Performance Of Low-Risk Vanguard Portfolio Year To Date
Summary
- The February Vanguard Model Portfolio is updated with the recent data from turbulent markets to see how it has held up.
- Mutual Fund Observer Risk and Performance Metrics are updated through February.
- I have combined the February Model Portfolio with my own portfolio and plan to use it as a target portfolio.
Introduction
Monday was an enlightening day with the S&P 500 falling 7.6%, real estate falling 4% to 5%, corporate bonds falling 0.8% to 2%, and gold was not much protection. Tuesday was a choppy day with the S&P 500 rising 4.9%. As I conclude this article, Wednesday stock futures appear set to continue the roller-coaster ride. Granted, coronavirus and oil price wars are serious matters, but in my opinion, high frequency trading is a major contributor to the recent volatility.
Last month, I wrote, Developing A Low-Risk Vanguard Portfolio For This High-Risk Environment which built a lower-risk model portfolio containing roughly 40% stocks. Vanguard advocates a globally diversified portfolio. Their philosophy is:
Although the asset allocation decision is one of the cornerstones for achieving an objective, it only works if the allocation is adhered to over time and through varying market environments.
Investment Model
I vary my allocation according to the business cycle as shown in Chart #1. The model is built using over 30 main indicators which show slowing orders, production, and shipping. The current allocation (dark blue line) to stocks is near my minimum of 20%. Most data from the impacts of the coronavirus are not yet available. My base case is that there will be a slow down in the economy for a couple of quarters, but then the global economy will resume its path of recovery. I remain conservative until the direction is more firmly established. A recession is possible, but with global low interest rates and fiscal stimulus, it may be enough to avoid a recession, depending upon the extent of the coronavirus and oil price wars.
Chart #1: Investment Model
Source: Author
Mutual Fund Observer
Each month, I extract about a thousand funds using Mutual Fund Observer and rank them based on Risk, Risk-Adjusted Return, Momentum, Income, and Quality (Valuation, Performance in Recessions, Bond Ratings). Below are the top 24 Vanguard Mutual Funds. In Table #1, Rank is my Ranking System. MFO Risk is the Mutual Fund rank for risk with "1" being low and "5" being high. MFO Rank is the Mutual Fund Observer rank for performance with "5" being highest. The Ulcer Index measures the depth and duration of drawdowns. Martin Ratio is the risk-adjusted return (risk-free return divided by the Ulcer Index. The two-month performance ending February is shown. It is noteworthy that the top 22 of the 24 funds are bond funds.
Table #1: Top Ranked Vanguard Funds - Two Year Period ending February
| Symbol | Name | Rank | MFO Risk | MFO Rank | Ulcer Index | Martin Ratio | YTD February |
| VFIJX | GNMA | 99 | 1 | - | 0.3 | 10.8 | 1.5 |
| VBILX | Interm-Term Bond | 98 | 2 | 5 | 0.5 | 14.7 | 4.6 |
| VWAHX | Hi-Yield Tax-Ex | 96 | 1 | 4 | 0.4 | 14.2 | 3.7 |
| VSGBX | Short-Term Fed | 97 | 1 | - | 0.1 | 22.1 | 1.7 |
| VFICX | Intrm-Trm Invst-Grd | 97 | 2 | 5 | 0.4 | 15.5 | 3.4 |
| VWLTX | Long-Term Tax-Ex | 95 | 1 | 4 | 0.4 | 13.1 | 3.7 |
| VUSFX | Ultra-Sh-Trm Bond | 96 | 1 | - | 0.0 | - | 0.7 |
| VWLTX | Long-Term Tax-Ex | 95 | 1 | 4 | 0.4 | 13.1 | 3.7 |
| VTABX | Total Intern Bond | 99 | 1 | 5 | 0.5 | 9.6 | 2.7 |
| VWEHX | Hi-Yield Corp | 83 | 2 | 5 | 3.6 | 1.1 | -0.7 |
| VWAHX | Hi-Yield Tax-Ex | 96 | 1 | 4 | 0.4 | 14.2 | 3.7 |
