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  • JNJ Or Fidelity Health/Biotech Funds

    The following figure shows a comparison of the CAGRs of Buy and Hold portfolios of (1) Fidelity health related funds: FSPHX, FBIOX and FPHAX and (2) JNJ.

    For every month during the period of interest, with the assumption that the portfolio was initiated at the last trading day of the prior month, and held till the end of the period, the CAGR of the portfolio was computed.

    The fund portfolio was rebalanced to be equal weight at the end of every year. For years prior to 2002 (the date of inception of FPHAX) only the other two funds were used.

    From the figure it is clear that no matter which month the portfolios were initiated in, the CAGR of the funds portfolio was higher than that of JNJ, very often by significant amounts.

    (click to enlarge)

    Oct 15 9:17 PM | Link | 9 Comments
  • Historical Performance Of Some Portfolios During The Withdrawal Phase

    These are some results for the withdrawal phase for retirees who commenced their retirement in any year since 1987 thru 2014 with the following withdrawal schedule:

    1. Withdraw 4% of the portfolio value on January 1 of the year of retirement.

    2. In subsequent years, at the beginning of the year, prior to rebalancing the portfolio if necessary, withdraw the previous year's withdrawal amount incremented by the previous year's inflation rate.

    The portfolios considered are:

    1. SP500 with dividends (MUTF:VFINX).

    2. Mid cap value (MUTF:FDVLX)

    3. 30% VFINX, 30% FDVLX, 40% Aggregate Bond Fund (MUTF:VBMFX)

    4. 30% VFINX, 30% FDVLX, 20% VBMFX, 20% Long Term Treasury Fund (MUTF:VUSTX)

    5. 60% FDVLX 40% VUSTX

    The first figure depicts the compound annual growth rate (Net CAGR) of the portfolio net of withdrawals computed for the period starting in the year of retirement thru 2014. Note that except for the VFINX, Net CAGR is always positive. Thus, although the VFINX portfolio would have sustained the withdrawal schedule, for retirement beginning in some of the years around 2000, the portfolio value at the end of 2014 would have been lower than its starting value. For every other portfolio, if the retirement commenced in any year starting in 1987-2014, at the end of 2014 the portfolio value would be higher than the starting value.

    (click to enlarge)

    In the following figure are shown the maximum excess (beginning of the year) drawdowns for various portfolios. This quantity is defined to be the difference between the initial starting value of the portfolio and its lowest value at the time of withdrawal in any of the subsequent years, less 4%, as at best 4% will be the drawdown of the portfolio at the beginning of retirement. Clearly the excess drawdowns of the all equity portfolios will be unacceptable for most retirees. However, for the 60/40 portfolios, the excess drawdowns appear to be a good measure of what can be expected from well constructed portfolios. (For example, the portfolio of JNJ, MCD, CL, KO and PG with the same withdrawal schedule would have had the maximum excess drawdown of about 24%, similar to the 20% for the 60/40 portfolios.). (click to enlarge).


    Apr 30 10:05 AM | Link | 4 Comments
  • A Five Fund Basket For The Long Haul

    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.)

    (click to enlarge)

    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 (%)SharpeSortinoVolatility (%)
    Eq. Wt.14.333.20.911.6912.6
    Risk Parity16.

    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%

    Jan 18 3:18 PM | Link | 27 Comments
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