The markets are closed today, this being the Martin Luther King Jr holiday. Since none of the portfolios were scheduled for their regular 33-day review, I decided to run an interim update of the Gauss. This is one of the Relative Strength or Momentum Strength portfolios. Others using a similar model are: Einstein, Kepler, Millikan, and Bethe.
The Gauss differs from the Dual Momentum™ model in that there are more ETFs in the investment quiver and we generally end up with a more diversified portfolio.
Gauss Investment Quiver
Twenty six ETFs make up the Gauss investment quiver. When last reviewed the holdings were similar. I don’t plan any buy or sell decisions until a full review in February, although I will set TSLOs for the current holdings.
Gauss Security Recommendations
For new readers, here are a few critical settings. The Target Filter (VTI) (red arrow) is set to Yes so we are looking for ETFs that are outperforming the broad U.S. Equities market. I’m using the default (blue arrow) look-back combination. The maximum number of assets (purple arrow) is set to 10 and the Gauss uses the BHS investing model (green arrow).
With these settings, and others I rarely change, the recommendations are to hold VTI and add 41 shares to the existing VOE holding. Unless I were to sell at least one holding there is insufficient cash to purchase 41 shares of VOE so I will not be making any moves at this time.
Note the current beta is 0.763 so the Gauss is less volatile than the four Dual Momentum portfolios as they all hold VTI.
Gauss Manual Risk Adjustments
These are the specific recommendations when the SD Multiplier is set to 1.00 and the Maximum Trade Position Risk is adjusted to 1.84%. The 1.84% adjustment is made so as to end up with a few dollars in the Total Suggested Cash (green arrow) cell.
Gauss Performance Data
Over the past 13.5 months the Gauss generated an IRR of 16.7%. That compares with an 11.3% return for the AOR benchmark. I’m hoping Yahoo will eventually adjust VTTX and VTHRX for the year end capital gains. If not I might need to find other benchmarks.
One standard I use is the Schrodinger and over this identical period, the computer managed portfolio has an annualized return of 20.5%. In other words, the passive portfolio is outperforming the actively managed portfolio by nearly four (4) percentage points. Return is not the total picture. In the last performance data table the Gauss ranked #4 when portfolio risk is taken into account whereas the Schrodinger is #8. So pay attention to risk as well as return.
Gauss Risk Ratios
Most of the risk values dropped since the last Gauss update so the relative position with Schrodinger could well change. Thus far, January has not been the strong month we expected. There is a lot of uncertainty roiling around the U.S. economy and we are seeing it play out in these performance numbers.
The Gauss is next set to be reviewed on February 3rd. Until then I plan no changes other than to set TSLOs under each holding with exception of SCHP.