| VFITX | Interm-Term Treas | 91 | 2 | 5 | 0.5 | 10.1 | 4.4 |
| VWITX | Interm-Term Tax-Ex | 91 | 1 | 4 | 0.3 | 12.2 | 2.7 |
| VFISX | Short-Term Treas | 92 | 1 | 5 | 0.1 | 16.9 | 1.6 |
| VMLTX | Limited-Term Tax-Ex | 90 | 1 | - | 0.1 | 10.4 | 1.2 |
| VMMXX | Prime Money Market | 90 | 1 | - | 0.0 | - | 0.3 |
| VEMBX | Em Mrkts Bond | 91 | 2 | 5 | 0.9 | 8.0 | 1.7 |
| VTBIX | Total Bond Market | 90 | 2 | 4 | 0.4 | 12.4 | 3.9 |
| VMFXX | Fed Money Market | 89 | 1 | - | 0.0 | 362.0 | 0.3 |
| VUSXX | Treas Money Market | 89 | 1 | - | 0.0 | 132.0 | 0.3 |
| VWIAX | Wellesley Inc | 86 | 2 | 5 | 1.0 | 5.3 | -1.2 |
| VASIX | LifeStrategy Inc | 87 | 2 | 5 | 0.7 | 6.6 | 1.0 |
| VWESX | LT Invest-Grade | 87 | 3 | 1 | 1.8 | 6.6 | 8.0 |
| VWSTX | Short-Term Tax-Ex | 84 | 1 | - | 0.0 | 4.3 | 0.5 |
Source: Created by the Author Based on Mutual Fund Observer
I changed the Bucket System to be based on Lipper Category instead of Objective to increase resolution. Table #2 contains the top-ranked Lipper Categories. Categories that have Ulcer Indexes (Risk) significantly higher than the S&P 500 are not shown. APR refers to the annualized return over the past two years and Bear refers to the performance during the 2007 Mutual Fund Observer down cycle.
Table #2: Top Ranked Lipper Categories - 24 months
Table #3 shows the top-ranked funds for the top-ranked Lipper Categories. Fidelity and Schwab include other fund families that are no load, no transaction fees with the exception of DODIX which I own through Fidelity. These funds are a good starting point for building a diversified, low-risk portfolio.
Table #3: Top Ranked Funds Per Top Ranked Lipper Categories
| Bucket 1: Safety | Vanguard | Fidelity | Schwab | CEF | ETF |
| 1. U.S. Government Short | VSGBX | VGSH | |||
| 2. GNMA | VFIJX | FGMNX | GNMA | ||
| 3. Short Investment Grade Debt | PRWBX | SPSB | |||
| 4. Ultra-Short Obligations | VUSFX | FCNVX | ICSH | ||
| Bucket 2: 1 to 2 Years | |||||
| 1. U.S. Government General | FGOVX | AGZ | |||
| 2. Short-Intmdt Investment Grade Debt | FTHRX | SLQD | |||
| 3. Core Bond | VBILX | DODIX | PBDIX | AGG | |
| 4. Muni General & Insured Debt | VWAHX | OPTAX | VTEB | ||
| Bucket 3: 3 to 4 Years | |||||
| 1. Mixed-Asset Target Today | VTINX | FIKFX | |||
| 2. Multi-Sector Income | MFIOX | TOTL | |||
| 3. Mixed-Asset Target Alloc Consv | VWIAX | RBBAX | BACPX | AOK | |
| 4. Utility | MMUFX | UTF | VPU | ||
| Bucket 4: 4 to 5 Years | |||||
| 1. Telecom | PRMTX | FCOM | |||
| 2. Science & Technology | FSCSX | MTCAX | XLK | ||
| 3. Consumer Goods | FDFAX | VDC | |||
| 4. S&P Midcap 400 Index | IJH | ||||
| Inflation Resistant | |||||
| 1. Inflation Protected Bond | VIPSX | FIPDX | SWRSX | TIPX | |
| 2. Real Return | FSRRX | RLY | |||
| Yield | |||||
| 1. U.S. Mortgage | FMSFX | DMO | LMBS | ||
| 2. Municipal High Yield Debt | HYMAX | ORNAX | HYMB | ||
| 3. General Bond | FPCIX | DBL | IUSB | ||
| Global & International Bonds | |||||
| 1. Global High Yield | VTABX | FCDSX | IAGG | ||
| 2. Global Income | AEDVX | TRECX | MSD | VWOB | |
| 3. EM Hard Crncy Debt | RPIHX | PGHY | |||
| Global & International Equity | |||||
| 1. Global Small-/Mid-Cap | VMVFX | JPGE | |||
| 2. International Large-Cap Core | FLCA | ||||
| 4. International Multi-Cap Core | VTMGX | FSGGX | PRCNX | IDLV | |
| Defensive | |||||
| 1. Alternative Event Driven | MNA | ||||
| 2. Alt Equity Market Neutral | VMNIX | BTAL | |||
| 3. Commodities Precious Metals | PALL | ||||
Trending Funds
Table #4 shows one fund per Lipper Category (excluding leveraged) that had the high three-month trends.
