Schrodinger Portfolio Review: 7 December 2022

USS Arizona Memorial at Pearl Harbor

Before moving into the Schrodinger review, keep in mind that 81 years ago today Pearl Harbor was bombed.  Elvis Presley aided in the funding of the USS Arizona Memorial pictured above.

And now to the Schrodinger update, a Robo Advisor portfolio or one managed by computer.  The Schrodinger is housed at Schwab and is called an Intelligent Portfolio.  It is easy to open up such an account with Schwab.  There is no cost other than the expense ratios associated with all ETF investments.  After opening up this style or model portfolio, all one does is add money.  Schwab’s computers do the rest.  When new money is added, the computer(s) go into action and rebalance the portfolio by purchasing additional shares so the asset allocation ratios remain within the parameters specified by the computer algorithm.

Since the Schrodinger is essentially a Buy & Hold portfolio, untouched by human hands, I use it as a benchmark for other portfolios.  In other words, I measure how other portfolios are performing compared to the Schrodinger.  Also, how do the various models compare when calculating portfolio risk.  Run a search for “performance” and you will see that the Schrodinger generally ends up in the top third when it comes to both return and risk measurements.  To view the performance data requires registration and eventually a Platinum level which I grant to all who signup as a Guest.

Schrodinger Portfolio

Here we have the makeup of the Schrodinger portfolio.  Schwab currently uses nine ETFs to populate the Schrodinger.  I asked Schwab to cut back on their international holdings so international equities now makes up 15.3% of the portfolio.  Before I made this request the percentage was in the 20% range or low 30s.

Depending on your age, Schwab will place a higher percentage in bonds.  As you can see from the pie chart below, this is a more aggressive portfolio than Schwab might prefer for my age bracket.  It is possible to adjust the stock/bond ratio.  My only complaint is the high percentage held in cash, now 8.1%.  Schwab uses this money to run their bank and I think this is how they provide this Intelligent Portfolio service free.

Schrodinger Performance Data

The following data shows the performance since 11/30/2020.  The IRR for Period exceeds Vanguard’s Total World Index Fund (VT) as well as the iShares AOA security I use as the benchmark for the Schrodinger.

Schrodinger Risk Ratios

The following table lays out various risk factors or values associated with the Schrodinger.  The Jensen Alpha or Jensen Performance Index is the preferred measurement for risk.  Any Jensen value above zero is considered to be very good.  Even though the slope of the Jensen is negative (-0.80) a value of 4.5 is outstanding.

The Information Ratio continues to be positive and that indicates the portfolio is outperforming its benchmark.

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