Improving the Dalio/Robbins All-Seasons Portfolio

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amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap »

stocksurfer wrote: Sun Dec 15, 2019 1:59 pm
amrap wrote: Sat Jan 12, 2019 3:14 am First, it is important to understand that the 4 seasons (states) are relative to the current market expectations (not absolute) and therefore the 4 seasons are:
  • Higher than expected inflation (rising prices)
  • Lower than expected inflation (or deflation)
  • Higher than expected economic growth
  • Lower than expected economic growth
For example, the "Higher than expected economic growth" season is not about if the economy will grow but if the economy will grow more than what is expected by the market today, which is reflected on assets prices. This vision is based on the efficient-market hypothesis (EMH, plenty of info on the internet).

Regarding your 9 states concern, these seasons are considered to be independent, so there are only 4 possible states. The fact that 2 states can happen at the same time doesn't mean we have a new state with a different set of assets doing well in it.

By allocating in a balance those assets that do well in specific seasons, the portfolio aims to offer reasonable returns whatever happens in the future while minimizing risks. So, using your example with equities:
  • if the economy grows more than expected they will do well (independent effect)
  • if inflation grows more than expected they won't be considerably affected (not in the quadrant). Instead, if inflation goes below expectations, equities will suffer (independent effect)
  • Whether the resulting effect on equities is positive or negative will depend on the particular circumstances
  • If this scenario happens, the return of the portfolio will rely on the rest of assets allocated to these quadrants
amrap, thanks for the explanation, I do find the "four quadrants" diagrams very confusing. If I understand you correctly, it's not really about 4 quadrants or 4 states, it's really about two separate optimization problems: (1) the selected assets as a mix should react neutrally to rising or falling inflation, i.e., the mix needs to have components that are positively correlated with inflation as well as negatively correlated; and (2) the selected assets as a mix should react neutrally to accelerating growth or slowing growth. Would you agree with that phrasing or am I getting it wrong?
Hi stocksurfer,
There are two factors (growth, inflation) and two possible variations (rising, falling), so there are 4 possible states (the quadrants) and the economy could be in any of them. Ideally, you'd want to have your risk equally exposed to these quadrants.

I'm not sure about your phrasing; I think it misses linking both factors, for example, you'll need assets that do well with raising inflation AND rising growth, etc.). Anyhow, I recommend you to go to the source and study the basics there; Bridgewater has some papers on this, for example, https://www.bridgewater.com/research-li ... -strategy/)
amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap »

Hi Bogleheads,

Last year, Bridgewater issued a report discussing the big opportunity that the opening up of financial markets in
China is giving to international investors by making the All Weather Chinese implementation possible. Furthermore, it discusses how this portfolio could increase return and reduce risk for investors in developed markets: https://www.bridgewater.com/resources/B ... estors.pdf

What are your ideas regarding this? What do you think would it be a feasible implementation of such All Weather China Asset Mix?
  • Stocks: there are several ETFs to gain exposure to China mainland stocks (A-shares), so this shouldn't be a problem
  • Bonds: there are some ETFs to be exposed to Mid Term and Long Term Chinese bonds, although I have not found Inflation Linked bonds, so the mix should be adjusted to a more basic version (maybe the Robbins' book version 15%MT 40%LT?)
  • Gold: as gold is traded in USD, would the common gold ETF serve as intended in the AW China Mix?
  • Commodities: as commodities are traded in USD, would the common commodity ETF serve as intended in the AW China Mix?
The report makes clear this is a rare opportunity for investors and I'm sure we could figure out how to implement the All Weather China Asset Mix to take advantage of the extra diversification and better risk/reward that having this (in combination with your local all weather portfolios) would give us.
YearTrader
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by YearTrader »

amrap wrote: Tue Jan 28, 2020 3:23 am Hi Bogleheads,

Last year, Bridgewater issued a report discussing the big opportunity that the opening up of financial markets in
China is giving to international investors by making the All Weather Chinese implementation possible. Furthermore, it discusses how this portfolio could increase return and reduce risk for investors in developed markets: https://www.bridgewater.com/resources/B ... estors.pdf

What are your ideas regarding this? What do you think would it be a feasible implementation of such All Weather China Asset Mix?
  • Stocks: there are several ETFs to gain exposure to China mainland stocks (A-shares), so this shouldn't be a problem
  • Bonds: there are some ETFs to be exposed to Mid Term and Long Term Chinese bonds, although I have not found Inflation Linked bonds, so the mix should be adjusted to a more basic version (maybe the Robbins' book version 15%MT 40%LT?)
  • Gold: as gold is traded in USD, would the common gold ETF serve as intended in the AW China Mix?
  • Commodities: as commodities are traded in USD, would the common commodity ETF serve as intended in the AW China Mix?
The report makes clear this is a rare opportunity for investors and I'm sure we could figure out how to implement the All Weather China Asset Mix to take advantage of the extra diversification and better risk/reward that having this (in combination with your local all weather portfolios) would give us.
Which ETFs are you targeting?

The paper suggests that you could diversity into China (think of your AA as a whole), that's different from creating a China version of the All Weather portfolio. IMO missing IL bonds should be fine, the 09 Bridgewater paper only included US, UK, Euro in their IL bonds pool. There's no need to expose to extra currency risk so gold and commodities should be working as intended.
amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap »

YearTrader wrote: Tue Jan 28, 2020 4:15 am
amrap wrote: Tue Jan 28, 2020 3:23 am Hi Bogleheads,

Last year, Bridgewater issued a report discussing the big opportunity that the opening up of financial markets in
China is giving to international investors by making the All Weather Chinese implementation possible. Furthermore, it discusses how this portfolio could increase return and reduce risk for investors in developed markets: https://www.bridgewater.com/resources/B ... estors.pdf

What are your ideas regarding this? What do you think would it be a feasible implementation of such All Weather China Asset Mix?
  • Stocks: there are several ETFs to gain exposure to China mainland stocks (A-shares), so this shouldn't be a problem
  • Bonds: there are some ETFs to be exposed to Mid Term and Long Term Chinese bonds, although I have not found Inflation Linked bonds, so the mix should be adjusted to a more basic version (maybe the Robbins' book version 15%MT 40%LT?)
  • Gold: as gold is traded in USD, would the common gold ETF serve as intended in the AW China Mix?
  • Commodities: as commodities are traded in USD, would the common commodity ETF serve as intended in the AW China Mix?
The report makes clear this is a rare opportunity for investors and I'm sure we could figure out how to implement the All Weather China Asset Mix to take advantage of the extra diversification and better risk/reward that having this (in combination with your local all weather portfolios) would give us.
Which ETFs are you targeting?

