All Weather leveraged stomps Hedgefundie and other portfolios !

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danyboy7
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All Weather leveraged stomps Hedgefundie and other portfolios !

Post by danyboy7 » Sun Jul 26, 2020 6:01 am

Hi guys
Recently I've come across this article about RPAR,the new ETF risk-parity inspired by All Season stategy.It's managers are people that have worked with Dalio at Bridgeawater https://seekingalpha.com/article/435943 ... transcript
The most interesting thing are that it is a leveraged etf (mild leverage exposure around 0.20) and that they are not using etc replicating commodities (and it makes sense due to past abysmall performance of etc commodities due to contango effect of futures) but etf replicating commodities stock 8-)
I've tried a simulation using utilities instead of commodities and find out that their performance are pretty similar. Here is the backtest on PV since 1993 using utilities vs sp500 vs doubling gold % instead of using commodities (we are allowed to do this change because commodities and gold perform similarly in the same environment according to Dalio's quadrants) https://www.portfoliovisualizer.com/bac ... mbol17=GLD
And that's not all.I would like to ask you also what do you think about this AW leveraged x3 version proposed by the optimizing blog https://www.theoptimizingblog.com/lever ... portfolio/
The stats are pretty impressive :shock:
The AWx3 with utilities version rebalanced quarterly has achieved since 1992 an impressive 19,12 CAGR humiliating the sp500 in every single metrics....
Is anyone running those portfolios or considering to do so ?
Last edited by danyboy7 on Tue Jul 28, 2020 2:41 am, edited 2 times in total.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by midareff » Sun Jul 26, 2020 9:10 am

Risk parity and mumbo jumbo marketing strategies are certainly not what I want. The risks in being long stocks and bonds are enough for me.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by snailderby » Sun Jul 26, 2020 9:30 am

The link to Portfolio Visualizer isn't working for me. You might need to select "Link" in Portfolio Visualizer before cutting and pasting the URL.

Using utilities instead of commodities or gold is an interesting idea. But what's the rationale for making that substitution? Better past performance? Is there reason to believe that utilities can serve the same function that commodities and gold do in the All Weather Portfolio?

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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 10:10 am

snailderby wrote:
Sun Jul 26, 2020 9:30 am
The link to Portfolio Visualizer isn't working for me. You might need to select "Link" in Portfolio Visualizer before cutting and pasting the URL.

Using utilities instead of commodities or gold is an interesting idea. But what's the rationale for making that substitution? Better past performance? Is there reason to believe that utilities can serve the same function that commodities and gold do in the All Weather Portfolio?
I think you misunderstood me.I'm referring to the substitution of commodities with utilities.So for example 7.5% utilities and 7.5% gold
Or doing 15% gold if you don't want neither of them. Commodities based on futures is a terrible idea due to contango.The most suitable option would be creating a basket of stock commodities as mangament's RPAR did. Or using utilities stock which is a easier job instead of creating something by ourselves
I'm gonna work with PV visualizer link's issue and show you also the simulation of AW with commodities (classical version) vs AW with utilities
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 10:15 am

All links have been corrected and now are functioning properly
Here is the comparison of classical AW with commodities vs AW with utilities since 2006 (the max data available for dbc commodities)
https://www.portfoliovisualizer.com/bac ... n17_3=7.50
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 10:22 am

the problem I see is that Ray Dalio has said on many occasions that you must be crazy to want to hold bonds, because of the low yields and because a lot of dollars will be printed in the coming years since it's the only way to service that debt.
So having nearly half the portfolio in bonds has worked well during the bonds bull market, but doesn't seem to be a good idea now, based on Ray's own words.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 10:26 am

steve321 wrote:
Sun Jul 26, 2020 10:22 am
the problem I see is that Ray Dalio has said on many occasions that you must be crazy to want to hold bonds, because of the low yields and because a lot of dollars will be printed in the coming years since it's the only way to service that debt.
So having nearly half the portfolio in bonds has worked well during the bonds bull market, but doesn't seem to be a good idea now, based on Ray's own words.
I'm pretty sure Ray was referring to holding bonds alone without a proper strategy.We cannot afford to do market timing and go 100% stocks.What happens if a 2000 crysis occurs again ? the portfolio would be heavily damaged and it would occur several years before recovering the drawdown
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 10:35 am

danyboy7 wrote:
Sun Jul 26, 2020 10:26 am
steve321 wrote:
Sun Jul 26, 2020 10:22 am
the problem I see is that Ray Dalio has said on many occasions that you must be crazy to want to hold bonds, because of the low yields and because a lot of dollars will be printed in the coming years since it's the only way to service that debt.
So having nearly half the portfolio in bonds has worked well during the bonds bull market, but doesn't seem to be a good idea now, based on Ray's own words.
I'm pretty sure Ray was referring to holding bonds alone without a proper strategy.We cannot afford to do market timing and go 100% stocks.What happens if a 2000 crysis occurs again ? the portfolio would be heavily damaged and it would occur several years before recovering the drawdown
Yes, it's a question I have struggled with myself. For a start I think it's probably wise to hold more gold (I think he said somewhere to hold between 7,5 and 15%, so probably wise to be closer to 15%) then yes hold some cash and bonds, but not as much as he told Tony Robbins; that was several years ago.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 10:46 am

