Lack of REITs and Commodities Now Shows in Bernstein's No-Brainer Portfolio's Performance

by: MyPlanIQ

The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments and the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

We continue to examine luminary portfolios to see what we can learn and use to further our investment portfolios.

Dr. William Bernstein is the author of the "Intelligent Asset Allocator" and "The Four Pillars of Investing." He's also a physician, neurologist and financial adviser to high-net-worth individuals.
He has proposed a number of lazy portfolios. The no-brainer portfolio comprises the following fund allocation
  • 25% in Vanguard 500 Index VFINX (NYSEARCA:IVW)
  • 25% in Vanguard Small Cap NAESX or VTMSX (NYSEARCA:VB)
  • 25% in Vanguard Total International VGTSX or VTMGX (EFA, VEA)
  • 25% in Vanguard Total Bond VBMFX or VBISX (NASDAQ:BND)
This is a simple to understand portfolio -- it has three asset classes and is heavily weighted towards US equities.
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 6 asset SIB (Simpler Is Better) plan .
This SIB plan has the following candidate index funds and their ETFs equivalent: US Equity: SPY or VTI
Commodity: DBC
Foreign Equity: EFA or VEU
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND

Portfolio Performance Comparison

Portfolio/Fund Name

1Yr AR

1Yr Sharpe

3Yr AR

3Yr Sharpe

5Yr AR

5Yr Sharpe

Bernstein No Brainer 10% 73% 4% 23% 5% 21%
Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate 10% 71% 9% 73% 13% 91%
Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate 13% 103% 3% 20% 7% 35%

The Bernstein No-Brainer portfolio is a simple three asset class portfolio that has performed remarkably well over the past year and reasonably over five years. When compared with a six asset buy and hold portfolio it is only a couple of points behind. We can see that with the bull market in US equities over the past few months, it has continued to perform well.
However, the lack of access to real estate and commodities has caused it to drop underneath the more diversified portfolios.
  • The Bernstein No-Brainer lazy portfolio has good returns for such a simple instrument but can be beaten
  • Having broader diversification pays off as market conditions change
  • ETFs can readily be used to implement these portfolios with good performance
  • A 8% spread on five year ARs means that it’s worth looking at alternatives
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 am long DBC.