In our last article, we looked over the prior year's returns for the Swensen 6 Lazy Portfolio. David Swensen, the Yale Endowment Investment Manager, proposed this portfolio for individual investors.
- 30% in Vanguard Total Stock Market Index [MUTF: VTSMX], (NYSE: VTI)
- 20% in Vanguard REIT Index [MUTF: VGSIX], (NYSE: VNQ)
- 15% in Vanguard Inflation Protected Securities [MUTF: VIPSX], (NYSE: TIP)
- 15% in Vanguard Long Term Treasury Index [MUTF: VUSTX], (NYSE: LQD)We made one year comparisons between:
- The original Swensen funds with an annual rebalance. Swensen himself performs a daily rebalance but that is too onerous for the general user
- The original Swensen funds with a quarterly rebalance. Normal protocol for advisors is to have a quarterly review of a portfolio and that is what this is
- The Swensen funds with the MyPlanIQ strategic asset allocation for amoderate portfolio, 40% bonds 20% in each of the other three assetclasses
- The Swensen funds with the MyPlanIQ tactical asset allocation for amoderate portfolio, 40% bonds 30% in each of the top two assetclasses or moved to fixed income (including cash)
- The Six Core Asset ETF Benchmark
Portfolio Performance Comparison
|David Swensen Six Asset Individual Investor Plan Strategic Asset Allocation Moderate||9%||109%||4%||21%||6%||31%|
|David Swensen Six Asset Individual Investor Plan Tactical Asset Allocation Moderate||9%||100%||8%||75%||11%||83%|
|P David Swensen Yale Individual Investor Portfolio Annual Rebalancing||14%||110%||5%||22%||5%||22%|
|P David Swensen Yale Individual Investor Portfolio Quarterly Rebalancing||15%||115%||5%||21%||5%||20%|
|Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate||12%||86%||8%||65%||13%||88%|
We now drill down into the first quarter of 2011 to see where differing market conditions test the portfolio's performance. As we come to the end of the QEII program, we expect to see pressure on fixed income. PIMCO recently moved more heavily into cash and fixed income has been under pressure in general for a couple of quarters. In addition, with inflation becoming a reality in the emerging world, the lack of commodities could result in a drop in returns.
We previously noted that the buy and hold portfolios outperformed the momentum portfolios over the past year. However, as we look into the end of that year (March 2010 - March 2011), we see a different picture emerging.There are a lot of moving parts as the fixed income segment is under a lot of pressure which is only exacerbated by the end of QEII. Inflation is making commodities more desirable followed by real estate and US Equities.
By looking at the current Major Asset Class Trends (note that we include Gold even though it isn't a major asset trend in its own right) we can see that Commodities are clearly leading the field. Real Estate and US Equities are running neck and neck and fixed income is at the bottom of the table.
Major Asset Classes Trend 03/11/2011
|US Equity REITs||VNQ||0.03%||-1.17%||7.18%||11.52%||22.59%||8.03%|
|US High YieldBonds||JNK||-0.52%||0.13%||4.14%||7.46%||9.42%||4.13%|
|US Credit Bonds||CFT||0.57%||1.48%||1.49%||-0.3%||5.3%||1.71%|
|Total US Bonds||BND||0.55%||1.57%||0.56%||-0.72%||2.92%||0.97%|
Comparing the different plans, they each have slightly different properties:
- The two original Swensen plans will only rebalance, there is no notion of rotating funds -- with the simplicity of the plan, this only makes sense with the fixed income portion
- The Swensen plan with TAA and SAA do have the ability to rotate fixed income funds into cash or each other with a 90 day redemption period restriction
- The Benchmark has commodities and the ability to rotate funds into cash with a 30 day redemption period
- The Six Asset Benchmark has moved all the fixed income to cash and has the risk assets in real estate and commodities.
- The Swensen TAA is in cash Real Estate and US Equities
- The Swensen SAA has 15% in cash and 15% in inflation protected (TIP, VIPSX), the balance distributed over US, international and Real Estate
The takeaways from the last quarter's review are:
Equities have still been doing well so that the buy and hold of the original Swensen portfolio with only 30% in fixed income is doing well
The benchmark still trumps the original portfolio based on exposure to Commodities and the ability to move out of fixed income into cash
The Swensen TAA and SAA portfolios are weighed down by extra fixed income exposure and not access to commodities as well as not being able to quickly move in and out of sub-classes with a 90 day holding period
Our contention is, for those who are serious about optimizing their long term investments, that you have to be involved. A lazy portfolio is appealing because you can "fire and forget" with only quarterly adjustments. However, if you want more out of your investments and you accept that conditions will change, then a portfolio with monthly adjustments is more likely to give you better returns. It's our contention that a monthly review (not necessarily requiring action every month), is about the right frequency.
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans.The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.