steve321 wrote:
Sun Jul 26, 2020 10:35 am
danyboy7 wrote:
Sun Jul 26, 2020 10:26 am
steve321 wrote:
Sun Jul 26, 2020 10:22 am
the problem I see is that Ray Dalio has said on many occasions that you must be crazy to want to hold bonds, because of the low yields and because a lot of dollars will be printed in the coming years since it's the only way to service that debt.
So having nearly half the portfolio in bonds has worked well during the bonds bull market, but doesn't seem to be a good idea now, based on Ray's own words.
I'm pretty sure Ray was referring to holding bonds alone without a proper strategy.We cannot afford to do market timing and go 100% stocks.What happens if a 2000 crysis occurs again ? the portfolio would be heavily damaged and it would occur several years before recovering the drawdown
Yes, it's a question I have struggled with myself. For a start I think it's probably wise to hold more gold (I think he said somewhere to hold between 7,5 and 15%, so probably wise to be closer to 15%) then yes hold some cash and bonds, but not as much as he told Tony Robbins; that was several years ago.
If it's really "All Weather", it can't change form year to year,it does not make sense.In my opinion we won't see rising rates.I believe treasury rates could go below zero as happens in most of european countries
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 10:55 am

danyboy7 wrote:
Sun Jul 26, 2020 10:46 am

If it's really "All Weather", it can't change form year to year,it does not make sense.
I see what you mean but have you read his articles on the paradigm shift and the end of the big debt cycle? According to Ray we are at a very particular time in history (like the 1930s) and I have heard him say again and again that it's pretty absurd to hold bonds now.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 11:06 am

steve321 wrote:
Sun Jul 26, 2020 10:55 am
danyboy7 wrote:
Sun Jul 26, 2020 10:46 am

If it's really "All Weather", it can't change form year to year,it does not make sense.
I see what you mean but have you read his articles on the paradigm shift and the end of the big debt cycle? According to Ray we are at a very particular time in history (like the 1930s) and I have heard him say again and again that it's pretty absurd to hold bonds now.
Ray himself admits that he doesn't know what's gonna happen.If he was sure about the upcoming crysis,all what he had to do is to open a big short position.And guess what ? he hasn't done it yet. And Ray has also made mistakes in the past,predicting crashes that never arrived.
He failed when tried to do market timing with Pure Alpha,his AW however has not yet failed.We should follow this path
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Re: All Weather with utilities vs All Weather Leveraged !

Post by nisiprius » Sun Jul 26, 2020 11:13 am

steve321 wrote:
Sun Jul 26, 2020 10:55 am
danyboy7 wrote:
Sun Jul 26, 2020 10:46 am

If it's really "All Weather", it can't change form year to year,it does not make sense.
I see what you mean but have you read his articles on the paradigm shift and the end of the big debt cycle? According to Ray we are at a very particular time in history (like the 1930s) and I have heard him say again and again that it's pretty absurd to hold bonds now.
I see what you mean but Tony Robbins, in Money, Master the Game, p. 392, wrote
I looked in Ray’s eyes, and a smile came across his face. “All right, Tony. It wouldn’t be exact or perfect, but let me give you a sample portfolio that the average person could implement.” And then slowly he began to unfold the exact sequence for what his experience shows will give you and me the increased probability of the highest return in any market environment, as long as we live, with the least amount of risk.
It was a portfolio with 55% bonds. So did Robbins misrepresent Dalio? Or doesn't "any market environment, as long as we live" mean "any market environment, as long as we live?"
Last edited by nisiprius on Sun Jul 26, 2020 11:20 am, edited 2 times in total.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 11:18 am

nisiprius wrote:
Sun Jul 26, 2020 11:13 am
steve321 wrote:
Sun Jul 26, 2020 10:55 am
danyboy7 wrote:
Sun Jul 26, 2020 10:46 am

If it's really "All Weather", it can't change form year to year,it does not make sense.
I see what you mean but have you read his articles on the paradigm shift and the end of the big debt cycle? According to Ray we are at a very particular time in history (like the 1930s) and I have heard him say again and again that it's pretty absurd to hold bonds now.
I see what you mean but Tony Robbins, in Money, Master the Game, p. 392, wrote
I looked in Ray’s eyes, and a smile came across his face. “All right, Tony. It wouldn’t be exact or perfect, but let me give you a sample portfolio that the average person could implement.” And then slowly he began to unfold the exact sequence for what his experience shows will give you and me the increased probability of the highest return in any market environment, as long as we live, with the least amount of risk.
It was a portfolio with 55% bonds. So did Robbins misrepresent Dalio? Or doesn't "any market environment, as long as we live" mean "any market environment, as long as we live?"
yes it is a question I have struggled with. And I've asked Ray; unlike several other questions that I have asked him and to which he took the time to reply, he did not reply to this one. However, he does say here that holding bonds is 'crazy' right now
https://www.youtube.com/watch?v=9jmXZkfUZwY
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 11:22 am

danyboy7 wrote:
Sun Jul 26, 2020 10:46 am

If it's really "All Weather", it can't change form year to year,it does not make sense.In my opinion we won't see rising rates.I believe treasury rates could go below zero as happens in most of european countries
I am in Europe. If they go below zero in the US, why would you want to hold them?! Yes they would increase in value as yields fall further, and they might have some re balancing bonus, but over the long term they will be a terrible investment.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by nisiprius » Sun Jul 26, 2020 11:24 am

steve321 wrote:
Sun Jul 26, 2020 11:18 am
Yes it is a question I have struggled with. And I've asked Ray;
Good!
Last edited by nisiprius on Sun Jul 26, 2020 11:29 am, edited 1 time in total.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 11:29 am

nisiprius wrote:
Sun Jul 26, 2020 11:24 am
steve321 wrote:
Sun Jul 26, 2020 11:18 am
Yes it is a question I have struggled with. And I've asked Ray;
Good!
unlike several other questions that I have asked him and to which he took the time to reply, he did not reply to this one.
I don't follow either Dalio or Robbins closely. I think it's irresponsible to recommend a portfolio, and have a lot of people follow it based on your recommendation, then suggest that 55% of it is "pretty crazy" without making any follow-up recommendation for a replacement.
Yes but that's more Robbins problem I think. Ray never replies by telling you what to do; he invites you to think for yourself and tries to equip you with the necessary tools to do so in finance (as well as in life i.e. how to reach your life goals in general)
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 11:37 am

steve321 wrote:
Sun Jul 26, 2020 11:22 am
danyboy7 wrote:
Sun Jul 26, 2020 10:46 am

