I'd like to review how the popular model portfolios held up during this period. The graphic quality of the tables below is not good so I will discuss the columns of the table in detail for the DJIA. A large version of the table appears toward the end of this note.
Column A shows the annualized rate of return for the DJIA for the 5-plus years from 7/18/2014 (the first week of the Focused 15 Investing publications) through 3/20/2020 (last Friday). The DJIA returned 4.7% per year, on average, over that period. A higher percentage is better.
Column B shows the variability of those DJIA returns, 16.4%. Here, a lower value is better.
Column C shows the ratio of those two numbers. A higher ratio is better. The Return-to-Variability ratio for the DJIA over this 5+-year time period has been 0.3.
Column D shows the year-to-date (YTD) return for the DJIA. The return has been -33%.
Column E shows how much of the DJIA history of returns has been wiped out by the recent decline. Last Friday's price was the same level that the DJIA last had on 4/21/2017, 152 weeks ago.
Finally, column F shows the longer-term performance of the DJIA, beginning 1/7/2000. Its annualized return for the last 20 years has been 5.1%.
The chart below adds the Diamond (sg131) model portfolio to the information above.
Column A, row 2 shows Diamond (sg131)’s annualized return of 9.3%. This compares favorably to the 4.7% annualized return for the DJIA.
Column B shows the Variability. Diamond has Variability of 16.5%, which is very close to the variability of the DJIA.
The Return-to-Variability ratio is 0.6, which compares favorably to the DJIA's ratio of 0.3. Our goal is to get higher return for the same variability and this statistic reinforces that we are moving toward that goal, even in a down market.
Regarding the YTD loss (Column D), the Diamond model portfolio returned -32%, similar to the loss for the DJIA. The Diamond model portfolio has given up 131 weeks of returns (Column E). The level as of last Friday is where Diamond was on 9/15/2017.
Column F shows that Diamond model portfolio returned 18.7% annualized over the past 20 years - even after the recent decline. Of course, much of this history represents a historical simulation and it is best to consider this number a general guide of the return potential of the model portfolio - it is quite a bit higher than the return of the DJIA.
The table below adds some of the reference portfolios in the weekly publications.
I included the Russell LifePoints Fund (RALAX). I worked at Russell for several years and their investment strategy (multi-manager, multi-style diversification) is used by many investment firms around the world. RALAX had a return for this year of -29%, which is not far from the loss of the DJIA and the Diamond model portfolio. Yet its annualized return since 7/18/2014 is -1.4%. It gave up all the returns it has earned for 213 weeks (since 2/17/2016). Its long-term returns (since Jan 2000) have been 4.1%. The returns for funds listed under "Funds for Performance Comparison" reflect fund fees, which vary from fund to fund.
The table below adds other popular Focused 15 Investing model portfolios.
- The Onyx mixes displayed good performance characteristics in the decline.
- The Diamond-Onyx Mix (sg218) shown on row 3 had a loss of 19% this year and has returned 9.7% annualized from 7/18/2014 through last Friday. It has given up only 60 weeks of its returns during the decline. As of last Friday, it was at the same level as on 1/25/2019, 60 weeks ago. The long-term simulated return (since Jan 2000) has been 16.4%.
- The Onyx sleeve is shown for reference, but it is not a separate model portfolio. It works best in partnership with the D5 signal set sleeve.
- The Onyx mixes shown in rows 5 and 6 use the DJIA-linked ETF "UDOW," which gives three times the return of the DJIA each day. The users of these model portfolios have multi-decade investment horizons. UDOW is aggressive and has achieved much higher return over the last 5+ years, yet these model portfolios experienced losses that are similar to those of the other model portfolios, suggesting that their structures held up during the recent decline.
- The model portfolio in row 6, Sapphire-Onyx Mix (sg299) had a loss of 36.9% this year, which is only four percentage points worse than the DJIA but has had an annualized return of 14.6% since 7/18/2014, compared to the DJIA's 4.7%. The model portfolio in row 6 is a green version of it.