The enemy of "left tail" portfolios - bonds

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The enemy of "left tail" portfolios - bonds

Postby Browser » Fri Jun 28, 2013 7:07 pm

I've noticed that the type of defensive portfolio allocation that is supposed to reduce "left tail" risk hasn't been faring particularly well this year. Risk parity portfolios, such as the "all weather" portfolio advocated by Ray Dalio are down 10% or more, the Permanent Portfolio advocated by Harry Browne is down about 5%, and even the "Larry" portfolio advocated by Larry Swedroe (70% TIPS, 15% SCV, 15% ISC) is down around 3%. What all these portfolios have in common is a high and/or leveraged bond allocation. One of the risks of this type of allocation strategy is exposure to the risk of rising interest rates, such as we've started to see over the last few weeks. Something to keep in mind.
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Re: The enemy of "left tail" portfolios - bonds

Postby stlutz » Fri Jun 28, 2013 7:23 pm

A -3% return isn't really what these "avoid left tail" portfoios are about. When a bond-heavy portfolio drops by 40%, then you'll have a point. If you can't deal with a 3% loss, then you should only be investing in CDs.
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Re: The enemy of "left tail" portfolios - bonds

Postby baw703916 » Fri Jun 28, 2013 7:23 pm

In the case of the Harry Browne portfolio, LT Treasuries aren't really the problem:

LT Treasuries (VUSTX): -7.69% YTD
Gold (GLD): -26.48% YTD

The fact that cash is earning zero (nominal, negative in real terms) isn't helping either.

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Re: The enemy of "left tail" portfolios - bonds

Postby jginseattle » Fri Jun 28, 2013 7:41 pm

Browser wrote:I've noticed that the type of defensive portfolio allocation that is supposed to reduce "left tail" risk hasn't been faring particularly well this year. Risk parity portfolios, such as the "all weather" portfolio advocated by Ray Dalio are down 10% or more, the Permanent Portfolio advocated by Harry Browne is down about 5%, and even the "Larry" portfolio advocated by Larry Swedroe (70% TIPS, 15% SCV, 15% ISC) is down around 3%. What all these portfolios have in common is a high and/or leveraged bond allocation. One of the risks of this type of allocation strategy is exposure to the risk of rising interest rates, such as we've started to see over the last few weeks. Something to keep in mind.


I may be mistaken, but I don't believe Larry Swedroe holds any TIPS in his portfolio at this time.

And, as noted above, one can certainly design a left tail portfolio without including bonds.
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Re: The enemy of "left tail" portfolios - bonds

Postby staythecourse » Fri Jun 28, 2013 8:52 pm

Why are you measuring the success or failure of ANY strategy in a single year performance??

ANY asset can behave like ANY other asset in ANY given year. Assets do what they are supposed to do over many years. So looking at any portfolio characteristics over any random year is not fair.

If you are indeed looking for a truly safe portfolio of NO nominal loss in any given year try 100% cash. Now I will bet you won't like the returns with that either. If you want return greater then cash then you must take risk of loss. No matter how you say it or present it life is ALL about the balance of risk vs. return anything else would be a free lunch.

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Re: The enemy of "left tail" portfolios - bonds

Postby Sidney » Fri Jun 28, 2013 9:11 pm

stlutz wrote:A -3% return isn't really what these "avoid left tail" portfoios are about. When a bond-heavy portfolio drops by 40%, then you'll have a point. If you can't deal with a 3% loss, then you should only be investing in CDs.

That is my interpretation. It is designed to deal with something like a 80% domestic equity meltdown with no recovery any time soon. If that happened, wouldn't the bond side do OK?
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Re: The enemy of "left tail" portfolios - bonds

Postby jmk » Fri Jun 28, 2013 9:46 pm

Browser wrote:I've noticed that the type of defensive portfolio allocation that is supposed to reduce "left tail" risk hasn't been faring particularly well this year. Risk parity portfolios, such as the "all weather" portfolio advocated by Ray Dalio are down 10% or more, the Permanent Portfolio advocated by Harry Browne is down about 5%, and even the "Larry" portfolio advocated by Larry Swedroe (70% TIPS, 15% SCV, 15% ISC) is down around 3%. What all these portfolios have in common is a high and/or leveraged bond allocation. One of the risks of this type of allocation strategy is exposure to the risk of rising interest rates, such as we've started to see over the last few weeks. Something to keep in mind.


