Darwin Portfolio Review: 1 December 2023

Christmas (2022) in Christchurch, New Zealand

The Darwin Portfolio is a portfolio that I try not to adjust too often and it has been 3 months since I last posted a review of this portfolio so it’s time to take a look at how it has been performing in that time period.

The Darwin Portfolio uses an “All-Weather” approach and remains invested in all assets in the portfolio quiver at all times – although the allocations may vary from time to time depending on the volatility of the assets. The portfolio uses a “risk parity” approach to control portfolio volatility within acceptable limits. The limits used for the Darwin portfolio are 3% volatility per asset as shown in the following screenshot:

with only 5 assets in the quiver the maximum portfolio volatility could conceivably reach 15%. However, due to the added benefit of diversity between asset classes the realized volatility is likely to be much less – more like ~8%. I also allow up to 10% leverage in this (taxable) account and add more diversity through the inclusion of a ~10% allocation to a volatility ETF (SVXY).

Siince the last adjustments in September I have not made any changes until Friday when I sold shares in VNQ and GLD to bring things back to close to recommended holdings and to eliminate the leverage that I had in place:

As we can see in the above screenshot, the Internal Rate of Return (IRR) on this portfolio is ~14% since inception ~12 months ago. This is acceptable for a diversified portfolio designed for low volatility – although the performance graphs do look a little hectic/volatile:

or, in stacked format:

The red lines reflect the total portfolio performance and the discontinuities in the other lines/plots reflect the adjustments/changes in allocations between the asset classes. As can be seen from the above plots, Gold (GLD) has been a significant contributor to performance over the past 3 months.

I will likely leave this portfolio for another 3 months unless there are significant changes in market behavior in any of the asset classes represented.