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  • Two Tri-Annually Updated Portfolios 15 comments
    Feb 4, 2013 3:36 PM

    A simple strategy that updates the portfolios every four months has the potential of yielding high returns for two portfolios considered here.

    The two baskets are : (i) a portfolio of seven PIMCO funds: PIXDX, PIPDX, PETDX, PCRDX, PTTDX, PFSDX and PSSDX, and (ii) a basket of energy/energy infrastructure MLPs with the highest capitalization: WPZ, SXL, RNF, PAA, NS, MWE, KMP, EXLP, FGP, DPM, BPL, BBEP, and BWP.

    Three times a year (first trading days of January, May and September) invest in the two assets whose performance was the best during the immediately preceding quarter. Since the MLP basket consists of assets which are correlated, for MLPs, one or both of the selected MLP were replaced by TLT if their performance was not as good as TLT during the prior quarter.

    The performance of the strategy applied to the two portfolios for the period 2004-2013 is shown in the following table:

    Performance Measures

    PIMCO Funds

    MLP Portfolio

    CAGR

    25%

    32%

    Monthly drawdown

    16%

    20%

    Sharpe Ratio

    1.17

    1.18

    Kelly Fraction

    .49

    .46

    Average Annual Return

    27%

    35%

    95% Lower Bound on Annual Return

    14.6%

    16.7%

    Two Factor Alpha (Monthly)

    1.7%

    2.15%

    Two Factor Beta (Monthly)

    .27

    .38

    Two Factor R^2

    .07

    .05

    Although the monthly draw-downs are quite substantial, they are compensated by high returns as reflected in the high values of the estimates of the 95% lower bound on the average annual returns (computed on the basis of the monthly returns). Further, the low betas and high alphas cannot be used as definitive measures of performance as R^2 is quite low.

    The asset allocation diagrams and the portfolio curve for the two portfolios are shown in the figures below.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    Disclosure: I am long PAA, SXL.

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Comments (15)
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  • MrBobDobalina
    , contributor
    Comments (69) | Send Message
     
    Another excellent post, Varan. Good stuff. Really simple and easy to follow. A realistic way to beat the market averages over time.
    (Although it will undoubtedly underperform buying and holding TQQQ - ha).

     

    I'm curious if you did 50% in each strategy how the numbers would look? Looks like poor performances the first 1/3 of 2009 and the middle 1/3 of 2010 would be offset by the other portfolio. Middle 1/3 of 2011 would still look like a drawdown for both. But that's about all I can see from the graphs.
    4 Feb 2013, 04:07 PM Reply Like
  • varan
    , contributor
    Comments (4471) | Send Message
     
    Author’s reply » Thanks.

     

    Merging the two yields a CAGR of 29%. As expected, the monthly drawdown reduces to 13%, and the Sharpe Ratio and the Kelly faction both increase to 1.4 and .56. Pretty good.
    4 Feb 2013, 04:15 PM Reply Like
  • MrBobDobalina
    , contributor
    Comments (69) | Send Message
     
    Yeah, pretty good. Thanks for sharing your ideas. It's very useful. You're always creative. The tri-annual portfolio adjusting is very interesting.
    4 Feb 2013, 04:38 PM Reply Like
  • littletiger101
    , contributor
    Comments (9) | Send Message
     
    nice to have another clean and simple strategy from you posting on SA. i did follow MLP since oct.
    4 Feb 2013, 10:41 PM Reply Like
  • littletiger101
    , contributor
    Comments (9) | Send Message
     
    "Three times a year (first trading days of January, May and September)
    invest in the two assets whose performance was the best during the
    immediately preceding quarter."

     

    so, on 01/01/2013. invest on the top 2 performers from 10/01/2012-12/31/2012, right? or evaluation period from
    9/01/2012/-12/31/2012?
    5 Feb 2013, 12:48 PM Reply Like
  • varan
    , contributor
    Comments (4471) | Send Message
     
    Author’s reply » For 1/1/2012 9/30/2011 thru 12/31/2011
    For 5/1/2012 1/31/2012 thru 4/30/2012
    For 9/1/2012 5/31/2012 thru 8/31/2012

     

    For 9/1 actually read first trading day of the month of September.
    For 5/31 actually read last trading day of the month of May, and so on.
    5 Feb 2013, 01:16 PM Reply Like
  • MrBobDobalina
    , contributor
    Comments (69) | Send Message
     
    It would seem this should work reasonably well with any diversified group of funds. Fidelity, Franklin-Templeton, TIAA-CREF (maybe), the funds in your 401k perhaps? There shouldn't be anything special about the PIMCO Funds, right?
    5 Feb 2013, 02:22 PM Reply Like
  • varan
    , contributor
    Comments (4471) | Send Message
     
    Author’s reply » I tried it with the 'Yale Endowment Portfolio' described here:

     

    http://seekingalpha.co...