The paper suggests that you could diversity into China (think of your AA as a whole), that's different from creating a China version of the All Weather portfolio. IMO missing IL bonds should be fine, the 09 Bridgewater paper only included US, UK, Euro in their IL bonds pool. There's no need to expose to extra currency risk so gold and commodities should be working as intended.
No specific ETFs yet, I didn't do the deep research on ETFs available, but I've seen some following the MSCI China A index, which would give total exposure to China mainland (no Hong Kong, no Chinese companies traded in the US) and some exposing to a broad range of gov bonds.

As you pointed out, the report suggests diversifying in China as the world is becoming tri-polar and the opportunity of the Chinese financial markets being open to international investors now. However, it talks about the All Weather China Asset Mix and highlights the importance of both stocks and bonds being available now. So, even if it's not saying go 100% into China, I think they advocate for creating a China version of the All Weather and treat it independently.
Lock
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Lock »

Regarding China ETFs:

MCHI is probably the largest (high expense ratio)
FLCH has the same correlation as MCHI with a much lower expense ratio. The trade off here is the bid/ask spreads/liquidity aren’t as good.

For pure A-shares CNYA (high expense ratio)

CXSE is interesting as well - ex state owned companies. I personally see government involvement as a bigger advantage than disadvantage so I stick with a blend the first three.
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watchnerd
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by watchnerd »

If using EDV, I'd go short on the TIPS (individually or something like VTIP) to barbell it better with long Treasuries, thereby:

1. Lowering average duration closer to the market weight
2. Getting better pure CPI exposure at the short end of the spectrum, given EDV already extreme interest rate exposure



Full disclosure: this is what I do, but I stick to regular "long" Treasuries, not extended duration for reasons of duration matching to real life needs
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
YearTrader
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by YearTrader »

Lock wrote: Tue Jan 28, 2020 9:40 am Regarding China ETFs:

MCHI is probably the largest (high expense ratio)
FLCH has the same correlation as MCHI with a much lower expense ratio. The trade off here is the bid/ask spreads/liquidity aren’t as good.

For pure A-shares CNYA (high expense ratio)

CXSE is interesting as well - ex state owned companies. I personally see government involvement as a bigger advantage than disadvantage so I stick with a blend the first three.
Thanks Lock. I looked into the debt part (there's a good overview from aberdeen standard). There's not much choice and all includes Chinese corp dept, which I don't want to touch. Not to mention the currency risk given they are Renminbi-denominated. Probably not worth considering at the moment.
Immafreak
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Immafreak »

Well, ive switched to this portfolio a couple months ago and this week prob only down 1.5%. EDV, LTPZ, and gold counterbalancing the stock drops. Commodities been going down unsure why.
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firebirdparts
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by firebirdparts »

Commodities get consumed, but gold never is. That's what I think. Consumption of some tradeable commodities in China is way down. Oil is probably the worst right now, but I haven't actually checked a bunch of them.
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watchnerd
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by watchnerd »

firebirdparts wrote: Thu Feb 27, 2020 11:09 pm Commodities get consumed, but gold never is. That's what I think. Consumption of some tradeable commodities in China is way down. Oil is probably the worst right now, but I haven't actually checked a bunch of them.
So no metal is a commodity?

Silver, copper, iron, aluminum....they're all...what, if not commodities?
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firebirdparts
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by firebirdparts »

watchnerd wrote: Fri Feb 28, 2020 1:06 am
firebirdparts wrote: Thu Feb 27, 2020 11:09 pm Commodities get consumed, but gold never is. That's what I think. Consumption of some tradeable commodities in China is way down. Oil is probably the worst right now, but I haven't actually checked a bunch of them.
So no metal is a commodity?

Silver, copper, iron, aluminum....they're all...what, if not commodities?
I have no clue what you're talking about.
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watchnerd
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by watchnerd »

firebirdparts wrote: Fri Feb 28, 2020 7:19 am
watchnerd wrote: Fri Feb 28, 2020 1:06 am
firebirdparts wrote: Thu Feb 27, 2020 11:09 pm Commodities get consumed, but gold never is. That's what I think. Consumption of some tradeable commodities in China is way down. Oil is probably the worst right now, but I haven't actually checked a bunch of them.
So no metal is a commodity?

Silver, copper, iron, aluminum....they're all...what, if not commodities?
I have no clue what you're talking about.

Maybe I misunderstood.

I thought you were saying gold isn't a commodity because it's not consumed.

If so, then most other metals aren't commodities, either, as they're not consumed and can be recycled.
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klaus14
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 »

watchnerd wrote: Fri Feb 28, 2020 10:01 am
firebirdparts wrote: Fri Feb 28, 2020 7:19 am
watchnerd wrote: Fri Feb 28, 2020 1:06 am
firebirdparts wrote: Thu Feb 27, 2020 11:09 pm Commodities get consumed, but gold never is. That's what I think. Consumption of some tradeable commodities in China is way down. Oil is probably the worst right now, but I haven't actually checked a bunch of them.
So no metal is a commodity?

Silver, copper, iron, aluminum....they're all...what, if not commodities?
I have no clue what you're talking about.

Maybe I misunderstood.

I thought you were saying gold isn't a commodity because it's not consumed.

If so, then most other metals aren't commodities, either, as they're not consumed and can be recycled.
i guess we should say: gold is more than a commodity. that's why it's the only commodity i hold.
jadela
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by jadela »

I'm new to this forum and have to say, wow, thank you all for your work and the superb discussion in this thread. It was very educational to read!
azanon wrote: Thu Aug 31, 2017 3:21 pm
Now the back-tested risk/return of this portfolio is incredible (you have to substitute for BCI and EMLC). Also the correlation to the US stock market is a very low 0.18, so it's almost just outright uncorrelated to the US market.
@Azanon, I'm curious:

1) What do you recommend substituting for BCI & EMLC (or others) to backtest/visualize?
2) Any further updates to the portfolio since your last update in 2019? How has it done for you?

Again, thanks to you and everyone for all your work and generosity in sharing this.
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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon »

jadela wrote: Sat Apr 11, 2020 1:34 pm I'm new to this forum and have to say, wow, thank you all for your work and the superb discussion in this thread. It was very educational to read!
azanon wrote: Thu Aug 31, 2017 3:21 pm
Now the back-tested risk/return of this portfolio is incredible (you have to substitute for BCI and EMLC). Also the correlation to the US stock market is a very low 0.18, so it's almost just outright uncorrelated to the US market.
@Azanon, I'm curious:

1) What do you recommend substituting for BCI & EMLC (or others) to backtest/visualize?
2) Any further updates to the portfolio since your last update in 2019? How has it done for you?

Again, thanks to you and everyone for all your work and generosity in sharing this.
You could substitute DBC for BCI (the oldest commodities etf I’m aware of), and that’ll get you to 2010 on portfolio visualizer. I don’t know a good one for EMLC thats older but still local currency EM bonds.

