Kepler Portfolio Review: 7 February 2023

This sculpture located in Lake Oswego is part of the permanent collection.

Prepare for a less than stellar performance from the Kepler as I walk through this review.  Either the Buy-Hold-Sell (BHS) model is not working as designed or I am not implementing it properly.  The result is the same disappointing performance that will require some changes if this continues over the next several months.

Kepler Investment Quiver

Below is the investment quiver for the Kepler and the current holdings.  The nearly 5.0% yield is respectable, but as readers will see in a moment, the IRR is below its AOA benchmark.

Kepler Security Recommendations

Using the default look-back (green arrow), the BHS model, and a maximum of five (5) assets (red arrow), the five recommendations for purchase are:  VOE, VEA, VNQ, IQLT, and SCHC.

The Target Filter for VTI is set to Yes so I’m looking for securities that are outperforming VTI.

Kepler Manual Risk Adjustments

To be able to purchase the recommended ETFs I will need to sell shares of SCHP.  The other sell recommendation is to eliminate shares of VOO.  Since this ETF represents the S&P 500 I’ll likely set a high (~10%) TSLO for VOO as I’m not interested in selling this equity ETF.  Note that VTI is a hold and there is a high correlation between VTI and VOO.

Kepler Performance Data

Here comes the bad news.  Over the past 13.5 months the Kepler lags the AOA benchmark by over three percentage points.  Yes, the portfolio is outperforming ESGV providing some consolation.

Kepler Risk Ratios

Note the drop in the Jensen Alpha over the past year.  In addition the Information Ratio dipped into negative territory.  These trends need to be reversed and that is the goal over the next few months.

Managing the BHS model requires a working knowledge of the Kipling and it also involves more decisions.  Simple portfolios such as the Copernicus and Schrodinger operate on automatic pilot and are performing much better.  Therefore, unless the Kepler improves over the next few months, I may as well use simpler investing models.