     

    and the returns with VNQ, EDV, EFA, VTI, and GLD are pretty good and they improve if you uses IYR instead of VNQ.
    5 Feb 2013, 04:17 PM Reply Like
  • Market Map
    , contributor
    Comments (473) | Send Message
     
    Thanks Varan, do you have a spreadsheet representation of all of the trades ? ?
    8 Feb 2013, 09:52 AM Reply Like
  • leebailey85
    , contributor
    Comments (78) | Send Message
     
    Only problem with any strategy that holds assets less than a year is you will be stuck with a massive tax burden of up to 39.6%. That is really killer. Of course, if the 32% CAGR actually holds up, even with the 39.6% tax rate, the CAGR becomes 20.4%. That beats your 14.7% CAGR from the Permanent Dividend Growth portfolio but requires more effort (though still not very much).

     

    However, permanent dividend growth portfolio has a lot more evidence that it can continue to maintain the 14.7% CAGR given that it was based on years 1997-2012. I think I may go 50% MLP trianually updating and 50% permanent dividend growth portfolio. Thoughts?
    11 Mar 2013, 06:25 AM Reply Like
  • berloe
    , contributor
    Comments (1920) | Send Message
     
    Lee,
    What Permanent dividend growth portfolio are you referring to?
    Thank you.
    4 Apr 2014, 09:49 AM Reply Like
  • varan
    , contributor
    Comments (4471) | Send Message
     
    Author’s reply » So far this year

     

    MLP 35.3%

     

    SXL 1/01/2013 TO 5/01/2013 18.17%
    PAA 1/01/2013 TO 5/01/2013 22.34%
    EXLP 5/01/2013 TO 7/19/2013 6.35%
    BPL 5/01/2013 TO 7/19/2013 18.65%

     

    PIMCO 9%

     

    PIPDX 1/01/2013 TO 5/01/2013 11.18%
    PETDX 1/01/2013 TO 5/01/2013 13.87%
    PETDX 5/01/2013 TO 7/19/2013 -12.57%
    PIXDX 5/01/2013 TO 7/19/2013 6.29%
    20 Jul 2013, 01:57 AM Reply Like
  • varan
    , contributor
    Comments (4471) | Send Message
     
    Author’s reply » MLPs continue to perform quite well.

     

    2013 Return 34.8%
    YTD 21.8%

     

    This year's trades: 2014/1/2 NS and SXL 2014/5/1 NS and SXL

     

    PIMCO funds have been lackluster.

     

    2013: 6.8%
    2014: 3.6%

     

    This year's trades: 2014/1/2 PIXDX and PETDX 2014/5/1 PETDX and PCRDX
    3 May 2014, 04:01 PM Reply Like
  • varan
    , contributor
    Comments (4471) | Send Message
     
    Author’s reply » On 9/2 the top three ranked MLPs were MWE, KMP, and NS. I bought MWE, and NS, as KMP has been a part of reorganization within the Kinder group.

     

    YTD Returns 39.6%

     

    The PIMCO funds continue to under-perform.

     

    9/2 Selections were PETDX and PIXDX.

     

    YTD return 3.5%.
    11 Sep 2014, 02:11 AM Reply Like
  • varan
    , contributor
    Comments (4471) | Send Message
     
    Author’s reply » PIMCO selections really collapsed in Q4, 2014. 2014 return was -12%.

     

    MLPs were helped by the outsize return in Q1 and Q2. 2014 return was 23%, better than AMLP, and AMJ, but eclipsed by the 36% return of KED.

     

    For Q1 2014, the MLP strategy has selected TLT for obvious reasons. I am dropping the PIMCO strategy.
    4 Jan, 12:36 PM Reply Like
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