Its doing fine so far. If you compared it to VG lifestrategy conservative (chosen because its SD is about the same and its a traditional portfolio) over the life of the portfolio (granted only 2018 with the Final OP securities), its 3.92 vs 1.45% CAGR with similar SD and almost identical max drawdown (so better Sharpe ratio).
jadela
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by jadela »

azanon wrote: Sun Apr 12, 2020 12:49 pm Its doing fine so far. If you compared it to VG lifestrategy conservative (chosen because its SD is about the same and its a traditional portfolio) over the life of the portfolio (granted only 2018 with the Final OP securities), its 3.92 vs 1.45% CAGR with similar SD and almost identical max drawdown (so better Sharpe ratio).
Thanks, Azanon. Two questions:

1) are the CAGRs you're quoting real or nominal returns (i.e. are they adjusted for inflation)?

2) How do you feel about the Pinwheel (https://portfoliocharts.com/2018/10/01/ ... portfolio/) or Golden Butterly (https://portfoliocharts.com/portfolio/golden-butterfly/) portfolios for a risk-parity allocation like you are seeking?

I'm having a hard time modeling them over a long enough timeline to get a real sense, but I took a crack at it here (only goes back to 2010): https://www.portfoliovisualizer.com/bac ... on16_3=7.5
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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon »

jadela wrote: Sun Apr 12, 2020 10:24 pm
azanon wrote: Sun Apr 12, 2020 12:49 pm Its doing fine so far. If you compared it to VG lifestrategy conservative (chosen because its SD is about the same and its a traditional portfolio) over the life of the portfolio (granted only 2018 with the Final OP securities), its 3.92 vs 1.45% CAGR with similar SD and almost identical max drawdown (so better Sharpe ratio).
Thanks, Azanon. Two questions:

1) are the CAGRs you're quoting real or nominal returns (i.e. are they adjusted for inflation)?

2) How do you feel about the Pinwheel (https://portfoliocharts.com/2018/10/01/ ... portfolio/) or Golden Butterly (https://portfoliocharts.com/portfolio/golden-butterfly/) portfolios for a risk-parity allocation like you are seeking?

I'm having a hard time modeling them over a long enough timeline to get a real sense, but I took a crack at it here (only goes back to 2010): https://www.portfoliovisualizer.com/bac ... on16_3=7.5
1) That was the inflation-adjusted CAGR that Portfolio visualizer gave.
2) Golden Butterfly incorporates some risk parity attributes, but not as much as the Permanent Portfolio it was partially developed from, and I would say not enough to warrant being called risk parity (whereas PP definitely qualifies IMO). I am personally not a fan due to the lack of international diversification, and I wouldn't be comfortable with 20% gold. I want at least some foreign exposure, including currencies, in my portfolio.

I don't see Pinwheel as being risk parity given the 65% to equities. It strikes me as a fairly aggressive portfolio - too aggressive for my tastes and, if i were a betting man, too aggressive for its developer Tyler as well.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by jadela »

azanon wrote: Mon Apr 13, 2020 7:35 am
jadela wrote: Sun Apr 12, 2020 10:24 pm
azanon wrote: Sun Apr 12, 2020 12:49 pm Its doing fine so far. If you compared it to VG lifestrategy conservative (chosen because its SD is about the same and its a traditional portfolio) over the life of the portfolio (granted only 2018 with the Final OP securities), its 3.92 vs 1.45% CAGR with similar SD and almost identical max drawdown (so better Sharpe ratio).
Thanks, Azanon. Two questions:

1) are the CAGRs you're quoting real or nominal returns (i.e. are they adjusted for inflation)?

2) How do you feel about the Pinwheel (https://portfoliocharts.com/2018/10/01/ ... portfolio/) or Golden Butterly (https://portfoliocharts.com/portfolio/golden-butterfly/) portfolios for a risk-parity allocation like you are seeking?

I'm having a hard time modeling them over a long enough timeline to get a real sense, but I took a crack at it here (only goes back to 2010): https://www.portfoliovisualizer.com/bac ... on16_3=7.5
1) That was the inflation-adjusted CAGR that Portfolio visualizer gave.
2) Golden Butterfly incorporates some risk parity attributes, but not as much as the Permanent Portfolio it was partially developed from, and I would say not enough to warrant being called risk parity (whereas PP definitely qualifies IMO). I am personally not a fan due to the lack of international diversification, and I wouldn't be comfortable with 20% gold. I want at least some foreign exposure, including currencies, in my portfolio.

I don't see Pinwheel as being risk parity given the 65% to equities. It strikes me as a fairly aggressive portfolio - too aggressive for my tastes and, if i were a betting man, too aggressive for its developer Tyler as well.
Thank you.

When you say:
azanon wrote: Mon Apr 13, 2020 7:35 am Golden Butterfly incorporates some risk parity attributes, but not as much as the Permanent Portfolio it was partially developed from, and I would say not enough to warrant being called risk parity
what do you see is missing? Trying to understand risk parity better.
azanon wrote: Mon Apr 13, 2020 7:35 am I don't see Pinwheel as being risk parity given the 65% to equities. It strikes me as a fairly aggressive portfolio
I can see that. Reading the intro post about it (https://portfoliocharts.com/2018/10/01/ ... portfolio/), it seems it started with about 60% of the portfolio from a PP / Core Four basis, then using 20% to tilt toward growth, with another 20% split across cash / gold.

At least, that's my still pretty naive understanding of it.
Last edited by jadela on Mon Apr 13, 2020 2:52 pm, edited 1 time in total.
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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon »

jadela wrote: Mon Apr 13, 2020 11:12 am
azanon wrote: Mon Apr 13, 2020 7:35 am Golden Butterfly incorporates some risk parity attributes, but not as much as the Permanent Portfolio it was partially developed from, and I would say not enough to warrant being called risk parity
what do you is missing? Trying to understand risk parity better.
It's not risk parity, not because missing key components (other than, maybe, IL bonds), rather because it's not designed to be perfectly balanced to each of the 4 economic scenarios. I'll copy/paste Tyler's own words from portfoliocharts.com: "The Golden Butterfly follows the same philosophy (as the Permanent Portfolio). The difference is that it tilts the portfolio slightly towards prosperity, the most common of the four conditions. And it does so by intentionally selecting an additional stock asset that complements the normal Permanent Portfolio stock index fund for rebalancing purposes and higher overall returns."

In contrast, I made a best attempt as creating a portfolio that adhered to Bridgewater's All-weather-story, where - if I designed it correctly - it has no bias at all to rising/falling growth, or to rising/falling inflation. That was the project I took on. I'm not necessarily claiming it's the best possible portfolio, rather was just making a best attempt as an unlevered risk-parity portfolio, whether that's a good thing or a bad thing. So I would say the only competitor to what I did is the vanilla Permanent Portfolio, and to a lesser extent, the Robbins portfolio.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by jadela »

Thank you for explaining that! That makes sense.
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Maestro G
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Maestro G »

I’m a little surprised that there isn’t more discussion on this thread about the etf RPAR https://rparetf.com/rpar that launched late last year?

