Orkney Island Living Structures
After a stellar year in 2021 followed by a bear market in 2022, it makes good sense to run an analysis on what is working when it comes to the ITA portfolios. Which of the eighteen (18) ITA portfolios rank high on a return basis and which rank high on a risk adjusted basis and what happened to U.S. Equities over the past two year? On September 26, 2020 VTI closed at 162 and change. On September 26, 2022 the same ETF, VTI, closed at 182 and change. In other words, very little difference over the past two years. We are about to finish off the third quarter of 2022 so we can look forward to dividends flowing into some of the income oriented portfolios. Other portfolios will benefit less as they don’t have the same exposure to high yield securities. Once we close out November of 2022 I will have two years of comparison (Copernicus is an exception) with which to judge the different portfolios styles.
During the fourth quarter of 2022 I will be paying close attention to the return and risk of the eighteen (18) portfolios I track here at ITA Wealth Management. The reference I’ll use for comparison is the Schrodinger as it is a computer managed portfolio with a buy and hold investing style. I don’t do anything with the Schrodinger other than keep records of when the owner adds or withdraws cash. Based on the most recent data, the Schrodinger ranks number 13 out of 18 on return over the last 22 months. Based on my risk calculation the Schrodinger is number 12. Portfolios lagging the Schrodinger return are: Millikan (Relative Momentum), Gauss (Relative Momentum), Newton (Factory Income), Franklin (Dual Momentum), and Copernicus (Buy and Hold U.S. Equities).
Based on this data, we have at least one portfolio from each investment style lagging the Schrodinger return over nearly two years of operation. On the bright side of the equation, there are 12 of 18 portfolios that are outperforming the return of the Schrodinger and 11 of 18 carry less risk. Those are rather good results, but I’m striving for even better returns. Once we pull out of the bear market the Copernicus in particular should do well. This portfolio is an anomaly as it was launched in mid-January of 2022 or just as the bear market began. The Copernicus was launched too late to take advantage of the 2021 bull market.
Once dividends are posted for the third quarter I’ll post the ITA portfolio performance data so Platinum and Lifetime members can make a fresh comparison to see how the various portfolios are performing with respect to the Schrodinger. During the last quarter of 2022 additional attention will be give to Internal Rate of Return (IRR) data to see if any management changes are required for specific portfolios.
Using the most recent performance data the top five ITA portfolio performers are scattered over every investing model. Return rankings beginning at #1 through #5 are: Curie (Factory Income), McClintock (Dual Momentum), Kepler (Relative Momentum), Carson LRPC (Relative Momentum), and Huygens (Factory Income).
From all the data I have thus far, it is difficult to identify which investing style works best as the top and bottom performers occupy all the basic investing models. The take-away is that 12 of the 18 portfolios are performing better than the computer manage account or a percentage of 67%. By the end of 2023 I would like to lift that percentage up over 80%.
If readers have any questions or comments, post them in the Comment section provided below.
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thank you for your honest articles. Seeking alpha has too many buy side ‘experts’ selling hope and glory but few are subject to review eg black rock, the funds, economists, etc. for a beginner retiree investor, I think I should set up a core and explore your winners hoping the past repeats. the macro is recessionary, so I feel I need to not lose capital by trying to wait for a cnsensus bottom. or your risk adjusted returns. hard to enter in the teeth of a recession using etfs only
Ken,
One needs to keep in mind that “What Is Working” is relative where the Schrodinger is the reference. If the Schrodinger is going down in value and 12 or 13 other portfolios are doing better it simply means they are resisting the decline, but are still likely going down in value. That is the painful truth.
It will be interesting to see how the various portfolios stack up when I next update the Performance Data SS in early October.
Lowell
I still contend that timing (review date) luck, rather than which system we might use, is probably a more important factor in determining portfolio performance. This is why I advocate for system diversification. I think we see evidence for this in the above results and in the Rutherford tranched portfolio..
David
David,
I just mentioned this in the Franklin (DM model) that was just posted.
I too am a strong advocate of system diversification as well as reviewing portfolios at different times of the month. I know scattered review periods goes against the idea of reviewing portfolios on the last business day of the month.
Lowell
Investment system diversification makes sense and is appealing. The practical questions then become:
1. COMPLEXITY: How many sub-systems to use?
2. How frequently to balance and rebalance between sub-systems?
3. LOSS REDUCTION: What “bail out” or stop loss “guard rails” to use with each sub-system?
All the best,
– Lee
Lee,
Good questions and the answers will vary depending on what stage of life one is in. For example, is the person saving for retirement still working and therefore has limited time to devote to investing. If so, then I would highly recommend watching the Schrodinger and Copernicus as both require minimum time. The Copernicus is very new so don’t be frightened by the poor performance. It will see better days ahead.
If one has a little more time and interest in investing, then tackle the Dual Momentum model. It also is quite easy to manage, assuming one is using the Kipling SS.
If income is an issue, then track the Huygens. The Bohr and Bethe portfolios are combinations of growth and income.
As for rebalancing, the longest I would go out is one to two years. On the short end, I would not do it more frequently than once a month. There is a huge variation between those two extremes. I favor looking at each portfolio every 33 days. If I went out longer I would favor checking in on all portfolios every quarter.
As for #3, I use either limit orders or TSLOs to limit losses. Famed investor William O’Neil recommended placing an 8% limit order under every purchase. Today he might have recommended an 8% TSLO under every purchase so new limit orders are reset if the price of the security advances in price.
Lowell
Thank you.