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Summary All versions of the global portfolio lost money in the June to September period. The low volatility target portfolio suffered relatively small losses, substantially lower than the mid and high volatility portfolios. The current market environment favors a conservative investing approach. All versions are invested 100% in bonds. A global portfolio that invests in six ETFs was introduced in a previous article . The asset allocations of the portfolio are adjusted monthly by applying a mean-variance optimization algorithm. The optimization algorithm seeks to maximize the return under a constraint on the portfolio risk determined as the standard deviation of daily returns. An Excel implementation of the algorithm is available for free distribution. In this article we report the performance of the strategy for the time period starting on June 1, 2015. We investigate three versions of the strategy for return maximization with a 5%, 10% and 15% volatility targets. Here is the list of securities used to build the portfolio: iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) iShares MSCI EAFE ETF (NYSEARCA: EFA ) SPDR S&P MidCap 400 ETF (NYSEARCA: MDY ) PowerShares QQQ Trust ETF (NASDAQ: QQQ ) iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) The performance of the portfolios is shown in Table 1. 5% VOL 10% VOL 15% VOL SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) June -1.01 -2.17 -3.11 -2.01 July 1.81 3.61 4.56 2.22 August -2.73 -5.43 -6.82 -6.13 Sept 0.35 0.56 0.74 -0.59 Total -1.63% -3.60% -4.91% -6.54% As can be seen, all the portfolios lost money in the June 1 to September 20, 2015. Still, they all lost less than SPY, and the 1.63% loss of the 5% volatility target portfolio is substantially lower. The chart of Figure 1 shows the same data is graphical form. (click to enlarge) Figure 1. Monthly portfolios performance. Source: This chart is based on calculations using the adjusted daily closing share prices of securities. In the following tables we show the monthly allocations used starting with June 2015. Table 2: Allocations for the 5% target volatility MDY QQQ SHY TLT EEM EFA June 0 0 67% 0 0 33% July 0 39% 61% 0 0 0 August 0 39% 55% 6% 0% 0% Sept 0 0 71% 29% 0 0 Table 3: Allocations for the 10% target volatility MDY QQQ SHY TLT EEM EFA June 0 0 30% 0 0 70% July 0 79% 21% 0 0 0 August 0 78% 7% 15% 0% 0% Sept 0 0% 38% 64% 0% 0% Table 4: Allocations for the 15% target volatility MDY QQQ SHY TLT EEM EFA June 0 0% 0% 0 0 100% July 0 100% 0% 0 0 0% August 0 100% 0% 0% 0 0% Sept 0 0% 6% 94% 0 0% As seen in the tables, all the portfolios are currently invested in SHY and TLT. They differ only in the ratios of the two assets; the 5% volatility target invests mostly in SHY, while the 15% volatility target invests mostly in TLT. Conclusion The current market environment favors a conservative investing approach. All versions are invested 100% in bonds. Since all versions lost money during previous three month period, it is prudent to favor a low volatility target and invest mostly in short term bonds. Disclosure: I am/we are long SHY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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