I realize it is 50 basis points ER, but its managers have great experience (Alex Shahidi/Ex. Bridgewater Exec.) and in four short months it has over $300m AUM, and has performed as one might hope and expect albeit with a very short history.

Seems like more of a bonafide retail and institutional RP strategy than Robbins All-Seasons, from managers who actually know what they are doing and have the means of actually executing it.
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Chac2
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Chac2 »

Do longer-term TIPs, such as PIMCO 15+ Year US TIPS ETF (LTPZ), serve a double function in an All Weather type portfolio? They are intended to protect against surprise inflation, but do they also protect against stock market downturns in the way that long term treasure bond do? They seem to have recently done so, but I am not sure if this is their role in an AW portfolio.
zordan
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by zordan »

Hello, pls have a look at this paper. It goes in way more details on the Bridgewater all seasons portfolio construction.
http://sdcera.granicus.com/MetaViewer.p ... ta_id=9141

Anything you would change based on the above?

https://rparetf.com/rpar is also pretty interesting. P
ls see portfolio components here: https://rparetf.com/rpar/fact-sheet

Thanks!
Z
Imanuels
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Imanuels »

Since Ray Dalio has recently made some strong public statements concerning bonds (investors would be "pretty crazy to hold bonds" in this period), I'm wondering if anyone is changing something in the All-Seasons Portfolio to avoid the bond portion?
amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap »

Editing this on 05/02/2020 to clarify the notional allocations.
____

Hi,

I've researched the RPAR ETF materials and want to highlight some key points that I think are interesting and we can use to improve our portfolios:
  • They use two different reference indexes to mitigate the risk of deflation, depending on whether the long-term interest rates are below/above 1%. See Quarterly Review, pages 7 and 11, for further details.
  • The reference index they're using now (interest rates <1%) is in their Investment Case (the target allocation of this index is 25% global equities, 15% commodity producer equities, 17.5% gold, 20% TIPS, and 80% Bonds backed by 22.5% Treasury bills), and the one initially planned (interest rates >1%) in their Prospectus (25% global equities, 25% commodity producer equities+gold, 35% TIPS, and 60% bonds backed by 15% Treasury bills)
  • As you know, they leverage to level up the risk/return of the bonds allocation.
  • Their fact-sheet further details the allocation of stocks, 12.5% US, 5% international, 7.5% emerging markets.
Based on this, I think there are some essential points to learn from:
  • The change in allocation when interest rates are below/above 1% to mitigate deflation risk. Probably, one of those things that Dalio didn't detail in his interview with Robins.
  • Exposure to commodities through producers equities, which indirectly increases the stocks allocation (maybe that's why it is 25% stocks and not 30% as in the Dalio's simplified version).
  • Higher in gold and bonds (10% to 17.5%, 60% to 80% (leveraged)), and lower in TIPS (35% to 20%) depending on the long-term interest rates being below/above 1%.
Best,
Last edited by amrap on Sat May 02, 2020 6:11 am, edited 1 time in total.
amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap »

Editing this on 05/02/2020 as the figures were wrong.
____

Regarding the RPAR ETF and the above points, I have a question for the case without leverage.

In the Advanced Research Risk Parity Index (RPARTR) index (https://eqmindexes.com/risk-parity-index-summary/) there are two different allocations depending on the long-term interest rates being below/above 1%:

When long-term interest rates >1%:
  • 25% global equities (further breakdown in the documentation)
  • 15% commodity producer equities
  • 10% gold
  • 35% TIPS
  • 60% Treasury Bond Future backed by 15% Treasury Bills (cash)
When long-term interest rates <1%:
  • 25% global equities (further breakdown in the documentation)
  • 15% commodity producer equities
  • 17.5% gold
  • 20% TIPS
  • 80% Treasury Bond Future backed by 22.5% Treasury Bills (cash)
As discussed, these allocations are leveraged (100/145 and 100/157.5) and are probably the best option if you have the means to implement it or to access the ETF.

However, if you would like to implement a version of these without leverage (accepting a lower return), does keeping the notional allocations proportionally make sense? I mean, bringing the portfolios to the 100% keeping the relative proportions:

When long-term interest rates >1% (100/145):
  • 17.2% global equities (further breakdown in the documentation)
  • 10.3% commodity producer equities
  • 6.9% gold
  • 24.1% TIPS
  • 41.4% Treasury Bond Future backed by 15% Treasury Bills (cash)
When long-term interest rates <1% (100/157.5):
  • 15.9% global equities (further breakdown in the documentation)
  • 9.5% commodity producer equities
  • 11.1% gold
  • 12.7% TIPS
  • 50.8% Treasury Bond Future backed by 22.5% Treasury Bills (cash)
Last edited by amrap on Sat May 02, 2020 6:00 am, edited 2 times in total.
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Maestro G
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Maestro G »

Dear Amrap,

I think you pose some interesting questions. I just read Alex Shahidi’s book Balanced Asset Allocation, which as you probably know the entire RPAR philosophy and strategy is based on. It is clear to me that the most important decision making factor, which he pounds home in the book, is a balance of risk between the main asset classes relative to the possible economic climates at any given time and not their expected individual performance. From this, I think that the leveraging lever, if you will, particularly as it relates to treasuries is key to the expected success of the strategy. I think, for me at least, it would be very difficulty to try to replicate that effectively, and essentially the .50 bp er is what you are paying to not have to think about let alone try to achieve that as well as ARIS can.

It’s interesting that in the book he argues that using commodity stocks as the commodity allocation, may “not be an ideal fit for the balanced portfolio” because of the potential non-correlation between the actual commodity price as a reflection of the stock price and all the other associated risks of owning equity. And yet, with the exception of gold, it seems that a major part of the RPAR commodity allocation to date has been a collection of commodity producing equities, albeit in very small percentages for any given holding. If I had the opportunity, this is one of the questions I would have for Shahidi. Along these lines, I think that you are on to something: perhaps this is a way to slightly increase exposure to the equity allocation and commodities for that rising growth and inflation climate in a less costly manner?

As you might have surmised by now, I am seriously considering investing in this ETF. I find the strategy compelling: it employs many Boglehead principals, but of course is viewing diversification and balance through the very different risk parity prism. The argument that the standard 60/40 portfolio or any high equity allocation portfolio is to a great extent dependent on the continuation of a high growth low inflation environment to drive returns is a strong one I think. And, most importantly, in major drawdowns in the opposite climate and others, 40% (or less) in bonds is not nearly enough to mitigate that risk given the magnitude of risk associated with equities.