No offense, but the "left tail" of the returns curve that some try to mitigate is like -50%! Minus 3% is not any "tail."
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Re: The enemy of "left tail" portfolios - bonds

Postby Elbowman » Fri Jun 28, 2013 9:53 pm

I wouldn't call anything within one standard deviation a "tail".
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Re: The enemy of "left tail" portfolios - bonds

Postby etarini » Fri Jun 28, 2013 10:39 pm

staythecourse wrote:Why are you measuring the success or failure of ANY strategy in a single year performance??



Single year? Most of those freaking out about the bond "crash" are basing it on a single month.

Anytime you equity enthusiasts who are trashing those dangerous bonds want to talk standard deviation, I'm all ears.

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Re: The enemy of "left tail" portfolios - bonds

Postby nedsaid » Fri Jun 28, 2013 11:02 pm

Sometimes the best "defensive" strategy is to just ride out the volatility and let sanity return to the markets. This thread is a great illustration that sometimes "defensive" strategies are more trouble than they are worth.

Beyond picking a good asset allocation and sticking with it, it seems getting too fancy or trying to outsmart ourselves doesn't work out too well.

Think of those folks who were worried about higher interest rates several years ago. Parked in money markets or in short term bond funds, they missed out on years of extra interest payments. This is the problem of trying to predict markets.

Sometimes more damage is done to our portfolios trying to protect ourselves than damage done by the markets themselves.

A diversified portfolio should be doing pretty well this year. Bonds are down less than three percent while the Total US Stock Market is up 14% and International Stocks are up by 3-4%. The fact that these "defensive" portfolios are all down when a properly diversified portfolio should be up shows that there is a klink in the "defensive" models.

In another thread, I expressed skepticism about a posters strategy to have a 40% stock/60% fixed income portfolio but being hyper aggressive on the stock side. As I recall, a Small Value fund was paired with a Price Momentum Growth fund for the US Equities. I had the suspicion that the poster wanted a free lunch, higher returns with lower risk. The problem was the risk was pretty extreme in my opinion on the stock side. Somehow, something happens that blows these things up.

I tried (but failed) to convince the poster that if he wanted higher returns that he would have to accept more volatility. Sort of like wanting to get to heaven but trying to avoid dying first. No one likes volatility but we all like the return.
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Re: The enemy of "left tail" portfolios - bonds

Postby Sidney » Sat Jun 29, 2013 8:35 am

nedsaid wrote:The fact that these "defensive" portfolios are all down when a properly diversified portfolio should be up shows that there is a klink in the "defensive" models.

I might expect a "defensive" model to underperform during stronger equity market (TSM is up 21% in the last year).

Keep in mind that Larry has cautioned frequently that his equity model experiences considerable tracking error. Anyone who was heavily tilted to small-value during the 90s can attest to this.

What is a "properly diversified" portfolio?
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Re: The enemy of "left tail" portfolios - bonds

Postby YDNAL » Sat Jun 29, 2013 9:38 am

Browser wrote:I've noticed that the type of defensive portfolio allocation that is supposed to reduce "left tail" risk hasn't been faring particularly well this year. Risk parity portfolios, such as the "all weather" portfolio advocated by Ray Dalio are down 10% or more, the Permanent Portfolio advocated by Harry Browne is down about 5%, and even the "Larry" portfolio advocated by Larry Swedroe (70% TIPS, 15% SCV, 15% ISC) is down around 3%. What all these portfolios have in common is a high and/or leveraged bond allocation. One of the risks of this type of allocation strategy is exposure to the risk of rising interest rates, such as we've started to see over the last few weeks. Something to keep in mind.

And ?

A strategy is good only if it makes sense for your personal circumstances, you adhere to it for the long haul (certainly not 1 year), and rebalance the holdings.

Of course, as a matter of observation, it should go without saying that a heavy Fixed Income portfolio with exposure to interest rate risk shall falter a bit (certainly in the short term) when the risk shows-up. With regards to the "Larry" portfolio, nothing says that Fixed Income should be 70% TIPS or Nominal Bonds. Risk Management, anyone ?
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Re: The enemy of "left tail" portfolios - bonds

Postby Call_Me_Op » Sat Jun 29, 2013 9:45 am

Browser wrote:I've noticed that the type of defensive portfolio allocation that is supposed to reduce "left tail" risk hasn't been faring particularly well this year. Risk parity portfolios, such as the "all weather" portfolio advocated by Ray Dalio are down 10% or more, the Permanent Portfolio advocated by Harry Browne is down about 5%, and even the "Larry" portfolio advocated by Larry Swedroe (70% TIPS, 15% SCV, 15% ISC) is down around 3%. What all these portfolios have in common is a high and/or leveraged bond allocation. One of the risks of this type of allocation strategy is exposure to the risk of rising interest rates, such as we've started to see over the last few weeks. Something to keep in mind.