If it's really "All Weather", it can't change form year to year,it does not make sense.In my opinion we won't see rising rates.I believe treasury rates could go below zero as happens in most of european countries
I am in Europe. If they go below zero in the US, why would you want to hold them?! Yes they would increase in value as yields fall further, and they might have some re balancing bonus, but over the long term they will be a terrible investment.
Why terrible ? if the interest rates keep falling as they did through all history (they have been falling for 1500 years so far) or in the worst case keep being around zero,what's the problem ? they would still be very useful if the stock market crashes again
And keep in mind that we are not holding only bonds as an asset class
Ray recently strongly recomended inflation protected bonds,gold and emerging equities.See the RPAR etf composition indeed
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 11:43 am

danyboy7 wrote:
Sun Jul 26, 2020 11:37 am

Why terrible ? if the interest rates keep falling as they did through all history (they have been falling for 1500 years so far)
Do you know what 10 yr US treasuries yields were in 1941 and in 1974?
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 12:13 pm

steve321 wrote:
Sun Jul 26, 2020 11:43 am
danyboy7 wrote:
Sun Jul 26, 2020 11:37 am

Why terrible ? if the interest rates keep falling as they did through all history (they have been falling for 1500 years so far)
Do you know what 10 yr US treasuries yields were in 1941 and in 1974?
https://www.visualcapitalist.com/700-ye ... est-rates/
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Re: All Weather with utilities vs All Weather Leveraged !

Post by steve321 » Sun Jul 26, 2020 12:20 pm

danyboy7 wrote:
Sun Jul 26, 2020 12:13 pm
steve321 wrote:
Sun Jul 26, 2020 11:43 am
danyboy7 wrote:
Sun Jul 26, 2020 11:37 am

Why terrible ? if the interest rates keep falling as they did through all history (they have been falling for 1500 years so far)
Do you know what 10 yr US treasuries yields were in 1941 and in 1974?
https://www.visualcapitalist.com/700-ye ... est-rates/
Unless you plan on living 700 years that chart is not much help to you. Check this:
https://www.visualcapitalist.com/the-hi ... 670-years/
Anyway I can't believe I am discussing this. I won't be able to reply any more. Best of luck to you.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by snailderby » Sun Jul 26, 2020 12:53 pm

danyboy7 wrote:
Sun Jul 26, 2020 10:15 am
All links have been corrected and now are functioning properly
Here is the comparison of classical AW with commodities vs AW with utilities since 2006 (the max data available for dbc commodities)
https://www.portfoliovisualizer.com/bac ... n17_3=7.50
Thanks for posting the updated links. The two versions without commodities certainly had a higher CAGR during this period, but I'm not sure how much we can conclude about the future from one 13 to 14 year period.

Commodities vs. utilities: I don't use commodities myself, but I would be curious what others think about replacing them with utilities----whether utilities would serve the same function or no. My hunch is that they would not. Even though utilities have historically been less correlated to the total stock market than many other sectors (see viewtopic.php?t=275899), they're still a sector of equities at the end of the day. In the following link, the red line (utilities) looks a lot more like the blue line (total U.S. stock market) than the yellow line (commodities) to me. See https://www.portfoliovisualizer.com/bac ... ion3_3=100. I also added a green line (gold) for comparison.

Commodities vs. gold: This may not be your original question, but I would also be curious to hear what people think about the arguments for holding gold vs. commodities. The Permanent Portfolio and Golden Portfolio don't hold commodities. The All Weather Portfolio does. What are the pros and cons of each approach?

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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 1:34 pm

snailderby wrote:
Sun Jul 26, 2020 12:53 pm
danyboy7 wrote:
Sun Jul 26, 2020 10:15 am
All links have been corrected and now are functioning properly
Here is the comparison of classical AW with commodities vs AW with utilities since 2006 (the max data available for dbc commodities)
https://www.portfoliovisualizer.com/bac ... n17_3=7.50
Thanks for posting the updated links. The two versions without commodities certainly had a higher CAGR during this period, but I'm not sure how much we can conclude about the future from one 13 to 14 year period.

Commodities vs. utilities: I don't use commodities myself, but I would be curious what others think about replacing them with utilities----whether utilities would serve the same function or no. My hunch is that they would not. Even though utilities have historically been less correlated to the total stock market than many other sectors (see viewtopic.php?t=275899), they're still a sector of equities at the end of the day. In the following link, the red line (utilities) looks a lot more like the blue line (total U.S. stock market) than the yellow line (commodities) to me. See https://www.portfoliovisualizer.com/bac ... ion3_3=100. I also added a green line (gold) for comparison.

