The MOAR is a blend of of the Permanent Portfolio and the Dogs of the world which apparently means the worst performing developed market country funds. Per the Barron's article there would be 25% each in iShares Barclays 20 +Year Bond Fund ETF (TLT), in the iShares Barclays 7-10 Year Bond Fund ETF (IEF) and in the SPDR Gold Trust (GLD). IEF serves as a cash proxy. The other 25% goes into iShares Belgium Fund (EWK), iShares France Fund (EWQ), iShares Italy Fund (EWI), iShares Ireland Index Fund (EIRL) and iShares Spain Fund (EWP) with each getting 5%.
Although specifics were not given, the portfolio has outperformed "every major stock index, long-and-intermediate term bonds, gold, cash and inflation and done so with only a single down year."There are a lot of these types of portfolios out there that "work" or otherwise get the job done over long periods of time but it is very difficult for me to be comfortable with this type of rules based allocation. Theses types of things involve no forward looking analysis. The Dogs of the whatever relies to a certain extent on some sort of reversion and that is placing a lot of faith in something that simply should just work.
The other issue is that longer term treasuries are expensive these days. They have been expensive for a while and there is no way to know how long they will stay expensive but if at some point they revert to normal the transition from expensive to fairly priced will be very painful for holders of ETFs where the holders are devoted to some sort of strategy that doesn't look forward.
To the extent avoidance is a key part of successful portfolio construction (I believe this to be a crucial concept) there is much to dislike, especially with all the European equity ETFs. For all I know the strategy could do very well yet again but a portfolio built on lousy fundamentals has much less margin for error. This doesn't have to be the worst thing in the world as long you you understand the fundamentals of what you're buying and the lack of financial underpinning.
Happy Patriots Day! Of course that means the Red Sox play at 11am local time as part of Boston Marathon Day.
The picture is of the "painted ladies" in San Francisco from a link that my brother sent with a bunch of pictures from back then.
8 comments:
I like the reversion theory if diversified for equities.
I hate any analysis for a permanent portfolio that relies on bonds appreciating since the early 1980's. AINT GONNA HAPPEN AGAIN SOON.
SEG
well, the idea of these types of portfolios doesn't depend on that. It depends on the idea that in bad years, certain types of bonds will outperform.
Now, that said, the claim of "no down years" could certainly be based on the bond rally.
Interesting idea, though it was even more interesting when I thought it only had 4 pieces. I'll have to play with this; too bad you can't go back to far since the country ETFs haven't been around that long.
Portfolio construction based on bond performance over the last 30 +/- years is going to be very biased towards high or good returns due to the great return on bonds over these years.
Bond performance going forward is going to SUCK.
Isn't PIMCO actually short treasuries right now from something I heard?
The last 30 years of data miming is not going to help going forward.
SEG
The Permanent Portfolio does not depend on long term bond performance. The idea "depends" on the idea that, in years when equities or bad, or tank, bonds will do better than equities.
take 2008 for instance. If that happens again, do you think equities will outperform intermediate or long term treasury bonds? They won't. So, you'll have a portion of your portfolio in something that will outperform.
I fully understand the bonds doing well while equities have losses.
What you do not seem to understand is that the overall portfolios have don well because interest rates have fallen dramatically (not in a straight line).
Bond returns will be abysmal going forward over the long haul. yes they will have good years when equities tank, but overall they will be a major drag on performance.
The future will be very different than the last 30 years.
If you do not get it I give up.
SEG
Roger- Apparently, you are not aware that current interest rate levels are more or less at the 100 year mean for U.S. sovereign debt. There isn't a mean reversion if you are already at the mean. Do not be blind by decency bias
or recency bias XD
It is not clear to me that factoring rates from before WW II is the best analysis, but you are correct if that period of time is relevant to you.
Current 30 Year treasury (LT) yields are near 4.5%. That yield could equally decline to 2.25% (LT price doubles) as it might rise to 9% (LT price halves). [Japan 30 Year T rates are currently 2.2%]
Looking back at the 1970's exceptionally high (crisis) yields and general progressive decline from those high yield since indicates an average that is perhaps higher than during more consistent times.
Holding some exposure to an asset (LT) that might double in price whilst paying a 4.5% income in the interim, but that might equally halve in price - but at the same time likely seeing another asset rising strongly to compensate is a more neutral overall stance than opining that x will do better than y.
The PP works by taking a non biased stance and reducing (profit take out of) winners to (buy low) add to losers as each of the assets cycle over time. Asset A doubles, B halves, C and D stay level, 25% initial weighting each, overall you're up 12.5% sort of motions (but to less of an extreme).
Fixed income compared to variable (earnings) yield also has the benefit of counter direction price motions over the short to mid term, which helps reduce overall volatility.
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