Table #4: Trending Funds
| Symbol | Name | APR%/yr | MAXDD% | Ulcer Index | Martin Ratio |
| PALL | Palladium Shares | 60.6 | -11.6 | 5.6 | 10.6 |
| ARKW | Next Generation Internet | 25.6 | -10.7 | 4.9 | 4.8 |
| PBW | Clean Energy | 22.2 | -17.0 | 4.9 | 4.1 |
| VGLT | Long-Term Treasury Index | 17.0 | -6.9 | 2.5 | 6.1 |
| ASHS | China A-Shares Small Cap | -8.9 | -36.2 | 24.5 | -0.4 |
| VPU | Utilities Index | 19.5 | -4.1 | 1.4 | 12.9 |
| ARKQ | Autonomous Tech & Robo | 6.4 | -17.2 | 7.7 | 0.6 |
| BBN | Taxable Muni Bond Trust | 13.9 | -3.1 | 1.3 | 9.5 |
| MOM | US Market Neutral Mom | 1.1 | -14.5 | 6.1 | -0.2 |
| ILTB | Core Long-Term USD Bond | 14.0 | -5.1 | 1.8 | 6.6 |
| REM | Mortgage Real Estate | 14.4 | -7.1 | 2.6 | 4.8 |
| GLTR | Precious Metals Basket | 12.6 | -10.1 | 4.7 | 2.3 |
| OPTAX | AMT-Free Municipal Fd | 12.9 | -2.1 | 0.6 | 16.9 |
| FCGSX | Growth Company | 12.1 | -21.2 | 7.2 | 1.4 |
| IEF | 7-10 Year Treasury Bond | 9.5 | -2.3 | 0.8 | 8.9 |
| EMEM | Emerging Markets | -5.0 | -22.6 | 15.4 | -0.5 |
| FDGRX | Growth Company | 11.1 | -21.4 | 7.3 | 1.3 |
| ICLN | Global Clean Energy | 17.5 | -16.7 | 6.3 | 2.5 |
February Model Portfolio
I built the February Model Portfolio to be a diversified, low-risk portfolio. Below is the State Street SPDR S&P 500 ETF (SPY) for comparison purposes. The diversified, low-risk Vanguard portfolio has made about one percent year to date (as of the end of Monday) while the S&P 500 has lost nearly 15% as of last Monday.
Table #5: S&P 500 Performance
| Symbol | Name | MFO Risk | MFO Rank | Ulcer Index | Martin Ratio | Day | Rtn 1 Wk | Rtn 1 Mon | Rtn YTD |
| SPY | S&P 500 | 4 | 4.3 | 1.02 | -7.8 | -11.3 | -17.5 | -14.8 |
Source: Mutual Fund Observer for Rank and Morningstar for performance.
Table #6 contains the February Model Portfolio from my article on Vanguard funds. The portfolio has made 0.8% year to date, including a loss of 3.4% on Monday.