And your proposed solution? Don't say gold!

Larry's portfolio worked fine. You have to expect some fluctuation (both up and down) if you ever expect returns above cash.
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Re: The enemy of "left tail" portfolios - bonds

Postby scone » Sat Jun 29, 2013 10:00 am

Stable value + "left tail" portfolio = peace of mind. :beer
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Re: The enemy of "left tail" portfolios - bonds

Postby baw703916 » Sat Jun 29, 2013 10:17 am

Nedsaid,

I'm not sure which international funds you're basing the 3-4% return on--Total International, Large FTSE, and Small FTSE are all slightly negative YTD. Three fund portfolios have done well to the extent that they've held a lot of U.S. equities. A relatively middle of the road 40/20/40 mix of TSM/TISM/TBM is up about 4.6%. You could have done better, of course, if you had held less international, but I would argue that in the long run, that's a bug, not a feature.

My version of the fat tails portfolio (15% SV, 15% EMS, 30% TIPS, 30% LT Treasuries, 30% TIPS, 10% REITs), is down 2.2%--fairly similar to the Larry Portfolio. Interestingly, Vanguard's multi-duration TIPS fund has had exactly the same loss YTD as the LT Treasuries fund, even though conventional wisdom is that it should be quite a bit less risky.

--six months is too short a time period to make any conclusions
--2.2% isn't a big loss
--the problem with the first two portfolios listed in the OP wasn't that they had high bond allocations, it was that they included leveraged bonds and gold, respectively.

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Re: The enemy of "left tail" portfolios - bonds

Postby nedsaid » Sat Jun 29, 2013 10:54 am

I own an International Index fund at work and it is up 3.47% YTD. All my International Funds are up YTD except for of course Emerging Markets. If your International Index Funds include emerging markets, it is possible they could be down a bit YTD. I also own a couple mid cap/small cap international funds and they are up YTD as well.

The strategy you are using reminds me of the folks that do the "barbell" approach with bonds. Everything is either long term or short term. Taking the position at both ends of the yield curve but not the middle. What you have done is invest in very volatile asset classes on the stock side and also on the bond side. The portfolio is constructed that though the components are very volatile, the zigs and zags of each asset class should even out and you should get good returns over time.

So for example, Long Term Treasuries guard against deflation and TIPs guard against inflation. I am not sure how REITs, Small Cap Value, and Emerging Markets correlate with each other (or don't) but man those things are very volatile.

So it isn't that your strategy is bad, you have mixed a lot of highly volatile stuff together with the hope of high returns and low volatility. You have no "core" investments. So on the bond side, you are taking incredible risk. High interest rates could sink both LT Treasuries and TIPs. The stock investments are incredible volatile. It will probably work, but the markets have a way of doing the one thing you didn't count on. You might experience a big drop in everything you own here if the market has the perfect storm. In really bad markets, the only thing that goes up is correlation. People forget this.

So if the worst happened and everything dropped big, your portfolio would recover. Your strategy would produce good returns over time. I am skeptical that throwing a bunch of high octane stuff together in the hopes of high performance and low volatiliy will work the way you think. I suspect you will over long periods of time will get good results but with more volatility than you suspect.

My diversified portfolio dropped about 35% each time when we had the two bear markets. I realized that I just had to stay the course with my plan and ride the volatility out. Time and markets eventually set everything right again

I deeply respect Larry Swedroe but forgive me my skepticism that there is a secret sauce out there that produces high performance with low volatility. If you want the return, you have to accept the volatility. I don' think there is any way around it.
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Re: The enemy of "left tail" portfolios - bonds

Postby Call_Me_Op » Sat Jun 29, 2013 11:04 am

nedsaid wrote:I deeply respect Larry Swedroe but forgive me my skepticism that there is a secret sauce out there that produces high performance with low volatility. If you want the return, you have to accept the volatility. I don' think there is any way around it.