Commodities vs. gold: This may not be your original question, but I would also be curious to hear what people think about the arguments for holding gold vs. commodities. The Permanent Portfolio and Golden Portfolio don't hold commodities. The All Weather Portfolio does. What are the pros and cons of each approach?
You have to use the oldest utilities index available,your simulation has only 13 years,mine 27.The utilities are indeed the sector that has the lowest correlation with stock market,as you have stated correctly.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by snailderby » Sun Jul 26, 2020 1:42 pm

danyboy7 wrote:
Sun Jul 26, 2020 1:34 pm
snailderby wrote:
Sun Jul 26, 2020 12:53 pm
danyboy7 wrote:
Sun Jul 26, 2020 10:15 am
All links have been corrected and now are functioning properly
Here is the comparison of classical AW with commodities vs AW with utilities since 2006 (the max data available for dbc commodities)
https://www.portfoliovisualizer.com/bac ... n17_3=7.50
Thanks for posting the updated links. The two versions without commodities certainly had a higher CAGR during this period, but I'm not sure how much we can conclude about the future from one 13 to 14 year period.

Commodities vs. utilities: I don't use commodities myself, but I would be curious what others think about replacing them with utilities----whether utilities would serve the same function or no. My hunch is that they would not. Even though utilities have historically been less correlated to the total stock market than many other sectors (see viewtopic.php?t=275899), they're still a sector of equities at the end of the day. In the following link, the red line (utilities) looks a lot more like the blue line (total U.S. stock market) than the yellow line (commodities) to me. See https://www.portfoliovisualizer.com/bac ... ion3_3=100. I also added a green line (gold) for comparison.

Commodities vs. gold: This may not be your original question, but I would also be curious to hear what people think about the arguments for holding gold vs. commodities. The Permanent Portfolio and Golden Portfolio don't hold commodities. The All Weather Portfolio does. What are the pros and cons of each approach?
You have to use the oldest utilities index available,your simulation has only 13 years,mine 27.The utilities are indeed the sector that has the lowest correlation with stock market,as you have stated correctly.
The link you provided only went back 13 to 14 years. If you have 27 years of data, it would be interesting to see that.
Last edited by snailderby on Sun Jul 26, 2020 1:50 pm, edited 1 time in total.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Sun Jul 26, 2020 1:49 pm

snailderby wrote:
Sun Jul 26, 2020 1:42 pm
danyboy7 wrote:
Sun Jul 26, 2020 1:34 pm
snailderby wrote:
Sun Jul 26, 2020 12:53 pm
danyboy7 wrote:
Sun Jul 26, 2020 10:15 am
All links have been corrected and now are functioning properly
Here is the comparison of classical AW with commodities vs AW with utilities since 2006 (the max data available for dbc commodities)
https://www.portfoliovisualizer.com/bac ... n17_3=7.50
Thanks for posting the updated links. The two versions without commodities certainly had a higher CAGR during this period, but I'm not sure how much we can conclude about the future from one 13 to 14 year period.

Commodities vs. utilities: I don't use commodities myself, but I would be curious what others think about replacing them with utilities----whether utilities would serve the same function or no. My hunch is that they would not. Even though utilities have historically been less correlated to the total stock market than many other sectors (see viewtopic.php?t=275899), they're still a sector of equities at the end of the day. In the following link, the red line (utilities) looks a lot more like the blue line (total U.S. stock market) than the yellow line (commodities) to me. See https://www.portfoliovisualizer.com/bac ... ion3_3=100. I also added a green line (gold) for comparison.

Commodities vs. gold: This may not be your original question, but I would also be curious to hear what people think about the arguments for holding gold vs. commodities. The Permanent Portfolio and Golden Portfolio don't hold commodities. The All Weather Portfolio does. What are the pros and cons of each approach?
You have to use the oldest utilities index available,your simulation has only 13 years,mine 27.The utilities are indeed the sector that has the lowest correlation with stock market,as you have stated correctly.
The link you provided only went back 13 to 14 years.
https://www.portfoliovisualizer.com/bac ... mbol17=GLD
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Mon Jul 27, 2020 1:53 am

Here is the Pure Alpha1,2+AW portfolios of Dalio https://whalewisdom.com/filer/bridgewat ... s_tab_link
I have approximated it with this portfolio https://www.portfoliovisualizer.com/bac ... mbol18=TIP
Dalio's original portfolio is made up at 90% of common etfs
It results a not bad performance of 10,13% of CAGR,pretty similar to the reported 12% annual average for Dalio's funds
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Re: All Weather with utilities vs All Weather Leveraged !

Post by Robert T » Mon Jul 27, 2020 5:31 am

.
Here are the annualized return comparisons of 3 ‘all-weather’ portfolio (backtests).

P1 = Advanced Research Risk Parity Index (tracked by and the benchmark for RPAR)
P2 = Dalio sample (30:40:15:7.5:7.5)
P3 = Permanent Portfolio (25:25:25:25)

1999-2019: Annualized return (%) / SD
  • P1 = 9.8 /10.5
    P2 = 7.4 / 6.0
    P3 = 6.6 /5.9
2003-2019: Annualized return (%) / SD
  • P1 = 10.1 / 11.5
    P2 = 7.6 / 6.5
    P3 = 7.4 / 6.1
P1 had >2% higher annualized return but also higher volatility and larger downside when portfolio returns were negative (2008, 2013, 2015, 2018) than the other two portfolios.

