The yearly balanced equally weighted portfolio of four Fidelity funds and the long term treasury bond fund (FDFAX, FSCSX, FBIOX, FRESX and VUSTX/TLT) has yielded very good returns for the last twenty five years. The following figure compares its performance with that of VFINX/SPY and BRK-A as well as with an annually rebalanced portfolio of the same five fund basket wherein the weights are determined on the basis of a modified version of risk parity. The figure displays the annualized CAGRs of the portfolios that were initially funded at the beginning any month during the period 1991-todate, and held up to today. Clearly the fund based portfolios would have outperformed SPY independent of what month they were initially funded in. (By the way, this way of comparing past performance seems to be the best one, as it removes all doubt about the dependence of the returns on the starting date. Looking at the returns on the basis of just a handful of starting dates has led to a lot of unnecessary arguments on SA.)
Obviously the future performance of the portfolio relative to SPY may be entirely different, but the results suggest that this basket may prove to be a good long term investment, a conclusion that is also supported by the various performance metrics shown below.
CAGR (%) | MaxDD (%) | Sharpe | Sortino | Volatility (%) | |
---|---|---|---|---|---|
Eq. Wt. | 14.3 | 33.2 | 0.91 | 1.69 | 12.6 |
Risk Parity | 16.2 | 34.8 | 1.04 | 1.85 | 12.7 |
VFINX | 9.9 | 50.9 | 0.54 | 0.88 | 14.5 |
BRK-A | 15.7 | 44.5 | 0.68 | 1.36 | 20.6 |
This is the allocation for the annually rebalanced portfolio according to a modified risk parity method for the current year 2015 (YTD return : 4.4%, 2014 return : 27.7%)
FBIOX 13.3%
FRESX 24.4%
TLT 43.8%
FDFAX 16.9%
FSCSX 1.6%