Monday, October 14, 2013

Yet Another Post on Asset Allocation

I just love Mebane Faber and the posts that he writes about.

Last week, I was JUST looking at the exact same asset allocations strategy which he just updated here, but I couldn't find it again until he posted it!

Now, this is an asset allocation strategy that I would really feel comfortable with and be able to sleep well at night. The allocation is very mathematically based, and the results are also very pleasant to look at. I think managing to outperform the traditional 60/40 is quite an achievement for most portfolios.





My only gripe about it is that there are no statistics regarding the prevailing market "style", which is the type of growth and inflation it is in. Also, there isn't a way to capitalize more on 1 strategy, nor is there any indicator to signal the movement from 1 to the other. Perhaps all you can do is to monitor the returns to see which quadrant has the most positive returns.

It has one of the lowest standard deviations and drawdowns, as well as the most number of positive months. I have to admit that the CAGR is not fantastic relatively, but as a standalone number, I think that 9.21% is still pretty good!

I think what is interesting here to me is the fact that the allocation to bonds is only at 42%. While this seems like a roughly overall nice lower percentage, equities are only at 24% while commodities make up a whooping 17% of this portfolio. Lastly, a huge 17% allocation is set aside for cash.

Now, if you remove the cash portion of the portfolio and look at it then, this portfolio looks rather similar to the other portfolios that we have, except for the exceptionally heavier weighting in commodities.

All in all, I think this is yet another great place to start looking and understanding about great buy-and-hold diversified asset allocation portfolios.

No comments:

Post a Comment

Observe the house rules.