P1 / P2 / P3
1999 / 6.6 / 5.3 / 6.8
2000 / 7.5 / 2.5 / 10.4
2001 / 4.5 / -0.8 / 1.7
2002 / 6.4 / 5.8 / 6.2
2003 / 24.5 / 13.3 / 13.1
2004 / 16.4 / 6.8 / 10.1
2005 / 12.2 / 8.7 / 8.4
2006 / 12.3 / 11.0 / 6.2
2007 / 23.8 / 12.8 / 12.0
2008 / -10.3 / -0.9 / -1.7
2009 / 21.5 / 9.4 / 5.2
2010 / 18.9 / 14.0 / 13.1
2011 / 14.0 / 9.2 / 12.8
2012 / 13.3 / 7.0 / 7.2
2013 / -7.6 / -1.4 / 3.0
2014 / 9.8 / 8.9 / 11.3
2015 / -8.2 / -3.2 / -3.5
2016 / 10.9 / 6.1 / 6.5
2017 / 15.2 / 9.9 / 10.3
2018 / -6.0 / -1.3 / -2.7
2019 / 20.4 / 18.6 / 21.9

Above is the longest annual series available for the Advanced Research Risk Parity Index. The other two portfolios also use 'index' data (not live fund returns).
.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by nisiprius » Mon Jul 27, 2020 6:24 am

This is your PortfolioVisualizer backtest except that I removed the S&P 500 benchmark to reduce visual clutter, and I replaced DBC with PCRIX, the PIMCO RealReturn Commodity strategies fund, in order to get a longer time span. PCRIX was one of the first "commodities" funds and was generally well regarded by the people who were advocating commodities allocations before 2008 and has tracked with DBC pretty closely.

I prefer to use the name "All Seasons" for the five-ETF portfolio, which is what Robbins has called it, to avoid confusion with the Bridgewater "All Weather" hedge fund.

Source
Image

1) In my personal opinion, the differences between these three are noise, and you can't make a sound judgement about which will outperform going forward.

2) I actually think you can make a judgement that they are not going to differ much more than they have, going forward. The reason is that you are only talking about 7.5% of the portfolio, and it just isn't that much. There would need to be an astonishing difference within that 7.5% to make much difference in the overall performance of the whole portfolio.

3) "Utilities" are stocks. In my opinion, claims that stocks can diversify stocks are dubious, or at least on a very different footing from true asset classes that make money in fundamentally different ways. The correlation between Total Stock and FSUTX has been 0.63. In a statistics class that would not be called a "low" correlation. In comparison, Total Stock and PCRIX, the commodities fund, have had an 0.44 correlation, and--whatever good or bad can be said about them--the sources of return from commodities futures are fundamentally different from those of stocks (except to the degree that "financialization" has given them a common speculative component).

4) Given all that, I think the main question you need to settle for yourself is, of these various portfolios, which is the one you will be most able to stick to? For some people, that might be "one I created myself." The danger in trying to "optimize," though, is that if you personal style is "optimizing," and you cannot tolerate the idea of being "adequate," you will find it difficult to stay the course during the inevitable periods of time when your chosen strategy is underperforming some baseline strategy or benchmark.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by nisiprius » Mon Jul 27, 2020 6:45 am

The whole "risk parity" business is confusing due to lack of clarity about what the term means. You need to keep in mind that there are three different things involved and you need to be sure which of these ideas you agree with.

1) Equalizing risk: the idea of allocating between assets based on equalizing their risk or volatility contributions to the portfolio, rather than in some other way. The observation that traditional portfolios are dominated by stock risk is obvious--for example, in a 60/40 portfolio the portfolio is so dominated by stocks that it is barely worth fussing about what kind of bonds to use for 40% allocation.

2) Using gold, commodities, TIPS, etc: The specific asset classes that are going to be chosen and equalized, Ray Dalio's four quadrants. I think those choices are part and parcel of "risk parity." That is, the real meaning of "risk parity" is "like the Dalio All-Weather hedge fund."

3) Leverage: The reason is that e.g. bonds have so little volatility compared to stocks, that if you equalize risk between stocks and bonds in a traditional portfolio, you end up with allocations like 20/80 or 15/85. These are only suitable for ultraconservative investors, so to give the portfolio the kinds of risk and return sought by mainstream investors, leverage is necessary.

So then, you have this whole queasy business--the Robbins/Dalio "All Seasons" portfolio ETF portfolio follows the second principle but not the first or the the third.

The HEDGEFUNDIE "excellent adventure" follows the first and the third but not the second.

Arguably, I think--I have not examined it closely--RPAR does follow all three. So did the AQR Risk Parity fund, AQRIX, up to 2018, and I think the fact that it changed its name and its strategy can be chalked up as a "risk parity failure." So does Wealthfront's controversial Wealthfront Risk Parity fund, WFRPX.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Mon Jul 27, 2020 10:29 am

nisiprius wrote:
Mon Jul 27, 2020 6:24 am
This is your PortfolioVisualizer backtest except that I removed the S&P 500 benchmark to reduce visual clutter, and I replaced DBC with PCRIX, the PIMCO RealReturn Commodity strategies fund, in order to get a longer time span. PCRIX was one of the first "commodities" funds and was generally well regarded by the people who were advocating commodities allocations before 2008 and has tracked with DBC pretty closely.

I prefer to use the name "All Seasons" for the five-ETF portfolio, which is what Robbins has called it, to avoid confusion with the Bridgewater "All Weather" hedge fund.

Source
Image

1) In my personal opinion, the differences between these three are noise, and you can't make a sound judgement about which will outperform going forward.

2) I actually think you can make a judgement that they are not going to differ much more than they have, going forward. The reason is that you are only talking about 7.5% of the portfolio, and it just isn't that much. There would need to be an astonishing difference within that 7.5% to make much difference in the overall performance of the whole portfolio.