FWIW, historically the approach of holding a small allocation to very volatile equities and a large allocation to intermediate treasuries has done just that - high returns and low volatility (with very limited downside).
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Re: The enemy of "left tail" portfolios - bonds

Postby Sidney » Sat Jun 29, 2013 11:07 am

nedsaid wrote:I deeply respect Larry Swedroe but forgive me my skepticism that there is a secret sauce out there that produces high performance with low volatility.

If I recall correctly, that isn't how he characterizes his portfolio. I think the intent is that the portfolio approximates the same total expected return as a higher TM based equity portfolio and reduces the expected volatility. Overall, that might be a modest expected return but with protection on the downside from a real disaster in equity markets. Larry's approach also makes use of the shifting between longer TIPS when real rates are high and short nominals when real rates are lower. In fact, I think at one point he shifted from short treasuries to short investment grade.

The portfolio is designed for people who want to closely manage downside risk. I haven't closely studied his writing but it is my impression that he talks more about risk than he does return.

Only time will tell if it works as expected. By definition, it will not track with a market-weighted portfolio.
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Re: The enemy of "left tail" portfolios - bonds

Postby nedsaid » Sat Jun 29, 2013 11:16 am

The whole point of a defensive portfolio is to guard against bad things happening. What has happened is that US Stocks are having a good year, International Stocks are up a bit except for emerging markets, and bonds are down.

What are you defending against? The bad thing that has happened has been a rise in interest rates. So the "defensive" portfolios with stocks in them have done about the same as an all bond portfolio. You got all the downside of the bonds and didn't get any benefit of an up stock market. You may as well have been 100% in bonds.

My point isn't that these portfolios won't produce positive returns over time. It is that you can't escape market volatility.

A poster asked "what is a properly diversified portfolio?" This is a matter of opinion and considerable debate.

It is really a philosophical debate. I believe in building a portfolio around core investments and using non-correlating volatile investments to try to increase returns a bit and reduce volatility a bit. Time will tell whether what I am doing will work. If I am wrong, I won't be wrong by much. If I am right, the bit of extra returns should add up over time.

The defensive portfolios don't seem to have a core but put together a mix of highly volatile non-correlating assets in the hope of extra returns and even less volatility than what I am doing. You will probably get the returns, but my feeling that at some point you will see extreme volatility that you didn't count on.

This is the problem with an entirely quantitative approach to investing. Human emotions are involved. In a panic investors will throw out the baby, the bathwater, and the bathtub right out the window. In the financial crisis experience just five years ago, it took huge government intervention to keep normally safe money market funds from imploding. The markets for commercial paper from firms even like General Electric just dried up. There was no market for certain money market instruments. Money market funds experienced the equivalent of the run on the bank. So if "safe" investments aren't always safe, what will happen to the really volatile stuff?

You are assuming that the relationships between asset classes that are time honored and well established will hold up in all circumstances and in real life that just does not happen. In bad markets, sometimes everything correlates at the precise moment you don't want them to.

These portfolios will work over time but with more volatility than what anyone counts on.
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Re: The enemy of "left tail" portfolios - bonds

Postby DVMResident » Sat Jun 29, 2013 11:30 am

Sidney wrote:
nedsaid wrote:I deeply respect Larry Swedroe but forgive me my skepticism that there is a secret sauce out there that produces high performance with low volatility.

If I recall correctly, that isn't how he characterizes his portfolio. I think the intent is that the portfolio approximates the same total expected return as a higher TM based equity portfolio and reduces the expected volatility. Overall, that might be a modest expected return but with protection on the downside from a real disaster in equity markets. Larry's approach also makes use of the shifting between longer TIPS when real rates are high and short nominals when real rates are lower. In fact, I think at one point he shifted from short treasuries to short investment grade.

The portfolio is designed for people who want to closely manage downside risk. I haven't closely studied his writing but it is my impression that he talks more about risk than he does return.

Only time will tell if it works as expected. By definition, it will not track with a market-weighted portfolio.


Another aspect of Larry's portfolio it is doesn't track the standard 3-fund port well in the short term. This can lead to "tracking error regret", as illustrated in the opening post. This can lead to a sell off during a bull market, ultimately buying high. Thus, behavior is one of the greatest risks of this type of portfolio.

Larry's portfolio is meant for the long haul. As others have pointed out, a -3% YTD is hardly worth mentioning. When the next crash comes about, those following Larry's "no fat tails" portfolio will be relatively quite happy.

