In my recent overview post on the landscape of available buy and hold portfolios, I said I would come back with a comparison of all the portfolio types; buy and hold, tactical asset allocation (TAA), and quant investing portfolios. Here is that comparison.
I’m pretty sure I’ve discussed all the portfolios I compare in this post on the blog at some point but here is a list of the portfolios and some links for more info. Also, I have uploaded a spreadsheet to Google Drive that has more info on the data sources I used for the portfolios.
- Quant TV portfolio
- Quant XLP / XLU portfolio
- IVY portfolios
- Antonacci GEM/GBM porfolios
- GAA (Global Asset Allocation) (see GAA book)
- Faber (see GAA book)
- All Seasons, Risk Parity
First, we’ll start off with a look at the various portfolios from the perspective of investors in their wealth building years. The most common and popular metric for comparing portfolios is compounded annual return. The table below sorts all the portfolios by CAGR.
The quant and aggressive TAA portfolios lead the pack in terms of compounded annual return. The highest ranked buy and hold portfolio is the IVY buy and hold 13 portfolio. The equity only indexes, the SP500 and World Stocks rank in the middle to bottom half of the list. The most popular benchmark portfolio for institutions and investors, the 60/40 portfolio is also in the bottom half. Most investors focus too much on CAGR as a portfolio metric. If you can’t stick with a portfolio it doesn’t matter what it’s CAGR is. Other metrics like sharpe, or worst year do a better job of measuring the chances that an investor will be able to stick with a given portfolio. On these metrics the TAA portfolios stand out. For the buy and hold only devotees, the Permanent, RiskP, and All Season portfolios lead on a combination of these risk metrics. Now, lets turn our focus to investors in the portfolio withdrawal phase of their lives.
For investors withdrawing from portfolios I sort the portfolios by arguably the most important concern for those in the withdrawal phase – the SWR. The metric in the table is the estimated 1966 SWR for a 30 year period (see this post for details on this metric). Here is the table.
The usual suspects lead the pack, quant and TAA portfolios with the leaders showing SWRs almost 2x the really only analyzed portfolios for SWRs, portfolios consisting is US stocks and US bonds. Note, that these SWRs are conservative estimates of true SWRs that would have been attainable from these portfolio since they are handicapped with 60/40 portfolio returns from 1966 to 1972. The second to last column in the table contains the first 10 year real portfolio return. This metric shows a 0.98 correlation to SWRs. See here for a discussion of early portfolio performance and it’s impact on SWR. Since SWRs are not readily available for any portfolio outside of US stock US bond portfolios this metric can be used as a good indicator as to how a given portfolio will perform in terms of SWR.
There you go. A comparison of 27 different portfolios from 1973 to 2013 using a variety of portfolio statistics. If there is one take away from this post is that there are many more and better choices for both investors building wealth and for investors withdrawing wealth than the most often talked about, promoted, analyzed, portfolios in the financial world – those consisting of only US stocks and US bonds.