Risk Managed Portfolio - December 2019 Update

Summary

• Lower risk funds with higher risk adjusted returns were used to create six model portfolios to maximize the Sortino Ratio (Risk Adjusted Returns) for the past two years.
• One portfolio with 10 funds is created for each of Vanguard and Fidelity mutual funds along with mutual funds available through Charles Schwab, exchange traded funds and closed end funds.
• A portfolio is created to maximize the Sortino Ratio for the one and two year time periods.

Introduction

It has been a challenging year for the global economy in 2019, and 2020 is not shaping up to be much, if any, easier. We project global GDP growth will be 3.0% this year, which would be the slowest pace of growth since the global recession of 2008 and 2009. For 2020, we do not expect any firming in activity, but rather expect global GDP growth to hold steady at 3.0%. Several factors—by sector, industry and geography—are combining to restrain the performance of the global economy.

- 2020 International Economic Outlook, Wells Fargo

For this article, I created seven portfolios of lower risk funds with higher risk adjusted returns that are trending. The funds were selected using Mutual Fund Observer Premium Search based on my Ranking System. The funds were optimized to maximize the risk adjusted return (Sortino Ratio) using Portfolio Visualizer since January 2018 when the markets began rotating to late stage funds.

Let's begin with an overview of the seven portfolios. Table #1 contains the metrics for the seven portfolios. Fidelity, Vanguard and Charles Schwab are mutual funds only. The Combined Portfolio was created using the best funds of each portfolio and the Sortino Ratio optimized over the past two years as interest rates were both rising and falling. The Short-Term Portfolio is based on funds that have been trending higher over the past 3 months and optimized over the past 12 months. The portfolios are sorted from the highest risk adjusted return (Martin Ratio from Mutual Fund Observer Portfolio) to the lowest.

Table #1: Portfolio Summary

Portfolio	APR	MAXDD	Ulcer Index	MFO Risk	Martin Ratio	Yield	GO Count
Short-Term	14.9	-0.9	0.3	2	48.0	3.4	5
Combined	13.5	-4.6	1.4	2	8.2	2.1	8
Charles Schwab	9.7	-4.9	1.4	2	5.5	2.3

Analyst’s Disclosure:I am/we are long FCBFX, FPNIX, FRIFX, PONAX, PRSNX, VMNVX, VTABX, VWELX, VWIAX, BTAL, JABAX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am an engineer with an MBA nearing retirement and not an economist nor an investment professional. The information provided is for educational purposes and should not be considered as advice. Investors should do their due diligence research and/or use an investment professional. In September 2019, I began contributing to the Mutual Fund Observer monthly newsletter.