Table #6: February Model Portfolio
| Symbol | Name | Alloc % | MFO Risk | MFO Rank | Ulcer Index | Martin Ratio | Day | Return 1 Wk | Return 1 Mon | Total Return YTD |
| VTABX | Total Intrntnl Bond | 10 | 1 | 5 | 0.5 | 9.6 | -0.1 | 0.7 | 1.6 | 3.2 |
| VBILX | Intrmdt-Term Bond | 15 | 2 | 5 | 0.5 | 14.7 | -0.3 | 1.6 | 3.7 | 6.0 |
| VWIAX | Wellesley Inc | 20 | 2 | 5 | 1.0 | 5.3 | -3.2 | 1.8 | -1.4 | 1.7 |
| VMVFX | Global Min Vol Inv | 5 | 3 | 5 | 2.6 | 1.9 | -6.5 | 1.4 | -8.2 | -3.9 |
| VGWAX | Global Wellington | 15 | 3 | 5 | 2.3 | 1.3 | -5.4 | 0.5 | -6.2 | -3.2 |
| VGSTX | STAR Inv | 10 | 3 | 4 | 2.8 | 1.2 | -5.2 | 0.0 | -6.1 | -1.6 |
| VPGDX | Managed Payout Inv | 15 | 3 | 1 | 2.2 | -0.2 | -5.1 | 0.1 | -5.6 | -3.3 |
| IAU | Gold Trust | 5 | 3 | 3 | 4.5 | 1.8 | 0.3 | 5.9 | 6.9 | 14.8 |
| VEMAX | EM Stock | 5 | 4 | 4 | 9.9 | -0.7 | -7.3 | -0.7 | -7.7 | -4.1 |
| Portfolio | 100 | -3.4 | 1.1 | -2.4 | 0.8 |
Source: Created by Author using Mutual Fund Observer and Portfolio Visualizer
Personal Vanguard Target Portfolio
I began moving my own Vanguard Portfolio in the direction of the February Model Portfolio since writing the article. The portfolio below is the new target for my own Vanguard portfolio. I sold non-Vanguard funds, except for T. Rowe Price Global Multi-Sector Bond Fund (PRSNX) and bought funds from the February Model Portfolio. I kept some of the funds that I already owned. I will simplify the portfolio over time as the direction of the economy is more established.
My target portfolio is more conservative than the February Model Portfolio having only 31% in stocks compared to 41%. The Mutual Fund Observer Portfolio Tool rates it as "Conservative." The portfolio held up well during the past turbulence.
Table #7: Author's Target Portfolio
| Symbol | Name | Alloc % | MFO Risk | MFO Rank | Ulcer Index | Martin Ratio | Day | Rtn 1 Wk | Rtn 1 Mon | Tot Rtn YTD |
| VFIJX | GNMA | 7 | 1 | - | 0.3 | 10.8 | -0.1 | 0.5 | 1.3 | 2.0 |
| VFISX | Short-Term Treas | 11 | 1 | 5 | 0.1 | 16.9 | 0.1 | 0.8 | 1.9 | 2.4 |
| PRSNX | Global Multi-Sector Bond | 5 | 1 | 4 | 0.6 | 5.7 | -0.6 | 0.1 | -0.7 | 0.4 |
| VTABX | Total Intern Bond | 5 | 1 | 5 | 0.5 | 9.6 | -0.1 | 0.7 | 1.6 | 3.3 |
| VBILX | Intrmdt-Term Bond | 12 | 2 | 5 | 0.5 | 14.7 | -0.3 | 1.6 | 3.7 | 6.1 |
| VEMBX | Emerging Markets Bond | 4 | 2 | 5 | 0.9 | 8.0 | -3.4 | 1.1 | 0.8 | 2.8 |
| VWIAX | Wellesley Inc | 15 | 2 | 5 | 1.0 | 5.3 | -3.2 | 1.8 | -1.4 | 0.6 |
| VFICX | Intrmdt-Term Invest-Grade | 0 | 2 | 5 | 0.4 | 15.5 | -0.8 | 0.6 | 2.1 | 4.0 |
| VMVFX | Global Min Vol | 5 | 3 | 5 | 2.6 | 1.9 | -6.5 | 1.4 | -8.2 | -5.2 |
| VWELX | Wellington | 10 | 3 | 5 | 2.1 | 2.1 | -5.1 | 1.2 | -6.1 | -3.9 |
| VGSTX | STAR | 3 | 3 | 4 | 2.8 | 1.2 | -5.2 | 0.0 | -6.1 | -3.6 |
| VGWAX | Global Wellington | 5 | 3 | 5 | 2.3 | 1.3 | -5.4 | 0.5 | -6.2 | -5.0 |
| VPGDX | Managed Payout | 9 | 3 | 1 | 2.2 | -0.2 | -5.1 | 0.1 | -5.6 | -5.2 |
| IAU | Gold Trust | 5 | 3 | 3 | 4.5 | 1.8 | 0.3 | 5.9 | 6.9 | 10.6 |
