September 2018 Review

By
September showed the defensiveness I have built into the enhanced strategy as it held up in a month when markets in general did very little.


QUESTION: How did the portfolios perform?


Cumulative returns of each of the strategies as though you had invested $100,000 in them at the beginning of the blog.



ANSWER:  September was a flat month for investments in general. Small cap equities (VTWO) lost money (a pull back after a long stretch of very good results) while large cap (VONE) had modest gains. High Yield bonds (JNK) performed ok while their higher quality counterparts (AGG) lost a little. Interest rates and not risk drove bond returns in September.  



QUESTION: What happened in the market that impacted portfolio returns?

Equal Portfolio: This portfolio is invested equally in each of four asset classes. In September it returned -0.5%. It is the baseline or benchmark against which I judge the other portfolios.

TA portfolio: This portfolio is currently 100% in large cap US equity.  The US has shown strong growth and, probably due to the size of our economy, the markets seem to believe that it is the safest place to be as the world grows more protectionist. In September it returned 0.1%.

Enhanced portfolio:  This portfolio has been built to do better if/when things turn sour. That has not been a good strategy so far but in September it showed a small benefit. The emerging markets (IEMG), commodities (DBCMX) and active large cap US equity (DSEEX) components drove the positive returns. This portfolio returned 0.9% in September.



QUESTION: How do the returns compare to other similar strategies?

A review of all tactical asset allocation mutual funds followed by Morningstar shows the following.

September 28, 2018 return percentile. The % tells where the fund ranks during that period (100% would be the top performing fund, 0% would be the bottom)

         1 Mo        3 Mo       1 Yr    3 Yrs    5 Yrs
Equal          32%         67%       77%     -na-     -na-
TA          76%         98%       99%     -na-     -na-
Enhanced          96%         74%       57%     -na-      -na-

A few key statistics about the peer groups for each period.
Peer Group 
# of Funds  298    298   285   233   176
Max 2.39%  8.86% 25.65% 15.73% 11.39%
Min-2.61% -3.05% -7.76%  -7.85%  -9.26%

ANSWER: I focus on the 1 Yr numbers here. Equal is performing better than I would expect. Over the long run it should run around 50%.  TA is doing outstanding with only a handful of managers doing better. The Enhanced strategy had a comeback and is now above 50% again after dipping below last month.  



QUESTION: What were the returns of the underlying holdings this month?
Equal Portfolio: 

AGG       -0.5%   
JNK         0.7%  
VONE      0.1%
VTWO   -2.4%

TA portfolio: 

VONE      0.1%

Enhanced portfolio:  

VONE       0.1%
JXI           -0.7%
KXI           0.6%
DSEEX     1.3%
DBCMX   3.1%
IEMG       1.0%

Color significance:
Red          =   Small cap equity 
Orange    =   Large cap equity
Purple     =   High yield debt
Green      =   Investment grade debt
    ANSWER: The standout was commodities (DBCMX) although my active large cap US equity (DSEEX) and emerging markets equity (IEMG) also did well. Small cap exposure (VTWO) hurt this month but has been a positive driver of returns for the past few years. 



    QUESTION: How did this months trades affect the underlying holdings?

    Allocations as of September 1st were:


    Allocations as of October 1st are:



    ANSWER: As there were no trades, changes were minimal and driven by performance of the underlying holdings. 


    QUESTION: What is the track record of realized investments?

    September 28th one year performance (in order): VTWO (17.7%), VONE (15.2%), JNK (1.9%),  AGG(-1.3%).

    TA: Position taken one year ago: VONE
    Rank: 2nd

    History1st2nd3rd4th
    Number of Bets: 0 5 0 0 
    % of Bets: 0% 100% 0% 0%



    Enhanced: Position taken one year ago: JXI (0.5%)
    Rank: - Negative
    History +=-
    Number of Bets: 014
    % of Bets: 0% 20% 80%

    ANSWER: Pretty good for the TA strategy and horrible for the Enhanced strategy - over time this data will become more meaningful.

    DISCLAIMER:
    Past performance is not a guarantee of future performance.  This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities. The writer of this blog owns many (long positions only), if not all, of the securities discussed in this blog. October is one of the peculiarly dangerous months to speculate in stocks in.  The others are July, January, September, April, November, May , March, June, December, August and February. ~ Mark Twain

    Comments

    Post a Comment

    Popular posts from this blog

    What is all the fuss about Bitcoin?

    By
    Image
    "Lack of Clarity gives Birth to Disappointment" ~ Dan Rockwell Bitcoin's meteoric rise What Is Bitcoin? Everyone is talking about it, but what is it? At the most basic level it is an electronic voucher that says you own it (sounds redundant, no?). It is an electronic record stating who owns how many "bitcoin". There is no physical thing that is a Bitcoin, no one has ever seen, or touched, or tasted one. Its power comes from something called the "blockchain" which makes it (to date) impossible to hack or replicate. So although it is nothing, it is not (currently) replicable or hackable and it is transferable (kind of like money without the paper and metal). The blockchain allows for the exchange and creation of more Bitcoin without a third party middleman. No bank is needed to verify the transactions or to store the Bitcoin or validate their authenticity. No one but the blockchain "system" can validate exchanges or create new vo...
    Read more

    The Retirement Question

    By
    Image
    I have had many people ask me the very difficult question: When can I retire? Most people are looking for an age but underlying this question is a dollar amount. What we really want to know is "When can I retire and live comfortably for the rest of my life without financial worries?". The answer to this has just as much to do with your retirement savings as it does with your age. Without a crystal ball, there is no way to know the exact answer. So like most things, the answer is, "it depends". There are so many unknown's (how long will you live, how will your spending habits change, what will your investment returns look like, what will inflation do)?  But there are also some things that we control and those are what I would like to analyze together. To do this, we will look at the retirement related decisions we make and their impact on retirement age (holding all the unknowable things constant). We will find that decreasing spending is more powerful t...
    Read more

    Crypto Currency - Just A Worthless Commodity

    By
     Prediction: At some point Crypto Currencies will all become worthless. I know that this is a strong statement that will irritate many but a review of the facts about the underlying basis for its value can lead to no other conclusion. Crypto Currency Dynamics: The brilliance of cryptocurrency is in its structure which gets rid of the need for intermediaries in its monetary system. No Governments or banks needed.  This is brilliant. The cost of intermediaries on a system is high, I won't go into that but if you look it up there is plenty written about it. Demand for crypto is strong and growing. People are learning about this new interesting monetary tool and seeing some get rich and it is very enticing. People are justifiably curious and more and more people are dipping their toes into the space. The Crypto Currency Myth:  Supply of crypto is limited. This is the crypto lie that everyone seems to be swallowing. The whole valuation argument for crypto is that it...
    Read more