There is little to report on the Schrodinger since the last update. In an effort to bring asset classes within the target ranges, a block (100 shares) of DBC was added to Commodities. That asset class is now in balance. Another addition was to add 100 shares of PCY. In the Schrodinger I do not have a separate asset class for international bonds so this PCY addition was lumped in with the Bonds and Income asset class. That asset class is still 3.8% under target. Limited availability of cash prevents me from bringing Bonds and Income back into balance. I could sell off some shares in asset classes that are slightly above the exact target percentages, but instead I will wait for another round or two of dividends and then use that cash to build up the Bonds and Income asset class.
Schrodinger Efficient Frontier: Although I do not use the Efficient Market Theory to manage the Schrodinger, I find it interesting to see how the Strategic Asset Allocation (SAA) plan for the passively managed portfolios compares with the recommended optimized portfolio. For the Schrodinger, we are right on target as the yellow diamond falls very close to the optimized portfolio (red dot). The portfolio return vs. volatility coordinates from last month lie directly beneath the legend information in the white box. The market conditions over the past month plus the two additions to the portfolio increased the projected return while reducing the projected volatility. That is exactly what we want to happen. Anytime the yellow diamond moves toward the northwest corner of the graph it is a sign of success.
Schrodinger Dashboard: All asset classes are within target with exception of Bonds and Income. A few more quarters of dividends and we should have that asset class back within its target range of 15%. This is a fairly aggressive portfolio. Conservative investors might want to push the allocation to Bonds and Income as high as 40% or 50%.
For readers new to ITA, three portfolios are passively managed and they are: Schrodinger, Copernicus, and Pasteur. The target percentages have a white background and the actual percentages held in the various asset classes are color coded. The mid- and small-core asset classes are not used. The SAA plan for the Schrodinger is skewed toward value investments and has stayed like this for many years.
Schrodinger Performance Data: The fifteen year record for this portfolio is shown below. Note that the Schrodinger IRR nearly matches the S&P 500 (VFINX) and it is outperforming the ITA Index. Since I am using a much older version of the TLH Spreadsheet with the Schrodinger, I do not show the VGTSX or international index. Were this included in the table below, readers would see why the portfolio is not beating the VTSMX index as international markets have not performed all that well over the past 15 years.
This is the last report on the Schrodinger for 2015. The fourth quarter dividends will be used to build the Bonds and Income asset class in an effort to bring it back within the target ranges.