Tomorrow, April 17th, is review day for the Bohr portfolio. This advanced look shows the Efficient Frontier (EF) graph and the data behind the EF graph. Those familiar with efficient frontiers will find the following graph rather straight forward. The data table contains a lot of information worth digesting and I will point out critical rows of information.
Bohr Efficient Frontier: Since the last review the optimized portfolio (small red dot) changed little from the former graph (blue dot close to red dot). The current portfolio has a higher projected return and higher volatility percentage than the optimized recommendations. Coming in under 12% for volatility for the current portfolio is well within an acceptable range.
Bohr Data Table: The following table shows the securities used to populate the Bohr portfolio. All are ETFs with exception of BRK-B, a stock that behaves like an actively managed mutual fund. Just under the tickers, near the top, you see the volatility associated with each security. You might be surprised to see TLT carries a high 16.6% volatility value and a low projected return. Another row of interest is the Expected Returns. Two ETFs, VEA and VWO, currently performing well, are projected to continue to have above average returns.
One calculation I would like to see in this table is the projected return of each security divided by the volatility. If you look at TLT in this light, it is not a good choice for investing going forward, whereas VEA, VWO, and many of the U.S. Equities have much lower ratios, and are therefore projected as better opportunities.
This table also shows the constraints I placed on the various securities. The minimum weights are all set to 0% while the maximum weights vary from 15% up to 100% for SHY.
Moving to the bottom of the table we see the optimized percentages and can compare those values with the actual percentages held in the portfolio. Cash is neglected. It is not surprising that a minimum risk portfolio will be invested only in SHY.
I’ll point out that the Bohr Portfolio, as currently constructed, has a much lower Return/Volatility ratio compared to the optimized Return/Volatility ratio. Perhaps the portfolio should buy up more shares of SHY so as to lower the overall volatility.