. I review each portfolio I track every 33 days. Many times a review ends up putting the portfolio into "neglect mode" for another 33 days.
This blog post helps to distinguish the difference between active, index, and passive investing.
Seeking Alpha picked this article off my blog, something they have the right to do. No, you are not doing anything wrong. I thought a Guest membership gave you access to the Comments. Let me see if I can find the equation, but I'm not sure it will be useful without the complete worksheet. Here is the equation.
Dividend Aristocrats: Optimizing High Yielders [View article]
Ryan,
The difficulty with back-testing the optimized portfolio is that it is changing from month to month. I review and update portfolios I track on ITA ( http://bit.ly/rfwO89 ) every 33 days and at that time I make decisions what securities to sell and which to buy. Months can go buy with no recommended changes.
Asset Allocation: Working With Optimizer [View article]
TAS,
I assume you are referring to PRPFX and PAGRX? The latter does not keep up with the market index over the last five years and the former is lagging over the last two years - but does better over a longer period.
Asset Allocation: Working With Optimizer [View article]
heartky,
The projected return for a portfolio with a similar asset allocation is projected to return about 100 basis points above the S&P 500. I use two different software programs to come up with these projections.
As for verification, that needs to wait to see how the investments pan out over the coming years. I do have accurate records for one portfolio going back over 13 years and that portfolio has outperformed the VFINX index fund by 1.8% annually and the VTSMX index fund by 1.1% annually. The asset allocation is not exactly the same as the above allocations to not show how one might favor value over growth. The 13-year portfolio is skewed toward value and it does not hold precious metals, so there are some differences.
I'm not so much interested in back-testing asset allocation plans as one can always set up in-sample data plans that work well. The quest is to set up a plan that will work well with out-of-sample data. Eleven portfolios are tracked on the ITA Wealth Management blog site to see how well these allocation plans perform over a number of years.
Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
I don't pay much attention until a portfolio comes up for review every 33 days. Then I look at the IRR and compare it with several benchmarks, the most important one being the ITA Index, a customized benchmark designed for every portfolio I track at ITA.
Further Analysis Of The 40 Stock Portfolio [View article]
Yes, the projected Return is plotted on the y-axis and Risk (Volatility or Standard Deviation) is plotted on the x-axis. The developer of the software I am using titles the x-axis as Volatility as the term conveys more meaning than Risk. The risk-free percentage I used for the above calculations was 0.09% and the projected return for the VTSMX was 7.0%. I prefer VTSMX to the S&P 500 at is is a broader measurement of the market and sets a higher bar.
A lot of calculations go into creating the efficient frontier graph, but it is highly dependent on the assets used to create the portfolio. The original analysis of the 40 stocks was posted in an earlier blog post over at ITA Wealth Management. In addition to the individual securities, constraints are placed on each asset class and each individual security. The software operates off these two sets of constraints with the asset class constraint taking precedent. For the individual stocks, I used a maximum constraint of 10%.
Yes, the Return and Volatility are bound together, but it is possible, with a lot of care and analysis, to increase the Return/Volatility ratio.
Lowell
Optimizing The "Ivy 20" Portfolio [View article]
I am using a modification of the rotation system. For example, I use a 33-Day review period instead of end of the month. This shifts the potential transactions throughout the month so that end-of-the month market action has less impact. There are other advantages to this system that I go into on my blog.
Another change I make is to use the 195-Day Exponential Moving Average instead of the 10-month simple moving average. Again, I think there are several advantages to using the EMA.
A third change employs a momentum factor. From time to time I also discuss this on my blog.
I prefer to be invested in more than three or six ETFs. Again, it is a individual preference. I use the TLH Spreadsheet to track both performance and risk factors of the portfolio.
Lowell
'Delta Factor' Projections For Sector ETFs [View article]
While I cannot give you the correlation value between RSI and BPI, there is a strong relationship. The RSI, as I have it set, seems to be faster acting, or moves quicker than BPI. When it comes to the Bullish Percent Index, I pay most attention to what the NYSE is doing. When it comes to specific securities, I look at the RSI and "Delta Factor" indicators.
