Even though the Franklin is not up for review for a few weeks, I wanted to take a look to see what the Dual Momentum™ recommendation is as this portfolio is one of the poorest performers here at ITA. Since I set limit orders to move out of equities, as that was the recommendation from the Kipling, this update is a check to see if there was any action since the last review. There has been activity so follow along.

**Franklin Main Menu**

I include the Main Menu worksheet so readers can see the “default settings.” I don’t recall ever changing any of the Score Rank Weightings on the right. I will change the Linear Regression Periods and the associated weights. For example, I’ve increased the number of trading days and the weights for a few portfolios as I’m finding longer look-back periods reduce trading and are showing superior performance.

The Franklin is part of an experiment where different look-back periods are used. This is the short look-back combination while the McClintock and Pauling use longer look-back combinations. These three portfolios are part of a DM experiment where different look-back combinations are used. You can search these portfolios to see what is going on when it comes to performance.

**Franklin Dual Momentum Recommendation**

If you are using the Kipling spreadsheet, you recognize the following worksheet. The Linear Regression Periods and Weights are shown in the upper left so one does not need to see the Main Menu. The other critical setting when working with the Dual Momentum model is to select the Model/System (DM). See the green arrow.

If you have access to the Kipling, set up a DM portfolios as I’ve done. You might want to use AGG instead of BND as I think the expense ratio is a little lower. Either bond ETF will suffice.

Since the DM model recommends holding only one asset at a time, the Maximum Number of Assets is set to one.

Update the prices and see if bonds are not the recommendation when using the same look-back periods I’ve set for the Franklin.

I’m not going to sell the 5 shares of SCHP or the 10 shares of ESGV. I did set several limit orders to purchase more shares of BND to add to the current eight (8) shares.

**Franklin Performance Data**

And now for the disappointed IRR data since 11/30/2022 through this morning. The annualized return is a negative -5.78%. That is significantly worse than the negative 2.1% for the AOR benchmark.

**Franklin Risk Ratios**

The green graph or curve represents the Treynor Ratio and it swings all over the map due to high and low beta values. Right now the beta is quite low at 0.082 and that creates a very low Treynor Ratio. One reason I am not enamored with the Treynor has to do with its high volatility depending on the portfolio beta.

The Jensen Alpha value is back to close to where it was last August. With a negative Jensen slope (-0.60) this DM portfolio is disappointing at best. This is quite a contrast to the McClintock, another DM portfolio. Part of the difference is a result of what is known as the luck-of-review-day. Portfolio performance will vary widely depend on the day the portfolio is reviewed or ETFs are traded.

Fortunately, this is not a large portfolio. We will keep plugging away and if results do no improve by late 2022 I will extend the look-back period as longer combinations seem to be working better.

If you have questions or Comments, drop them in the Comment section of this post.

paul peterson says

Can you please explain what the risk ratio graph is telling us?

Lowell Herr says

The five risk metrics are:

1. Sortino Ratio https://www.investopedia.com/terms/s/sortinoratio.asp

This ratio is an improvement on the Sharpe Ratio. The fifth metric, Omega Ratio, measures much the same thing and really adds little value.

2. Jensen Alpha or Jensen Performance Index. This is my favorite risk measurement.

https://www.investopedia.com/terms/j/jensensmeasure.asp

3. Treynor Ratio – This ratio goes “wild” when one moves from equities to a short-term treasury as the beta moves from something close to 1 down to something close to zero. Since this ratio is so heavily dependent on beta, I rank it down the list. Nevertheless, many folks think it important so I include it in the mix.

https://www.investopedia.com/terms/t/treynorratio.asp

4. Information Ratio – This ratio provides a quick look as to whether or not the portfolio is outperforming the benchmark.

https://www.investopedia.com/terms/i/informationratio.asp

When a benchmark plays a role in the calculation, as is the case with the Jensen, it is vital to find an appropriate benchmark for the portfolio. If one were investing only in large-cap stocks, then the S&P 500 might be an appropriated benchmark.

The graph shows how each of the five metric is moving. Since Jensen is most important in my mind, I calculate the slope of the Jensen to see if the portfolio is improving or declining over the past year.

If I recall correctly, I only started keeping track of these five factors about 1.5 to two years ago.

Hope this helps.

Lowell