Disclaimer: I do not practice the "no fat tails" portfolio, but like a lot for reasons beyond the scope of this thread.
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Re: The enemy of "left tail" portfolios - bonds

Postby nedsaid » Sat Jun 29, 2013 11:32 am

I probably have not articulated my points very well.

Pretty much, all investment strategies fail at one point or another. The best strategies fail less often than the others. If you have a good strategy and it fails temporarily, you just have to ride the volatility until sanity returns.
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Re: The enemy of "left tail" portfolios - bonds

Postby Sidney » Sat Jun 29, 2013 11:46 am

As a retiree who has "enough", I am defending against a deep and sustained loss in equity, say a drop of 75-80% and no recovery during most of my remaining lifetime.
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Re: The enemy of "left tail" portfolios - bonds

Postby jebmke » Sat Jun 29, 2013 11:49 am

DVMResident wrote: This can lead to "tracking error regret", as illustrated in the opening post. This can lead to a sell off during a bull market, ultimately buying high. Thus, behavior is one of the greatest risks of this type of portfolio.

That is true. I was tilted very heavily to small and mid-cap value from the mid-80s through mid-00s. There were some real grim years when the tech/growth stocks were booming and value didn't do much. You have to be willing to stay on strategy. But over the long haul, there was definitely a premium. Who knows whether it will persist going forward.
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Re: The enemy of "left tail" portfolios - bonds

Postby staythecourse » Sat Jun 29, 2013 11:57 am

nedsaid wrote:I probably have not articulated my points very well.

Pretty much, all investment strategies fail at one point or another. The best strategies fail less often than the others. If you have a good strategy and it fails temporarily, you just have to ride the volatility until sanity returns.


Well said and agree 100%.

There is no perfect strategies. There are not perfect jobs, perfect houses, perfect spouses, etc... So why in the world do folks expect to find a perfect portfolio. As William Shakespeare says "Time heals all wounds". Find an asset allocation that you will stick with in good and bad. Then when bad happens just let time ride It out.

Good luck.
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Re: The enemy of "left tail" portfolios - bonds

Postby baw703916 » Sat Jun 29, 2013 12:19 pm

It's worth noting that Larry has mentioned that the "risk" of his portfolio (and also the reason why he didn't write it up in any of his books until recently) is that investors who don't thoroughly understand the portfolio's concept and its advantages/disadvantages compared to a more traditional portfolio may be tempted to abandon it due to tracking error regret.
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Re: The enemy of "left tail" portfolios - bonds

Postby Roy » Sat Jun 29, 2013 1:17 pm

DVMResident wrote:
Another aspect of Larry's portfolio it is doesn't track the standard 3-fund port well in the short term. This can lead to "tracking error regret", as illustrated in the opening post. This can lead to a sell off during a bull market, ultimately buying high. Thus, behavior is one of the greatest risks of this type of portfolio.

Larry's portfolio is meant for the long haul. As others have pointed out, a -3% YTD is hardly worth mentioning. When the next crash comes about, those following Larry's "no fat tails" portfolio will be relatively quite happy.


I agree with DVM, and a few other posts here too. In my opinion, the "tracking error regret" is the biggest challenge to this design, and Larry himself has repeatedly warned of this. Gotta' know and accept that going-in. Many investors can accept concepts ex ante but cannot live through rough moments.

I also think by the time this year began, and likely well before, an investor using his concept would have been out of TIPS and in short-term vehicles like ST Treasuries, or more likely ST Investment Grade bonds (like some DFA fixed income funds or the ST Vanguard funds with comparable maturity); I base that on his books and articles where he discusses the yield curve when examining TIPS or that credit risk is better taken on the short end of the curve.

Note that International stocks strongly lag domestic but this is just the way diversification works, which people are happy to accept when there is outperformance but less so when there is not, due to reversion, global events, etc.

So, assuming one were using basic Vanguard funds (he uses DFA, I think), a fair approximation might be:

30% Equities:
VISVX—15%: 15.37
VSS—15%: -0.88

70% Fixed Income
VFSTX: -0.55

So yes, this is lagging a traditional 60/40 domestic portfolio at this time (VBINX, say)—particular risks do show up—but hardly anything alarming, and eyeballing the above I think his portfolio is still north of "0", maybe a tad better with DFA.