Lowell
Passive Investing Works: A 12-Year-Old Example [View article]
In other words, the 8.6% return was a real portfolio that you held from 2000-2013. Correct?
Lowell
Ranking Critical ETFs [View article]
If one looks at RWX (#3) and VNQ (#4) you will note that both ETFs showed nearly identical growth percentages over the past 91 days. However, RWX had a greater growth percentage over the past 182 days, 14.6% vs. 12.2% for VNQ. In other words, RWX did not have the same momentum moving from the 182-day to 91-day period. That is why it receives a lower momentum percentage rating compared to VNQ. I hope I am making this a little clearer. It is not the absolute values that are critical, but rather the rates of change that determine momentum
Lowell
Passive Investing Works: A 12-Year-Old Example [View article]
Lowell
Ranking Critical ETFs [View article]
Number 1 ETF, VHT, grew at 11% over the last 91 days and 14% in the last 182 days whereas number 2 ETF, VPU, grew at 14.2% in the last 91 days and 10.3% over the last 182 days. With those differences momentum of VPU is significantly greater than is the momentum of VHT.
VHT still ranks number 1 due to weighting factors of both performance and volatility.
Lowell
Passive Investing Works: A 12-Year-Old Example [View article]
Updating takes place when dividends are reinvested and rebalancing takes place. I review each portfolio I track every 33 days. Many times a review ends up putting the portfolio into "neglect mode" for another 33 days.
This blog post helps to distinguish the difference between active, index, and passive investing.
http://bit.ly/XRUzTM
I don't know what an actively managed portfolio would look like as every active managers makes different decisions.
Lowell
Ranking Critical ETFs [View article]
Seeking Alpha picked this article off my blog, something they have the right to do. No, you are not doing anything wrong. I thought a Guest membership gave you access to the Comments. Let me see if I can find the equation, but I'm not sure it will be useful without the complete worksheet. Here is the equation.
=IF(C8>0,2*((Q8-S$1...
Lowell
Ranking Critical ETFs [View article]
That equation is posted on my blog in some recent comments. There is also a little discussion surrounding this calculation.
You may need to be registered as a Guest to see the comments.
Lowell
http://bit.ly/rfwO89
Dividend Aristocrats: Optimizing High Yielders [View article]
The difficulty with back-testing the optimized portfolio is that it is changing from month to month. I review and update portfolios I track on ITA ( http://bit.ly/rfwO89 ) every 33 days and at that time I make decisions what securities to sell and which to buy. Months can go buy with no recommended changes.
Lowell
Asset Allocation: Working With Optimizer [View article]
I assume you are referring to PRPFX and PAGRX? The latter does not keep up with the market index over the last five years and the former is lagging over the last two years - but does better over a longer period.
Lowell
Asset Allocation: Working With Optimizer [View article]
The projected return for a portfolio with a similar asset allocation is projected to return about 100 basis points above the S&P 500. I use two different software programs to come up with these projections.
As for verification, that needs to wait to see how the investments pan out over the coming years. I do have accurate records for one portfolio going back over 13 years and that portfolio has outperformed the VFINX index fund by 1.8% annually and the VTSMX index fund by 1.1% annually. The asset allocation is not exactly the same as the above allocations to not show how one might favor value over growth. The 13-year portfolio is skewed toward value and it does not hold precious metals, so there are some differences.
I'm not so much interested in back-testing asset allocation plans as one can always set up in-sample data plans that work well. The quest is to set up a plan that will work well with out-of-sample data. Eleven portfolios are tracked on the ITA Wealth Management blog site to see how well these allocation plans perform over a number of years.
Lowell
Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
Lowell
Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
Check out my blog for more information. The URL is the following.
http://bit.ly/rfwO89
Search for Hoadly, optimization, and optimizer. That should take you to critical blog posts.
Lowell