Monastery along the banks of the Rhine, Germany
Yesterday was 20 days since the last review of the Darwin Portfolio so positions were adjusted today based on the Risk Parity allocations suggested by the model. Based on yesterday’s closing prices, recommended holdings in the five “Core” assets looked like this:
This required the sale of 5 shares of TLT, 3 shares of GLD and the purchase of 3 shares each in VTI, VSS and VNQ. These adjustments were made today:
As can be seen fr0m the above figure the annualized Internal Rate of Return (IRR) of the portfolio is currently ~6.2% after 6 months of operation. Due to the short life of this portfolio the calculated IRR is not particularly reliable and was not helped by yesterdays weakness in most markets.
Graphically, performance to date looks like this:
Last month a small position was opened in SVXY – an inverse volatility ETF – and this position is still held. It is not currently included in the risk parity weightings and represents a ~10% holding in the portfolio.
The portfolio is managed with a constraint of ~35% leverage (including the volatility position).
David
With Friday’s move lower in US equites we saw a sharp move higher in Implied Volatility and a move lower in SVXY (short volatility ETF) that is held in this portfolio. Because this is a high risk position I am watching it closely – but careful not to panic since Friday was a short trading day with many traders taking a vacation. I am not yet getting a signal to switch to VIXY but this is what I am watching.for.
For readers not too sure what I’m talking about, more detail can be found at https://itawealth.com/using-volatility-as-a-diversifier-and-a-portfolio-hedge/#comment-31336. I have added an Update note to that post.
David
Late this afternoon I sold my position in SVXY (inverse EFT tracking the VIX Index) and replaced it with 35 shares in VXX (rather than VIXY, but a similar product) that means I am now long volatility in this portfolio (hopefully providing a hedge).
David
Ok – Learning lesson – don’t try to anticipate signals! I jumped the gun when I switched to VXX and, with today’s strong move higher, volatility has collapsed. I switched back to short volatility shortly after the open this morning – so I am back to a long position (20 shares) in SVXY.
David