Schrodinger Portfolio Review: 22 August 2022

Sea Lions “guarding” fishing vessel.

Schrodinger is a portfolio for the busy worker who has either limited time to spend on investing or has no interest in the subject, yet understands the need to plan for the future.  Retirement may be 40 years away.  Now is exactly the time to begin planning for retirement and the Schrodinger is an excellent place to begin.  The other portfolio I recommend is the Copernicus.

As mentioned in prior Schrodinger blogs, this portfolio is housed at Schwab and is considered a Robo Advisor portfolio.  Managed by a computer algorithm, Schwab refers to these portfolios as Intelligent Portfolios.  The Schrodinger is set up with a stock/(bond-cash) ratio of 80%/20%.  One additional request I made with Schwab was to emphasize U.S. Equities as I felt they were too heavily invested in International Equities.  The portfolio breakdown can be viewed in the last screenshot.

Schrodinger Investment Quiver

Below is the current Schrodinger Investment Quiver showing the ETFs and how many shares are invested in each.  When new money is added to this portfolio, Schwab immediately purchases shares in a few ETFs based on the computer model.  The investor, after setting up this Intelligent Portfolio, does nothing except adds new money to the account.  Schwab does the rest and there is no charge for managing this portfolio.  Schwab pays for the management cost by taking the available cash and lending it to clients much as a bank loans out savings accounts.  Schwab also makes money from the expense ratio associated with their own ETFs.

Schrodinger Tranche Investments Recommendations

Were the Schrodinger managed using the Kipling spreadsheet and the LRPC model, all money would be invested in Vanguard’s Tax-Exempt Bond ETF.  However, this is not an actively managed portfolio.  Instead, the Schrodinger is considered a passive portfolio in that the ETFs are rarely traded.  Only when the computer model does some rebalancing are shares sold.  For the investor adding new money each month, shares are almost never sold as the new cash is used to rebalance the portfolio.  That is the case with the individual who owns the Schrodinger.  The owner continues to add new cash nearly every month.

Schrodinger Performance Data

Since 11/30/2020 the Schrodinger returned an annualized 6.3% while the AOA benchmark managed 3.1%.  I use the 11/30/2020 launch date so I can compare performance with one of the youngest ITA portfolios.  When I post the performance of the 18 portfolios I track here at ITA I want a common launch date and 11/30/2020 is that date.

The Schrodinger was started back on 7/31/2017 so we now have a five-year record.  Since that starting date, the Schrodinger is up 42.8% while the AOA benchmark gained 37.9%.

Schrodinger Risk Ratios

Below is the risk ratio data for the Schrodinger.  Pay most attention to the Jensen Performance Index or Jensen Alpha.  The August value of 7.16 is quite high, yet over the past year the slope of the Jensen is negative due to the very high values back in the winter of 2021 and early 2022.  Even during the bear market for the first two quarters of 2022 the Schrodinger managed to keep a positive Jensen.  Likewise with the Information Ratio as that ratio indicates whether or not the portfolio is outperforming its benchmark.  The Schrodinger is accomplishing this “requirement.”

There is nothing for the investor to do with this portfolio other than add new money.  That is one of the beauties of Robo Advisor accounts.  Invest and forget.

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