October 2018 Review

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October was a scary month, and yet the portfolio's did pretty well. I am particularly excited about the TA portfolio's 1 year return.  It is now higher than any of the Morningstar followed managers.  See below for more details.


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: October was a a "risk off" month.  Assets that are considered risky, such as equity, did very poorly. Assets that are very safe, such as high quality debt, did less poorly. For a recap of the differences between each of the three portfolios go here.  


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

The Federal Reserve announced that they would be raising interest rates faster than they had previously indicated. A raising of interest rates means that borrowing money is more expensive and generally slows down the growth of the economy. This news caused markets to lower their future growth expectations which drove the prices of risky assets down. 

QUESTION: How did my portfolio returns compare to other similar strategies?

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

October 31, 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          58%         79%       90%     -na-     -na-
TA          39%         84%       100%     -na-     -na-
Enhanced          56%         71%       57%     -na-      -na-

A few key statistics about the peer groups for each period.
Peer Group 
# of Funds  284    284    271    231   175
Max Return  0.69%   1.22%   6.94%  11.55%  8.60%
Min Return-12.52% -12.55% -11.61%  -8.35%  -9.54%

ANSWER: I focus on the 1 Yr numbers here. TA is doing outstanding and outperformed all peers (return was 6.97%). The Enhanced strategy is performing ok, but I expect more from it and have made some adjustments to how I am going to seek to add value in that portfolio going forward. Equal is performing better than I would expect as it is a benchmark. Over the long run it should be around 50%. 


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

AGG       -0.8%   
JNK        -2.4%  
VONE     -6.8%
VTWO  -10.4%

TA portfolio: 

VONE     -6.8%

Enhanced portfolio:  

VONE      -6.8%
JXI            0.4%
KXI          -1.3%
DSEEX    -9.6%
DBCMX  -3.6%
IEMG      -8.9%

Color significance:
Red          =   Small cap equity 
Orange    =   Large cap equity
Purple     =   High yield debt
Green      =   Investment grade debt
    ANSWER: The only positive performer was global utilities (JXI). All other holdings had negative returns with the most risky, small cap equities (VTWO) doing the worst. The allocation is 100% to large cap equities (VONE) because this asset class tends to hold up better when things turn down. That said, as I mentioned in my allocation post, I do not think this is the beginning of a bear market.  


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

    Allocations as of October 1st were:



    Allocations as of November 1st are:




    ANSWER: Rebalancing trades in the "Equal" portfolio helped bring that closer to 25% in each asset class. In the "Enhanced" portfolio I sold half of the DSEEX and bought VONE. 


    QUESTION: What is the track record of realized investments?

    One year performance as of October 31st (in order): VONE (6.8%), VTWO (1.9%), JNK (-0.3%),  AGG(-2.0%).

    TA: Position taken one year ago: VONE
    Rank: 1st

    History1st2nd3rd4th
    Number of Bets: 1 5 0 0 
    % of Bets: 17% 83% 0% 0%



    Enhanced: Position taken one year ago: DSEEX (7.8%)
    Rank: + Positive
    History   +  =  -
    Number of Bets:   1  1  4
    % of Bets: 17% 17% 66%

    ANSWER: The one year look back in October is perfect. The TA fund picked the best asset class over the last year and the Enhanced fund picked an even better active alternative. 

    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

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