| VEMAX | EM Stock | 4 | 4 | 4 | 9.9 | -0.7 | -7.3 | -0.7 | -7.7 | -9.2 |
| 100 | -2.7 | 1.1 | -1.4 | 0.2 |
Source: Created by Author using Mutual Fund Observer and Portfolio Visualizer
Chart #2 shows the performance of the Target Portfolio, February Model Portfolio, Vanguard Wellesley and S&P 500 since January 2018. The goal of the February and Model Portfolios is to maximize returns with less volatility than the Vanguard Wellesley Fund. The Vanguard Wellesley Income Fund is focused on large cap domestic value stocks while the portfolios are globally diversified including small/mid caps. Table #7 contains the performance metrics for this time period.
Chart #2: Comparison of Portfolios
Source: Created by the Author using Portfolio Visualizer
Table #8: Portfolio Performance
| Portfolio | CAGR | Max. Drawdown | Sortino Ratio | US Mkt Correlation |
| Target Portfolio | 4.9% | -3.3% | 1.08 | 0.84 |
| February Model | 4.8% | -4.9% | 0.78 | 0.89 |
| Wellesley (VWIAX) | 5.5% | -6.8% | 0.58 | 0.96 |
| SPDR S&P 500 (SPY) | 6.8% | -13.5% | 0.52 | 1.00 |
Chart #3: Target Portfolio - Exposures
Source: Portfolio Visualizer
Fund Spotlight - Vanguard Managed Payout Fund
The Vanguard Managed Payout Fund (VPGDX) is designed to provide investors with regular monthly income of roughly a 4% distribution rate. VPGDX will be renamed the Vanguard Managed Allocation Fund around the end of May 2020. The distribution will become annual instead of monthly. The goal of the new fund will be "to seek targeted inflation-adjusted returns through long-term capital appreciation and moderate income." Fei Xu will become the new co-portfolio manager. The composition of the fund will remain the same.
Table #9: Vanguard Managed Payout Fund Composition
Top 10 Holdings | Allocation |
24.2% | |
12.4% | |
11.4% | |
11.2% | |
7.6% | |
7.5% | |
5.9% | |
5.1% | |
5.1% | |
4.9% |
Source: Seeking Alpha
Closing
The Target Portfolio is positioned for slow growth, but conservative enough to do reasonably well during a recession. Rebalancing helps to sell high and buy low.
This article was written by
Analyst’s Disclosure: I am/we are long VFIJX, VFISX, PRSNX, VBILX, VEMBX, VTABX, VWIAX, VFICX, VMVFX, VWELX, VGWLX, VPGDX, IAU, VEMAX. 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (34)
I am looking at VUBFX and four other Ultrashort Bond Funds. VUBFX, BUBSX, and FCONX are all positive year to date while LUBAX and GIYAX are not. For the last thee month, VUBFX and BUBSX are down 0.52 to 0.56% while the other three are down more than 1%.The drop in the value of funds occurred during the last two weeks of March which coincides with the recovery of the stock market. Here is a good answer from 2008: "Like beaten-up funds in other categories, many ultrashort funds own securities tied to the performance of the housing market and, as it became clearer that that area was running into trouble, these bonds started flailing." Similarly, real estate was down a lot in March.www.morningstar.com/...
