Einstein Asset Allocation Portfolio Review: 11 December 2024

Welcome bouquet

The Einstein is one of ten Asset Allocation (AA) portfolios I track here on the ITA blog.  Eight are reported on regularly and two of the ten include the Schrodinger and Copernicus.  The Copernicus is a special breed as I am only using U.S. Equities with this portfolio so one would not consider it to be a well balanced portfolio.

Einstein is new to the AA model as it as only been using this approach for a little over seven months.  Investing models are tested when they have endured a “good” recession.  Einstein has yet to experience this event while using the AA model.

Einstein Asset Allocation Portfolio

Below is the current Asset Allocation model and the current holdings.  With a portfolio of this size the goal is to see each asset class (ETF) within plus or minus 0.5% of the Maximum AA (third column from the left).  In the right-hand column readers can see which asset classes are most out of balance.  ETFs VB and QQQ are above the recommended percentage.  Rather than sell shares and incur a taxable event, I plan to hold on to both ETFs and use new money and dividends to build up those areas that are most below target.

Einstein Rebalancing Recommendations

The sixth column from the right shows the number of shares to purchase to begin to bring asset classes into balance or closer to the recommended target percentage.

As a guideline for setting limit orders, I’ve been using the three-year Annualized Volatility divided by two.  Take BNDX as an example.  If the annualized volatility is 4.0% there is a high possibility this ETF may drop 2% over the next six months to a year.  I would not set the limit order below 0.98 x current price.  Using this logic there is always the probability the security may just “walk away” to the upside and leave the portfolio owner holding cash.  By spreading my Buy orders out over six asset classes one or more are likely to be struck over the next six months to a year.  This approach does require patience.

I am not in a hurry to jump into new purchases with the market this high combined with the uncertainty of the incoming administration.

Einstein Performance Data

Since 12/31/2021 the Einstein is well behind the AOR benchmark.  Unfortunately, there were significant withdrawals from this portfolio at a time when the market was depressed as in 2022.  The owner plans to rebuild this account over the next year.

Einstein Risk Ratios

If we compare the risk numbers this month to where they were a year ago, we see progress.  I am a little disappointed the Jensen Performance Index dropped slightly over the last eleven days, but such dips are to be expected from time to time.  The slope of the Jensen is still positive so the longer term trend is moving in the right direction.