The ultimate question I think for the long term is the tradeoff: in a long term rising growth, low inflation raging bull market economic climate, how much will RPAR underperform a 60/40, and is that almost certain underperformance acceptable for the protection and balance the strategy offers in the inevitable or at least possible other 3 economic climates during ones investing lifetime? That’s a question that one can only answer individually. Because of the uncertainty of it all and the fact that my crystal ball is cloudy, the logic of this risk parity approach speaks to me. And, given our current economic climate, RPAR and risk parity strategy in general may have its true real time test.
Everything should be made as simple as possible, but no simpler. Most daily market noise is "a tale told by an idiot, full of sound and fury, signifying nothing.”
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap »

Maestro G wrote: Fri May 01, 2020 12:00 pm Dear Amrap,

I think you pose some interesting questions. I just read Alex Shahidi’s book Balanced Asset Allocation, which as you probably know the entire RPAR philosophy and strategy is based on. It is clear to me that the most important decision making factor, which he pounds home in the book, is a balance of risk between the main asset classes relative to the possible economic climates at any given time and not their expected individual performance. From this, I think that the leveraging lever, if you will, particularly as it relates to treasuries is key to the expected success of the strategy. I think, for me at least, it would be very difficulty to try to replicate that effectively, and essentially the .50 bp er is what you are paying to not have to think about let alone try to achieve that as well as ARIS can.

It’s interesting that in the book he argues that using commodity stocks as the commodity allocation, may “not be an ideal fit for the balanced portfolio” because of the potential non-correlation between the actual commodity price as a reflection of the stock price and all the other associated risks of owning equity. And yet, with the exception of gold, it seems that a major part of the RPAR commodity allocation to date has been a collection of commodity producing equities, albeit in very small percentages for any given holding. If I had the opportunity, this is one of the questions I would have for Shahidi. Along these lines, I think that you are on to something: perhaps this is a way to slightly increase exposure to the equity allocation and commodities for that rising growth and inflation climate in a less costly manner?

As you might have surmised by now, I am seriously considering investing in this ETF. I find the strategy compelling: it employs many Boglehead principals, but of course is viewing diversification and balance through the very different risk parity prism. The argument that the standard 60/40 portfolio or any high equity allocation portfolio is to a great extent dependent on the continuation of a high growth low inflation environment to drive returns is a strong one I think. And, most importantly, in major drawdowns in the opposite climate and others, 40% (or less) in bonds is not nearly enough to mitigate that risk given the magnitude of risk associated with equities.

The ultimate question I think for the long term is the tradeoff: in a long term rising growth, low inflation raging bull market economic climate, how much will RPAR underperform a 60/40, and is that almost certain underperformance acceptable for the protection and balance the strategy offers in the inevitable or at least possible other 3 economic climates during ones investing lifetime? That’s a question that one can only answer individually. Because of the uncertainty of it all and the fact that my crystal ball is cloudy, the logic of this risk parity approach speaks to me. And, given our current economic climate, RPAR and risk parity strategy in general may have its true real time test.
I agree, for the retail investor, replicating the leveraged version of the all-weather is difficult. If I would live in USD and wanted to implement an all-weather strategy, this would be my first option and I think the expense ratio would be compensated by the higher return that leveraging provides.

However, for different reasons (for example, living in a different currency, RPAR ETF not available, etc.), someone might be interested in replicating the unleveraged version of the all-weather portfolio. Of course, the returns are not going to be equity-like, but it is possible to have a risk parity portfolio with less return. Azanon and taguscove discussed this on the first page of the topic, and gave the "simple solution" of increasing allocations on LT bonds.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap »

Following up with the RPAR ETF and its Advanced Research Risk Parity Index (RPARTR) discussion, does someone understand the following?
  • In the ETF Fact Sheet and Quarterly Review, the total allocation they present adds up to 120%, with a 42.5% notional allocation to treasuries. This is for the periods when long-term interest rates are <1%.
  • In the ETF Quarterly Review, the total allocation they target long term adds up to 120%, with a 35% notional allocation to treasuries. This would be for the periods when long-term interest rates are >1%.
  • In the Index documentation, the allocations add up to 145% when interest rates are >1% (with 60% notional allocation to treasuries) and 157.5% when interest rates are <1% (with 80% notional allocation to treasuries)
Why the index is using total allocations of 145% and 157.5% while the ETF uses always 120%?
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Maestro G
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Maestro G »

Hi Amrap,

Yes, this is another question for Shahidi or his team. This is just an educated guess, but perhaps two possibilities: 1) the lowered leverage compared to the index is a result of the more refined components utilized by RPAR with respect to the other balanced assets (equity, commodities, gold etc, etc…) which facilitates less leverage required to achieve balanced risk. The index template seems to be more broad in its mechanics and constituents in order to illustrate and sample the strategy. Or, 2) Perhaps it’s an attempt to keep costs lower through fewer leveraged transactions while still providing adequate balance?

May I ask: where do you live? What country?

Best,

Maestro G
Everything should be made as simple as possible, but no simpler. Most daily market noise is "a tale told by an idiot, full of sound and fury, signifying nothing.”
NunoSousa
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by NunoSousa »

Hi,

I'm interested in building an European Version of the All Seasons Portfolio. I want to build it with accumulating ETFs.
The Original asset allocation is:
30% Stocks
40% Long Term Bonds
15% Intermediate Bonds
7.5% Gold
7.5% Commodities.

Personally I don't like the Commodities. They are too volatile and they draw you down even more on drawdown periods. So, the "improvement" I made here was to allocate 15% in gold.
So far, this is what I'm thinking to implement:

30% -> iShares Core MSCI World UCITS ETF USD (Acc) ISIN IE00B4L5Y983
40% -> Lyxor Euro Government Bonds 25+Y (DR) UCITS ETF (Acc) ISIN LU1686832194
15% -> Xtrackers Global Sovereign UCITS ETF 1C Euro Hedged ISIN LU0378818131
15% -> iShares Physical Gold ETC ISIN IE00B4ND3602

You might notice that on Intermediate Bonds I choosed a Global Sovereign Bond ETF Euro Hedged. With this, the portfolio it's more diversified and has a maturity period of aprox. 8 years, which it's the same period of intermediate bonds.

Any comments on this, guys ?

Thanks.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by LadyGeek »

NunoSousa has posted this question in our non-US investing forum: Re: Dalio/Robbins All-Seasons Portfolio [Europe]

I recommend those with non-US investing experience to discuss the portfolio in that thread.
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calcada
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by calcada »

AlphaX wrote: Fri Jan 03, 2020 2:22 pm Just launched in December 2019, the RPAR risk parity ETF from ARIS (one partner is ex-Bridgewater)
https://rparetf.com

From the prospectus:
https://rparetf.com/rpar/prospectus

Exposure | Asset Class | Sub-Class
35% | TIPS | Long-Term TIPS (15+ years)
25% | Global Equities | U.S. Equities, Non-U.S. Developed Markets Equities, Emerging Markets Equities
25% | Commodities | Commodity Producer Equities, Gold
15% | U.S. Treasuries | U.S. Treasury Bills, U.S. Treasury Futures

Posting this here in case the allocations can help inform/improve azanon's asset allocation (which I am in the process of replicating for my portfolio).
Of note is the higher commodities allocation.
Those allocations look like they don't use any leverage but they do infact. Not sure to which assets they are applying the leverage.