3) "Utilities" are stocks. In my opinion, claims that stocks can diversify stocks are dubious, or at least on a very different footing from true asset classes that make money in fundamentally different ways. The correlation between Total Stock and FSUTX has been 0.63. In a statistics class that would not be called a "low" correlation. In comparison, Total Stock and PCRIX, the commodities fund, have had an 0.44 correlation, and--whatever good or bad can be said about them--the sources of return from commodities futures are fundamentally different from those of stocks (except to the degree that "financialization" has given them a common speculative component).

4) Given all that, I think the main question you need to settle for yourself is, of these various portfolios, which is the one you will be most able to stick to? For some people, that might be "one I created myself." The danger in trying to "optimize," though, is that if you personal style is "optimizing," and you cannot tolerate the idea of being "adequate," you will find it difficult to stay the course during the inevitable periods of time when your chosen strategy is underperforming some baseline strategy or benchmark.
Great post ! But I have to "fight" back some of your sentences
Great idea of using PIMCO,I thought dbc was the oldest item available
I think you did some mistakes on your backtest because mine starts from 2003,here is the PV comparison with classical All Season (completely right about making distinction from the All Weather hedge fund !) https://www.portfoliovisualizer.com/bac ... ol21=VGTSX
The results speak by theirselves. As you can see the utilities version has beaten the commodities one in each metric during the last 18 years. It is true your whole speach about the correlation of utilities stock and commodities futures but have you ever took a look at commodities graphic performance based on swap futures contracts ? Abysmal ! And the idea that RPAR uses a basket of stock commodities makes me feel even more comfortable.I believe the original idea of Dalio was never based upon commodities futures and Robbins never specified which kind of "commodities" or he may misunderstood him.
Regarding the Hedgefundie,it performed exceptionally on backtests but it would be absolutely destroyed in a scenario of rising inflation or stock market lateralization. I believe the solution of AWx3 leveraged portfolio proposed by the opotimizing is a better overall option.Let me know what's your thoughts on the latter one :wink:
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Re: All Weather with utilities vs All Weather Leveraged !

Post by 000 » Mon Jul 27, 2020 12:53 pm

snailderby wrote:
Sun Jul 26, 2020 12:53 pm
Commodities vs. gold: This may not be your original question, but I would also be curious to hear what people think about the arguments for holding gold vs. commodities. The Permanent Portfolio and Golden Portfolio don't hold commodities. The All Weather Portfolio does. What are the pros and cons of each approach?
In my opinion, Gold's valuation is primarily determined by the market's perception of it as a reserve currency of last resort while commodities are inputs to industrial production and their pricing is based on this. I personally invest in Gold but not commodities because I am not an industrial producer/consumer of them.

Basically Gold is insurance for currency risk (which affects me) but commodities futures are insurance for industrial price risk (which does not directly).

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Re: All Weather with utilities vs All Weather Leveraged !

Post by 000 » Mon Jul 27, 2020 12:57 pm

These strategies seem like they were born of backtests, not a fundamental model. I am skeptical they will perform well going forward.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Mon Jul 27, 2020 3:45 pm

000 wrote:
Mon Jul 27, 2020 12:57 pm
These strategies seem like they were born of backtests, not a fundamental model. I am skeptical they will perform well going forward.
I respect your skepticism but however what would you do ? Would you keep commodities based on futures ? Or rather creating a basket of commodities stock ? Utilities ? Let me know
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Re: All Weather with utilities vs All Weather Leveraged !

Post by 000 » Mon Jul 27, 2020 3:49 pm

danyboy7 wrote:
Mon Jul 27, 2020 3:45 pm
000 wrote:
Mon Jul 27, 2020 12:57 pm
These strategies seem like they were born of backtests, not a fundamental model. I am skeptical they will perform well going forward.
I respect your skepticism but however what would you do ? Would you keep commodities based on futures ? Or rather creating a basket of commodities stock ? Utilities ? Let me know
For my own personal investments, I own US and ex-US Developed Markets stocks, cash, and gold. I also consider land a diversifier. I do not own commodities futures because I am not an industrial producer or consumer of commodities. I have no interest in Utilities but must concede they are a bit different than other stocks due to the relatively more predictable nature of their earnings; however I am concerned new technological developments (think everyone having solar panels on their house) or political risk could impact Utilities.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by RomeoMustDie » Mon Jul 27, 2020 3:52 pm

danyboy7 wrote:
Sun Jul 26, 2020 6:01 am
Hi guys
Recently I've come across this article about RPAR,the new ETF risk-parity inspired by All Season stategy.It's managers are people that have worked with Dalio at Bridgeawater https://seekingalpha.com/article/435943 ... transcript
The most interesting thing are that it is a leveraged etf (mild leverage exposure around 0.20) and that they are not using etc replicating commodities (and it makes sense due to past abysmall performance of etc commodities due to contango effect of futures) but etf replicating commodities stock 8-)
I've tried a simulation using utilities instead of commodities and find out that their performance are pretty similar. Here is the backtest on PV since 1993 using utilities vs sp500 vs doubling gold % instead of using commodities (we are allowed to do this change because commodities and gold perform similarly in the same environment according to Dalio's quadrants) https://www.portfoliovisualizer.com/bac ... mbol17=GLD
And that's not all.I would like to ask you also what do you think about this AW leveraged x3 version proposed by the optimizing blog https://www.theoptimizingblog.com/lever ... portfolio/
The stats are pretty impressive :shock:
The AWx3 with utilities version rebalanced quarterly has achieved since 1992 an impressive 19,12 CAGR humiliating the sp500 in every single metrics....
Is anyone running those portfolios or considering to do so ?
I've been all weather 3x since right before the crash and I'm up about 11%.