Will you be updating the above 2 portfolios to see how they have reacted based on the increased volatility exhibited since the beginning of March? It would be interesting to see how much drawdown these portfolios have exhibited given the 10% moves we have seen on an almost daily basis. Thank you.
SPY 0 -9.5 -21.8 -20.9 -6.8
IAU 2800 -9.1 -3.5 0.3 15.8
PRSNX 4300 -5.1 -5.9 -4.7 2.3
VBILX 9000 -3.6 0.5 2.6 10.5
VEMAX 1300 -10.3 -17.7 -18.6 -11.3
VEMBX 3400 -8.7 -8.2 -6.2 3.6
VFICX 0 -3.9 -1.2 0.6 8.3
VFIJX 6400 -1.3 0.1 0.8 5.5
VFISX 9900 -0.3 1.6 2.0 5.1
VGSTX 1200 -8.7 -14.8 -12.0 -1.2
VGWAX 2000 -9.6 -15.2 -14.1 -2.7
VMVFX 3800 -11.7 -19.4 -16.3 -5.7
VPGDX 5900 -8.6 -14.0 -13.4 -6.4
VTABX 2100 -2.4 -0.8 1.0 6.7
VWELX 2500 -7.8 -13.6 -11.3 0.7
VWIAX 2200 -6.7 -8.3 -6.2 3.4
Portfolio -6.0 -7.4 -5.8 2.5
After this week, CD's are looking much better. I still own a few. Thank you.
Safety. Preservation of investment. They are doing better than stocks and most bonds.
ETFs are in the right hand column of Table #3. I did not include a table specifically for ETFs but produce it each month as part of the process.
SCHR Schwab Intrmdt-Term US Treas
SPIB State Street SPDR Portfolio Intrmdt Term Corp Bond
VGSH Vanguard Short-Term Treas Index
AGZ BlackRock iShares Agency Bond
VCSH Vanguard Short-Term Corp Bond Index
AGZ BlackRock iShares Agency Bond
FTSD Franklin Liberty Short Duration US Gov
VPU Vanguard Utilities Index
VGIT Vanguard Intrmdt-Term Treas Index
SPSB State Street SPDR Portfolio Short Term Corp Bond
IGIB BlackRock iShares Intrmdt-Term Corp Bond
SCHO Schwab Short-Term US Treas
IBDP BlackRock iShares iBonds Dec 2024 Term Corp
XLU State Street Utilities Select Sector SPDR
ISTB BlackRock iShares Core Short-Term USD Bond
VNLA Janus Henderson Short Duration Income
CEMB BlackRock iShares JP Morgan EM Corp Bond
ICSH BlackRock iShares Ultra Short-Term Bond
GNMA BlackRock iShares GNMA Bond
TIPX State Street SPDR Bloomberg Barclays 1-10 Year TIPS
SPTI State Street SPDR Portfolio Intrmdt Term Treas
FLRN State Street SPDR Bloomberg Barclays Invest Grade Float Rate
CLTL Invesco Treas Collateral
NEAR BlackRock iShares Short Maturity Bond
SPIP State Street SPDR Portfolio TIPS
LDUR PIMCO Enhanced Low Duration Active Exchange-Traded
QLTA BlackRock iShares Aaa - A Rated Corp Bond
EMTL State Street SPDR DoubleLine EM Mark Fixed Income
AGG BlackRock iShares Core US Aggregate Bond
FLTB Fidelity Limited Term Bond
SHV BlackRock iShares Short Treas Bond
SHAG WisdomTree Yield Enhanced US Short-Term Aggregate Bond
HYMB State Street SPDR Nuveen Bloomberg Barclays High Yield Muni Bond
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