How would someone go about including this diversified ETF in their overall already diversified portfolio? Or would they just go 100% on this ETF?
Last edited by calcada on Mon Jun 22, 2020 6:31 am, edited 1 time in total.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by calcada »

Imanuels wrote: Sat Apr 25, 2020 1:18 pm Since Ray Dalio has recently made some strong public statements concerning bonds (investors would be "pretty crazy to hold bonds" in this period), I'm wondering if anyone is changing something in the All-Seasons Portfolio to avoid the bond portion?
Stocks are also getting very expensive. Seems like nothing is safe to hold after decades long stocks and bonds bull markets.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Blue456 »

calcada wrote: Mon Jun 22, 2020 6:10 am
Imanuels wrote: Sat Apr 25, 2020 1:18 pm Since Ray Dalio has recently made some strong public statements concerning bonds (investors would be "pretty crazy to hold bonds" in this period), I'm wondering if anyone is changing something in the All-Seasons Portfolio to avoid the bond portion?
Stocks are also getting very expensive. Seems like nothing is safe to hold after decades long stocks and bonds bull markets.
The time to buy was March.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by snailderby »

1. For what (little) it's worth, RPAR seems to have underperformed Browne's Permanent Portfolio and Dalio/Robbins' All-Seasons Portfolio since its inception, according to Portfolio Visualizer. See https://www.portfoliovisualizer.com/bac ... on7_3=7.50.

2.
calcada wrote: Mon Jun 22, 2020 6:04 am
AlphaX wrote: Fri Jan 03, 2020 2:22 pm Just launched in December 2019, the RPAR risk parity ETF from ARIS (one partner is ex-Bridgewater)
https://rparetf.com

From the prospectus:
https://rparetf.com/rpar/prospectus

Exposure | Asset Class | Sub-Class
35% | TIPS | Long-Term TIPS (15+ years)
25% | Global Equities | U.S. Equities, Non-U.S. Developed Markets Equities, Emerging Markets Equities
25% | Commodities | Commodity Producer Equities, Gold
15% | U.S. Treasuries | U.S. Treasury Bills, U.S. Treasury Futures

Posting this here in case the allocations can help inform/improve azanon's asset allocation (which I am in the process of replicating for my portfolio).
Of note is the higher commodities allocation.
Those allocations look like they don't use any leverage but they do infact. Not sure to which assets they are applying the leverage.

How would someone go about including this diversified ETF in their overall already diversified portfolio? Or would they just go 100% on this ETF?
The leverage comes through the use of treasury futures. This is from the prospectus:
*U.S. Treasury bills serve as collateral for 10-year U.S. Treasury note futures with notional exposure of 60% of the RPAR Index.
P.S. Welcome to the forum, calcada!
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Robot Monster »

NunoSousa wrote: Sun Jun 21, 2020 6:12 am Hi,

I'm interested in building an European Version of the All Seasons Portfolio. I want to build it with accumulating ETFs.
The Original asset allocation is:
30% Stocks
40% Long Term Bonds
15% Intermediate Bonds
7.5% Gold
7.5% Commodities.

Personally I don't like the Commodities. They are too volatile and they draw you down even more on drawdown periods. So, the "improvement" I made here was to allocate 15% in gold.
I see commodities and gold as insurance against high inflation. I think it's better to have two baskets of eggs for this type of protection rather than depend solely on gold.

During the period when inflation really took off, beginning 1968 and ending 1980, commodities rose from $97.70 to $330.
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manyuh
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by manyuh »

Hello,

I stumbled across this thread googling All Weathers. This is exactly what I was looking for. Thank you Azanon and everyone for all the work and amazing discussion!

I have newbie investor questions. I know this forum isn't meant as formal investment advising, but any insights will be greatly appreciated.

1) Is there a minimum investment amount I should start with to implement Azanon's latest All Weather's portfolio? From reading through the thread, it seems I need to consider the the cost-effectiveness of a portfolio and the investing amount is a big factor in it. A $10k portfolio vs $100k portfolio would have different cost-effectiveness. I'm a newbie so I'm more of a $10k portfolio type here. Below is the latest Azanon's portfolio that I'm going for:

20% Vanguard U.S. Value Factor ETF (VFVA)
10% Market Vectors Emerging Mkts Local ETF (EMLC)
20% Vanguard Extended Duration Treasury ETF (EDV)
35% PIMCO 15+ Year US TIPS ETF (LTPZ)
7.5% Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI)
7.5% Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL)

2) Is it a good idea to keep adding to the All Weather's portfolio? Like monthly addition to the portfolio that skims it off my paycheck? I imagine this part won't be automate-able since I'll have to make sure whatever I set aside monthly is enough to distribute across All Weather's portfolio to the specified percentage split. I know Azanon mentioned there may be a platform that will automate customized portfolio someday - I wonder if that's available nowadays in Vanguard? It sounds like M1 and other platforms offers it but they have higher cost.

3) Rebalancing - I plan to do an annual rebalancing. Am I understanding it correctly the mechanics of doing that is to see if the FMV% of each EFT in the portfolio matches the original percentage split as listed in question 1 above?

Any thoughts, comments are all welcome! Thank you so much!
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by snailderby »

manyuh wrote: Wed Jul 08, 2020 4:48 pm Hello,

I stumbled across this thread googling All Weathers. This is exactly what I was looking for. Thank you Azanon and everyone for all the work and amazing discussion!

I have newbie investor questions. I know this forum isn't meant as formal investment advising, but any insights will be greatly appreciated.

1) Is there a minimum investment amount I should start with to implement Azanon's latest All Weather's portfolio? From reading through the thread, it seems I need to consider the the cost-effectiveness of a portfolio and the investing amount is a big factor in it. A $10k portfolio vs $100k portfolio would have different cost-effectiveness. I'm a newbie so I'm more of a $10k portfolio type here. Below is the latest Azanon's portfolio that I'm going for:

20% Vanguard U.S. Value Factor ETF (VFVA)
10% Market Vectors Emerging Mkts Local ETF (EMLC)
20% Vanguard Extended Duration Treasury ETF (EDV)
35% PIMCO 15+ Year US TIPS ETF (LTPZ)
7.5% Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI)
7.5% Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL)

2) Is it a good idea to keep adding to the All Weather's portfolio? Like monthly addition to the portfolio that skims it off my paycheck? I imagine this part won't be automate-able since I'll have to make sure whatever I set aside monthly is enough to distribute across All Weather's portfolio to the specified percentage split. I know Azanon mentioned there may be a platform that will automate customized portfolio someday - I wonder if that's available nowadays in Vanguard? It sounds like M1 and other platforms offers it but they have higher cost.

