Einstein Asset Allocation Portfolio Review: 2 October 2024

Lake Oswego – Man exercising dog.

Einstein is one of several portfolios that need special attention as the performance has been less than stellar.  The Einstein is new to the Asset Allocation model so we will need many months of operation to see how well it performs under a different management model.  The portfolio is well diversified and the asset classes are slowly coming into balance.  In this blog I will explain how I am working to rebalance the portfolio that is currently heavily over-weighted with shares of VOO.

Einstein Asset Allocation Model

Below is the investment quiver and current investment arrows for the Einstein.  In the far right column readers will see which asset classes are most out of balance.  The idea is not to sell off shares in an effort to bring the portfolio back into balance.  Instead of incurring tax issues the goal is to use new cash and dividends to rebuild asset classes most under the recommended percentage.  Four asset classes are more than 5% on the low side so we will concentrate on those first.

Einstein Rebalancing Recommendations

In the above screenshot readers see that Developed International Equities (VEA) is most out of balance (-8.7%).  Why not use all available cash to move that asset class closer to the recommended percentage?  Instead I am working on the four that are 5% or more to the low side.  The logic is that of the four (BNDX, VNQI, VEA, and TLT) some will move up while others will move down in price.  By setting limit orders for all four we are likely to pick up shares if four ETFs are positioned with limit orders rather than a single ETF.

In most cases I set the limit orders to the nearest dollar below the current price.  The hope is that a few ETFs will be hit as I expect the market to drop based on the longshoremen strike, war in the Middle East, and election uncertainty.

Limit orders are set to purchase 5 shares of BNDX, 5 shares of VNQI, 38 shares of VEA, and 2 shares of TLT.  These orders will not bring and asset classes into balance, but it moves each in the correct direction.  It will be many months before VOO is close to the recommended 13%, but I prefer not to sell and incur a taxable event.  The Asset Allocation model is set up to be very tax efficient.

Einstein Performance Data

Since 12/31/2021 the Einstein continues to lag the AOR benchmark by nearly four (4) percentage points.  This is a rather large gap considering the AOR is not the most robust benchmark.  For example, the Einstein would have been much better off if the investments were only positioned in SPY.  As frequently stated – It is difficult to outperform the S&P 500.

Einstein Risk Ratios

Is the Einstein moving in the right direction?  Both the Jensen Alpha or Jensen Performance Index and Information Ratio say yes.  Check the Jensen and you will see the trend is up for most of the year even though the value is still in negative territory.

The test over the next few months will determing whether the asset allocation for the Einstein is superior to the asset allocation set up within AOR.

Returning To Investing Roots: 5 August 2024