Using utilities because there are no 3x gold or commodity ETF's.

I'm also skeptical about leveraged commodity ETF's they seem to have some tracking error atleast the last time I checked.

Edit: I am running a very similar portfolio to the optimizing blog. It seems we came to a similar conclusion.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by RomeoMustDie » Mon Jul 27, 2020 4:13 pm

danyboy7 wrote:
Mon Jul 27, 2020 3:45 pm
000 wrote:
Mon Jul 27, 2020 12:57 pm
These strategies seem like they were born of backtests, not a fundamental model. I am skeptical they will perform well going forward.
I respect your skepticism but however what would you do ? Would you keep commodities based on futures ? Or rather creating a basket of commodities stock ? Utilities ? Let me know
I'd rather own broad commodity futures than baskets of commodity stocks. I've also been in the same frame of mind and researched a lot of commodity companies and found a lot of risks. A lot of industrial and precious metal producers are in politically volatile countries, complex arrangements with government, etc.

Stocks like Nutrien, Glencore, NorNickel, Gazprom, Albemarle. Lots of risks all around.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by 000 » Mon Jul 27, 2020 4:45 pm

RomeoMustDie wrote:
Mon Jul 27, 2020 4:13 pm
I'd rather own broad commodity futures than baskets of commodity stocks.
Why should commodity futures provide a positive return? They are insurance contracts on the prices of commodities. Does insurance have a positive expected return?

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Re: All Weather with utilities vs All Weather Leveraged !

Post by RomeoMustDie » Mon Jul 27, 2020 8:06 pm

000 wrote:
Mon Jul 27, 2020 4:45 pm
RomeoMustDie wrote:
Mon Jul 27, 2020 4:13 pm
I'd rather own broad commodity futures than baskets of commodity stocks.
Why should commodity futures provide a positive return? They are insurance contracts on the prices of commodities. Does insurance have a positive expected return?
They are a cyclical play on global macrocycles. Doesn't work for buy and hold outside of hedging against the stagflation environment.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by 000 » Mon Jul 27, 2020 9:00 pm

RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
They are a cyclical play on global macrocycles.
Are you market timing with them?
RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
Doesn't work for buy and hold outside of hedging against the stagflation environment.
Or you are expecting to pay an insurance cost?
Last edited by 000 on Mon Jul 27, 2020 9:11 pm, edited 1 time in total.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by corp_sharecropper » Mon Jul 27, 2020 9:10 pm

midareff wrote:
Sun Jul 26, 2020 9:10 am
Risk parity and mumbo jumbo marketing strategies are certainly not what I want. The risks in being long stocks and bonds are enough for me.
Your stocks/bonds portfolio has plenty of risk, you just don't have any positions hedging them.

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Re: All Weather with utilities vs All Weather Leveraged !

Post by RomeoMustDie » Mon Jul 27, 2020 9:18 pm

000 wrote:
Mon Jul 27, 2020 9:00 pm
RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
They are a cyclical play on global macrocycles.
Are you market timing with them?
RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
Doesn't work for buy and hold outside of hedging against the stagflation environment.
Or you are expecting to pay an insurance cost?
Define "market timing" and "insurance cost"

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Re: All Weather with utilities vs All Weather Leveraged !

Post by 000 » Mon Jul 27, 2020 9:22 pm

RomeoMustDie wrote:
Mon Jul 27, 2020 9:18 pm
000 wrote:
Mon Jul 27, 2020 9:00 pm
RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
They are a cyclical play on global macrocycles.
Are you market timing with them?
RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
Doesn't work for buy and hold outside of hedging against the stagflation environment.
Or you are expecting to pay an insurance cost?
Define "market timing" and "insurance cost"
In this context:
"market timing" -- something you'd adjust your allocation to based on market conditions over time
"insurance cost" -- you expect it to return <0% real in the usual case

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Re: All Weather with utilities vs All Weather Leveraged !

Post by RomeoMustDie » Mon Jul 27, 2020 9:30 pm

000 wrote:
Mon Jul 27, 2020 9:22 pm
RomeoMustDie wrote:
Mon Jul 27, 2020 9:18 pm
000 wrote:
Mon Jul 27, 2020 9:00 pm
RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
They are a cyclical play on global macrocycles.
Are you market timing with them?
RomeoMustDie wrote:
Mon Jul 27, 2020 8:06 pm
Doesn't work for buy and hold outside of hedging against the stagflation environment.
Or you are expecting to pay an insurance cost?
Define "market timing" and "insurance cost"
In this context:
"market timing" -- something you'd adjust your allocation to based on market conditions over time
"insurance cost" -- you expect it to return <0% real in the usual case
Maybe, but then all multi fund boglehead portfolios would also have to be considered "market timing" when they rebalance.

Yes

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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Tue Jul 28, 2020 2:29 am

Here is a comparison between Golden Butterfly x3 version vs All Seasons x3 version. Some points:
-For Golden Butterfly the most "usable" etf available for ST leveraged bonds is DFVL which is x2
-I've also included a virtual Golden Butterfly with x3 version of ST which doesn't exist,as much as I'm aware of
-Using gold x2 leveraged version since GLD has been delisted
https://www.portfoliovisualizer.com/bac ... tion8_3=60
The All Season leveraged version beats every single metric of Golden Butterfly
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Tue Jul 28, 2020 2:38 am

And here there is a comparison of ASx3 against popular Hedgefundie 60/40 version and 55/45 one
https://www.portfoliovisualizer.com/bac ... bol9=VBMFX
ASx3 does much better than them in pretty almost all metrics 8-)
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Re: All Weather leveraged stomps Hedgefundie and other portfolios !