3) Rebalancing - I plan to do an annual rebalancing. Am I understanding it correctly the mechanics of doing that is to see if the FMV% of each EFT in the portfolio matches the original percentage split as listed in question 1 above?

Any thoughts, comments are all welcome! Thank you so much!
Welcome to the forum! You should absolutely feel free to post any portfolio questions you have here. There is even a template for Asking Portfolio Questions if you ever want to request a formal review of your investment plan.

1. I don't see any reason why Azanon's portfolio wouldn't work with a $10K portfolio instead of a $100K portfolio.

2. M1 Finance is free to use (for the basic version). Just note that if you ever decide to transfer your account to another brokerage, M1 Finance charges $100 for direct outgoing account transfers. They also charge $100 to close an IRA. See https://www.m1finance.com/legal/disclosures/misc-fees/.

3. You got it!
manyuh
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by manyuh »

Thank you for reply snailderby!!
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by willthrill81 »

Robot Monster wrote: Mon Jun 22, 2020 9:29 am I see commodities and gold as insurance against high inflation. I think it's better to have two baskets of eggs for this type of protection rather than depend solely on gold.
Many view stocks as being good long-term 'insurance' against high inflation, though 1973-1974 demonstrated that sudden, unexpected inflation can at least temporarily hurt stocks.
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Robot Monster »

willthrill81 wrote: Thu Jul 09, 2020 10:37 am
Robot Monster wrote: Mon Jun 22, 2020 9:29 am I see commodities and gold as insurance against high inflation. I think it's better to have two baskets of eggs for this type of protection rather than depend solely on gold.
Many view stocks as being good long-term 'insurance' against high inflation, though 1973-1974 demonstrated that sudden, unexpected inflation can at least temporarily hurt stocks.
Good point. Going by the idea it's better to have more baskets than fewer, certainly you'd want a stocks basket, even if gold performed better during the high inflation period of the 70's. From 1972-1980, $1000 turned into $20,995 for U.S. stocks, $135,419 for gold.

The 1968-1980 period were certainly an excellent period of performance for commodities judging from this graph,
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calcada
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by calcada »

Hi,

Could you explain the reasoning behind the following allocation percentages for EDV and LTPZ?

20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
30% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%

Why did you allocate more to LTPZ compared to EDV? Wouldn't risk parity and returns be improved if you allocated more to EDV and less to LTPZ?

Also you wrote that 40% of your portfolio is in this all seasons portfolio. Why not replace it and put 40% of your portfolio into RPAR instead? Do you think this portfolio is superior to RPAR?
allweather
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by allweather »

Hello!

I revise reference and use this portfolio.

Here is my now portfolio.

VT(Vanguard Total World Stock) -20%
VWO(Vanguard Emerging Market Stock) -10%
EDV(Vanguard Extended Duration Treasury)-22.5%
LTPZ(Pimco 15 Year U.S. TIPS Index) -22.5%
VCLT(Vanguard Long-Term Corporate Bond)-7.5%
EMLC(EM Local Currency Bond) -7.5%
DBC(Invesco DB Commodity Index Trac) -5%
IAU(iShares Gold Trust) -5%


But these days i study all-weather portfolio and know problem of DBC.
Because DBC Invest in commodity futures.
Because of futures, DBC asset value gradually disappears.

So, i find more and more information and i find RPAR ETF.
RPAR use Commodity producer equity.

So i backtest
100% DBC and 100% GUNR(commodity producer etf)

they go same direction however GUNR etf asset value don`t disappears.

So, My questions are

1. How about my current portfolio overall

2. How about substitute DBC with GUNR

3. i saw Corporate debt in bridge water paper so i add VCLT in my portfolio. how about it?

sorry for my broken english. but i wait asset allocation geniuses's reply really!!

because in my country, there is no one i can ask. people don't have interest in asset allocation just in striking it rich.

thank you really~!
Nightowl99
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Nightowl99 »

There's a podcast about RPAR on the Seeking Alpha website, in case you're interested. I may have also seen a YouTube video that goes into detail about the composition of RPAR and how it's leveraged, which explains how certain percentages appear to be over 100% sometimes. I don't understand all the intricacies of the All Weather Portfolio but have enjoyed watching Ray Dalio YouTube videos lately. It's interesting to read about anyway.
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index20
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by index20 »

First post here; I joined because of this interesting discussion. Thank you to the contributors so far.

Reading through the thread it seems like some people want to keep it simple in which case the new RPAR etf probably fits the bill. I dug into this a bit more and have come up with a few alternatives and portfolios utilizing RPAR and leverage. For my first post I wanted to dig a bit more into the ETF. The index was back tested to 1998 with a CAGR of 9.5% and standard deviation of 9.9%.

RPARTR Factsheet

The index is:

25% Equity
12.5% US Equities (VTI)
5% Non-US Developed Equity (VEA)
7.5% Emerging Market Equity (VWO)

25% Commodity/Gold
10% Gold (GLDM)
15% Global Commodity Producer Equity Index :
5.35% Energy
0.75% Clean Energy
5.25% Diversified Mining (precious metals, recycles, and steel/aluminium producers are excluded)
3% Agricultural
0.75% Water

35% TIPS
35% Long-term TIPS (LTPZ)

60% 10-yr Treasury Futures
15% 1-3 Mont Treasuries (BIL) held as collateral

There is a special weighting applied to guard against deflation whenever the yield on the 10-yr T-Bill is below 1%:

25% Equity (same as above)

32.5% Commodity/Gold
17.5% Gold
15% Commodity Producer Equity Index (same as above)

20% TIPS
20% Long-term TIPS (LTPZ)

80% 10-yr Treasury Futures
22.5% 1-3 Mont Treasuries (BIL) held as collateral

The ETF seems to use less leverage than the index (it is following the deflation protection allocation right now):

25% Equity
12.5% US Equities (VTI)
5% Non-US Developed Equity (VEA)
7.5% Emerging Market Equity (VWO)

32.8% Commodity/Gold
17.8% Gold (BAR/GLDM)
15% Global Commodity Producer Equity Index :
5.3% Energy
1.2% Machinery
0.3% Food
0.3% Biotech
0.1% Building Materials
1.3% Chemicals
0.1% Distribution
0.1% Electrical Components
0.2% Housewares
0.8% Iron Miners
0.7% Clean Energy
4.4% Diversified Mining (precious metals, recycles, and steel/aluminium producers are excluded)
3% Agricultural
0.2% Water

20.5% LT TIPS
TIPS ladder similar to LTPZ owned directly

42.5% Treasury Futures
24% 10-yr Treasury Futures
18.5% 25+ yr Treasury Futures
21.7% 1-3 Month T-Bills held as collateral

It seems like the advisor is probably using the increased volatility of the ultra long treasuries to take a smaller position than the 80% dictated by the index and use less leverage. I am guessing the commodity equity index is identical for the index and etf, software just classifies the sectors differently. Overall it seems like a nice roll up of the risk parity strategy, but does cost 0.5% and will have some tracking error against the backtested index. I'll share some other portfolios I put together and back tested that use RPAR and NTSX (90/60 ETF) as components soon!
calcada
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by calcada »

snailderby wrote: Mon Jun 22, 2020 8:14 am
*U.S. Treasury bills serve as collateral for 10-year U.S. Treasury note futures with notional exposure of 60% of the RPAR Index.
P.S. Welcome to the forum, calcada!
Thank you. Does that mean the U.S. Treasuries exposure is not really 15% but 60%?

