7/20 Permanent Portfolio Rebalance

(yawn) Not much to report this time. I had an influx of cash to invest prior to this rebalancing check, so these numbers actually reflect a mid-period rebalance, after which the portfolio became more fully invested. Technically, I should be taking a few percent of exposure to cash this time, but trailing volatility is not much above the 12% threshold I use for risk management purposes, and the portfolio is quite well-balanced. So I’m just going to let it ride this month.

Underling exposures, accounting for leverage:

30% S&P 500 Futures

20% Laddered Treasury Futures

31% Gold

12% EM Small Cap

12% ex-US Large Cap

12% Cash

~105% notional exposure

This month’s performance snapshot is quite representative of how the strategy should be expected to perform more generally. It trails equity markets in bull rallies, but makes that up with significantly shallower drawdowns. Over long time periods, you end up with something like a 100% equity return profile, but a 60/40-like drawdown profile in deflationary conditions. Of course, the gold exposure should ensure that the drawdown profile in inflationary conditions is far superior to a 60/40 portfolio. Granted, that’s not a macro regime we’ve had to deal with for some time.

Source: Demonetized Calculations

Of course, the definition of “equity markets” is in the eye of the beholder. Below are the returns for ACWI as of 07/31. This is a much more appropriate investable benchmark for a globally diversified equity portfolio. The performance of the leveraged permanent portfolio compares quite favorably. Actually, the leveraged permanent portfolio has annihilated ACWI so far. Performance versus other permutations of the global 60/40 portfolio is similarly strong.

Source: Morningstar

On an unrelated note, I’ve not posted much on here lately, partly because I’ve fully articulated a lot of the ideas around markets and asset allocation that I originally wanted to share on here. By no means do I intend to shut the blog down. But I consider myself in a bit of a “reset” phase in terms of ideas. I hope to be posting with more frequency again sometime soon. In the meantime, at a bare minimum I will continue to post these monthly updates.

3 thoughts on “7/20 Permanent Portfolio Rebalance

  1. Hi, thank you for the update. How come you use Tsy futures and not straight Try notes/bonds? If you’ve answered this before, my apologies, and please just direct me to the old post.

    1. It’s just because that’s how NTSX is built. In theory you can use whatever instruments you want. Without using a fund like NTSX or PIMCO StocksPlus the easiest thing to do is probably use straight notes/bonds on that side (or an ETF or mutual fund) and then add leverage using equity futures.

Leave a Reply