Finally, I don't believe Larry seeks outperformance, just dampening of the Left Tail by sacrificing the Right Tail, and hoping for results not inferior to heavier equity-laden portfolios over decades, and likely a smoother ride so as not to alarm retirees or high net worth folks. So his stated objective must be considered in the longer-term picture.
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Re: The enemy of "left tail" portfolios - bonds

Postby YDNAL » Sat Jun 29, 2013 1:59 pm

Roy wrote:I also think by the time this year began, and likely well before, an investor using his concept would have been out of TIPS and in short-term vehicles like ST Treasuries, or more likely ST Investment Grade bonds (like some DFA fixed income funds or the ST Vanguard funds with comparable maturity); I base that on his books and articles where he discusses the yield curve when examining TIPS or that credit risk is better taken on the short end of the curve.

Yes, that would be my take as well.
Previously, in response to OP, YDNAL wrote:Of course, as a matter of observation, it should go without saying that a heavy Fixed Income portfolio with exposure to interest rate risk shall falter a bit (certainly in the short term) when the risk shows-up. With regards to the "Larry" portfolio, nothing says that Fixed Income should be 70% TIPS or Nominal Bonds. Risk Management, anyone ?
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Re: The enemy of "left tail" portfolios - bonds

Postby hafius500 » Sat Jun 29, 2013 4:59 pm

Browser wrote:I've noticed that the type of defensive portfolio allocation that is supposed to reduce "left tail" risk hasn't been faring particularly well this year. Risk parity portfolios, such as the "all weather" portfolio advocated by Ray Dalio are down 10% or more,...


FYI, a collection of new articles on risk-parity strategies:
Abnormal Returns - Friday Links: risk parity edition

Risk parity has been all the rage. The risk parity wave even hit the pages of USA Today earlier this month. and was in the Wall Street Journal today. In the meantime the strategy has come under a great deal of scrutiny due its generally poor performance during the run-up in interest rates this month. Leading commentators like John Rekenthaler and Michael Santoli have weighed in. Tom Brakke at the research puzzle posted a chart showing the performance of a handful of risk parity funds of late...
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Re: The enemy of "left tail" portfolios - bonds

Postby Browser » Sat Jun 29, 2013 11:46 pm

From the article linked by hafius500:
The only portfolio that every investor could logically hold is the overall market portfolio. Anything else is a kind of active management, and coming up with a set of fixed asset class weights and calling it a strategic benchmark is no less active than something more dynamic. While investors need to take advantage of risk premiums if they are going to have any hope of meeting the targets they have set for themselves, those risk premiums can neither be assumed into existence nor counted on to continue because they were there in some historical backtest.

The "tracking error" problem is a problem with unorthodox portfolio strategies because you can never be sure if the "error", when it's not in your favor, will ever be corrected, or just how long it will take for that to happen. You need a strong faith, brother, to keep the faith....
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Re: The enemy of "left tail" portfolios - bonds

Postby YDNAL » Sun Jun 30, 2013 10:03 am

Browser wrote:The "tracking error" problem is a problem with unorthodox portfolio strategies because you can never be sure if the "error", when it's not in your favor, will ever be corrected, or just how long it will take for that to happen. You need a strong faith, brother, to keep the faith....

The above quote does not relate with what you wrote in the OP - especially naming the "Larry" portfolio and focusing on rising interest rates.
In the OP, Browser wrote:I've noticed that the type of defensive portfolio allocation that is supposed to reduce "left tail" risk hasn't been faring particularly well this year..... Risk parity portfolios, such as the "all weather" portfolio advocated by Ray Dalio are down 10% or more, the Permanent Portfolio advocated by Harry Browne is down about 5%, and even the "Larry" portfolio advocated by Larry Swedroe (70% TIPS, 15% SCV, 15% ISC) is down around 3%. What all these portfolios have in common is a high and/or leveraged bond allocation. One of the risks of this type of allocation strategy is exposure to the risk of rising interest rates, such as we've started to see over the last few weeks. Something to keep in mind.

A high tilt/high Fixed Income allocation - one exposed to interest rates, would get you exactly what you expected. Whether this combo returns as the Total Market/Total Bond returns, YES, is unknown and may not be in your favor.

I use a variation of high tilt/high Fixed income, and here's what transpired with what YOU posted above for 1 year ending June 28, 2013 (Vanguard funds):

    70% TIPS (VISPX) -5.13% ← I wouldn't (and don't) use this
    15% SCV (VISVX) +26.01%
    15% ISC (VFSVX) +12.85%

    40% TBM (VBMFX) -0.95%
    30% TSM (VTSMX) +21.29%
    30% TISM (VGTSX) +13.48%
OK - enough with 1 year returns! :)
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