Post by Impatience » Tue Jul 28, 2020 5:10 am

Go ahead and deploy your -200% cash portfolio in the wild and let us know how it goes.

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Re: All Weather leveraged stomps Hedgefundie and other portfolios !

Post by danyboy7 » Tue Jul 28, 2020 6:12 am

Impatience wrote:
Tue Jul 28, 2020 5:10 am
Go ahead and deploy your -200% cash portfolio in the wild and let us know how it goes.
What do you mean ? It is a method to replicate leveraged index funds on PV
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Re: All Weather with utilities vs All Weather Leveraged !

Post by White Oak » Tue Jul 28, 2020 6:14 am

danyboy7 wrote:
Tue Jul 28, 2020 2:38 am
And here there is a comparison of ASx3 against popular Hedgefundie 60/40 version and 55/45 one
https://www.portfoliovisualizer.com/bac ... bol9=VBMFX
ASx3 does much better than them in pretty almost all metrics 8-)
The original Hedgefundie allocation was 40% UPRO (stocks) and 60% TMF (long treasuries). When I compare that portfolio, the Sharpe and Sortino ratios are within a few percent of your proposed portfolio. That's not surprising, as your proposal is close to 40% stocks and 60% bonds, with a small amount of gold.

https://www.portfoliovisualizer.com/bac ... bol9=VBMFX

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Re: All Weather with utilities vs All Weather Leveraged !

Post by nisiprius » Tue Jul 28, 2020 6:26 am

danyboy7 wrote:
Tue Jul 28, 2020 2:38 am
And here there is a comparison of ASx3 against popular Hedgefundie 60/40 version and 55/45 one
https://www.portfoliovisualizer.com/bac ... bol9=VBMFX
ASx3 does much better than them in pretty almost all metrics 8-)
Seriously? In exactly what ways is ASx3 "much" better or "stomping" what you say are the HEDGEFUNDIE portfolios? (I'm using the phrase "what you say are" because I think--but I haven't followed it--that his strategy includes some specific rebalancing maneuvers that don't correspond to anything you can do in PortfolioVisualizer).

This is your exact backtest from your link; all I did was remove the S&P 500 to reduce visual clutter.

Image

Surely you realize that it is easy to get impressive backtests if you have any vague memory of past behavior of asset classes, and are allowed to do an unlimited number of tests before presenting the results. Any change you make has about a 50% chance of improving the backtest, and if you keep doing it over and over you are going to eventually get an intriguing backtest. Expecting it to perform well out-of-sample is quite another thing.
Last edited by nisiprius on Tue Jul 28, 2020 6:38 am, edited 2 times in total.
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Tue Jul 28, 2020 6:35 am

nisiprius wrote:
Tue Jul 28, 2020 6:26 am
danyboy7 wrote:
Tue Jul 28, 2020 2:38 am
And here there is a comparison of ASx3 against popular Hedgefundie 60/40 version and 55/45 one
https://www.portfoliovisualizer.com/bac ... bol9=VBMFX
ASx3 does much better than them in pretty almost all metrics 8-)
Seriously? In exactly what ways is ASx3 "much" better or "stomping" what you say are the HEDGEFUNDIE portfolios? (I'm using the phrase "what you say are" because I think--but I haven't followed it--that his strategy includes some specific rebalancing maneuvers that don't correspond to anything you can do in PortfolioVisualizer).

This is your exact backtest from your link; all I did was remove the S&P 500 to reduce visual clutter.

Image

Surely you realize that it is easy to get impressive backtests if you have any vague memory of past behavior of asset classes, and are allowed to do an unlimited number of tests before presenting the results. Any change you make has about a 50% chance of improving the backtest, and if you keep doing it over and over you are going to eventually get an intriguing backtest. Expecting it to perform well out-of-sample is quite another thing.
Just look at the stats. ASx3 has much better sharpe ratio aka risk-adjusted return,sortino ratio,less us mkt correlation,is more diversified,Best "worst year" and "max drowdown",less standard deviation which means much better ulcer index while delivering a quite similar return cagr
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Re: All Weather with utilities vs All Weather Leveraged !

Post by danyboy7 » Tue Jul 28, 2020 6:39 am

White Oak wrote:
Tue Jul 28, 2020 6:14 am
danyboy7 wrote:
Tue Jul 28, 2020 2:38 am
And here there is a comparison of ASx3 against popular Hedgefundie 60/40 version and 55/45 one
https://www.portfoliovisualizer.com/bac ... bol9=VBMFX
ASx3 does much better than them in pretty almost all metrics 8-)
The original Hedgefundie allocation was 40% UPRO (stocks) and 60% TMF (long treasuries). When I compare that portfolio, the Sharpe and Sortino ratios are within a few percent of your proposed portfolio. That's not surprising, as your proposal is close to 40% stocks and 60% bonds, with a small amount of gold.

https://www.portfoliovisualizer.com/bac ... bol9=VBMFX
Corect,40/60 version is pretty similar but slightly more volatile. But if I'm not wrong Hedgefundie creator moved towards a 55/45 version which does worse in every single metrics in comparison with AS.However all Hedgefundie's portfolios,no matter which % of upro we are refering,would be absolutely destroyed in a rising rates scenario or laterization of stock market. I believe AS would stand a much better chance due to gold and utilities/commodities (for purists) exposure. Just my 2 cents :beer
Last edited by danyboy7 on Tue Jul 28, 2020 6:47 am, edited 2 times in total.
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