Exposure | Asset Class | Sub-Class
35% | TIPS | Long-Term TIPS (15+ years)
25% | Global Equities | U.S. Equities, Non-U.S. Developed Markets Equities, Emerging Markets Equities
25% | Commodities | Commodity Producer Equities, Gold
60% | U.S. Treasuries | U.S. Treasury Bills, U.S. Treasury Futures

The total exposure being 145%. Would this be correct to say?
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Maestro G »

calcada wrote: Wed Aug 12, 2020 3:28 pm
snailderby wrote: Mon Jun 22, 2020 8:14 am
*U.S. Treasury bills serve as collateral for 10-year U.S. Treasury note futures with notional exposure of 60% of the RPAR Index.
P.S. Welcome to the forum, calcada!
Thank you. Does that mean the U.S. Treasuries exposure is not really 15% but 60%?

Exposure | Asset Class | Sub-Class
35% | TIPS | Long-Term TIPS (15+ years)
25% | Global Equities | U.S. Equities, Non-U.S. Developed Markets Equities, Emerging Markets Equities
25% | Commodities | Commodity Producer Equities, Gold
60% | U.S. Treasuries | U.S. Treasury Bills, U.S. Treasury Futures

The total exposure being 145%. Would this be correct to say?
Hi Calcada,

The long term default target asset allocation that is rebalanced to quarterly is:

35% - Long Term TIPS
25% - Global Equities
25% - Commodities (Producers 15/Physical Gold 10)
35% - US Treasuries

So, this is obviously a long term leverage of 20%. When 10yr. treasuries are less than 1%, Fed Fund rate is low or 0 and other “rare deflationary risks" are evident to management as they are now, the portfolio is further modified to this target allocation:

25% - Global Equities
42.5 % - Treasuries (increase from the TIPS allocation)
20% - Long Term TIPS (reduced by 15%)
17.5% - Gold (increase from the TIPS allocation)
15% - Commodity Producers

You can see that in their excellent 2nd quarter report: https://rparetf.com/quarterlyreviews/file/OQ==

Other rare and/or extreme regime environments would, I assume, lead to other allocation modifications as management deems appropriate to maintain balanced risk in the portfolio.

Hope that helps.

Maestro G
Everything should be made as simple as possible, but no simpler. Most daily market noise is "a tale told by an idiot, full of sound and fury, signifying nothing.”
index20
Posts: 13
Joined: Mon Aug 10, 2020 12:57 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by index20 »

Maestro G wrote: Wed Aug 12, 2020 6:10 pm
Hi Calcada,

The long term default target asset allocation that is rebalanced to quarterly is:

35% - Long Term TIPS
25% - Global Equities
25% - Commodities (Producers 15/Physical Gold 10)
35% - US Treasuries

So, this is obviously a long term leverage of 20%. When 10yr. treasuries are less than 1%, Fed Fund rate is low or 0 and other “rare deflationary risks" are evident to management as they are now, the portfolio is further modified to this target allocation:

25% - Global Equities
42.5 % - Treasuries (increase from the TIPS allocation)
20% - Long Term TIPS (reduced by 15%)
17.5% - Gold (increase from the TIPS allocation)
15% - Commodity Producers

You can see that in their excellent 2nd quarter report: https://rparetf.com/quarterlyreviews/file/OQ==

Other rare and/or extreme regime environments would, I assume, lead to other allocation modifications as management deems appropriate to maintain balanced risk in the portfolio.

Hope that helps.

Maestro G
Where are you getting 35% treasuries? The index provider says 60% 10-yr under normal circumstances and 80% when the 10-yr yields less than 1%. The ETF is holding 24% 10 yr treasuries and 18.5% ultra long term treasuries right now. A quick look shows the 3-yr average volatility of the ultras was 2.35x the 10yr so on a risk basis they are 68% long 10-yr treasuries right now. I suspect they are using a shorter than 3-yr look back on the volatility of the two and coming up with a higher multiplier...
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Maestro G
Posts: 124
Joined: Fri Aug 03, 2007 7:55 pm
Location: San Francisco

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Maestro G »

index20 wrote: Wed Aug 12, 2020 7:48 pm
Maestro G wrote: Wed Aug 12, 2020 6:10 pm
Hi Calcada,

The long term default target asset allocation that is rebalanced to quarterly is:

35% - Long Term TIPS
25% - Global Equities
25% - Commodities (Producers 15/Physical Gold 10)
35% - US Treasuries

So, this is obviously a long term leverage of 20%. When 10yr. treasuries are less than 1%, Fed Fund rate is low or 0 and other “rare deflationary risks" are evident to management as they are now, the portfolio is further modified to this target allocation:

25% - Global Equities
42.5 % - Treasuries (increase from the TIPS allocation)
20% - Long Term TIPS (reduced by 15%)
17.5% - Gold (increase from the TIPS allocation)
15% - Commodity Producers

You can see that in their excellent 2nd quarter report: https://rparetf.com/quarterlyreviews/file/OQ==

Other rare and/or extreme regime environments would, I assume, lead to other allocation modifications as management deems appropriate to maintain balanced risk in the portfolio.

Hope that helps.

Maestro G
Where are you getting 35% treasuries? The index provider says 60% 10-yr under normal circumstances and 80% when the 10-yr yields less than 1%. The ETF is holding 24% 10 yr treasuries and 18.5% ultra long term treasuries right now. A quick look shows the 3-yr average volatility of the ultras was 2.35x the 10yr so on a risk basis they are 68% long 10-yr treasuries right now. I suspect they are using a shorter than 3-yr look back on the volatility of the two and coming up with a higher multiplier...
I believe we are saying the same thing in a different manner: click on the link that I provided above that will take you to their 2nd Quarter report. Scroll down to the asset allocation area in that report, and you’ll see the long term target allocation that I am referring to. Not the current allocation, but the long term default allocation that under “normal" circumstances the portfolio is rebalanced back to which is 35% percent treasuries
employing treasury bills as collateral for long term treasury bonds.

Maestro G
Everything should be made as simple as possible, but no simpler. Most daily market noise is "a tale told by an idiot, full of sound and fury, signifying nothing.”
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