Yikes! There’s no denying it. It’s been a tough stretch (see performance data here). The TL;DR is we are dismally failing the “Why Not Just Put It All In SPY?” Test at the moment. But since I haven’t posted on the portfolio in a while, this is a good opportunity to take a deeper dive into recent performance.
What Happened Here?
The current numbers are pretty shit. Not “I put it all on PTON in 2020” shit. But definitely not good. A few things contributed to this. Some of them bother me more than others.
The S&P 500 has been an incredible performer. This doesn’t bother me at all. In fact, I benefit from it since S&P 500 futures are part of the portfolio. It just makes for an ugly comp.
Interest rate hikes whacked the portfolio. Drawdown hasn’t been much worse than my comps in this rising rate period. Especially considering this is a levered portfolio. The portfolio just hasn’t caught the sharp rebounds the S&P 500 delivered. A muted 2021 was the major point of divergence. To a lesser extent, this repeated in 2022. I am optimistic higher expected returns in fixed income will benefit the portfolio in the longer term. But getting here was painful.
On the other hand, this was an excellent stress test. The theoretical underpinning of this strategy is leveraging uncorrelated assets. When the correlations of those assets go up, and the price direction of the assets is down… well… that is not a recipe for great short-term performance. The gold allocation is supposed to help with this. And it did. At least to an extent. Gold was essentially flat in 2022 in US dollar terms. Many asset classes drew down double digits. Gold did better than zero in terms of most other currencies. But I’m a US dollar-based investor. So I’ve just got to suck that up.
Dumb Mistakes. This is one burns me up. Almost everything I’ve done to fiddle with the allocation at the margins has destroyed value. When I made adjustments based on trend metrics, I missed some of the COVID rebound. When I sprinkled in some satellite strategies, those strategies didn’t deliver. I should have kept it simple. I knew this. I’ve written about it! But I was in a terrible frame of mind for much of the past two years. This showed up in the portfolio, which became bloated, sloppy and confused. (note to self: revisit this in a future post)
What To Do About It?
For the most part, there’s not much to change here. I remain confident in the basic principles underpinning the strategy. What I’m doing is simplifying things. When I left my job, I cleared all the flotsam and jetsam out of the portfolio. I replaced most of it with NTSI, which is the developed international equity version of the core NTSX holding. I also consolidated some into my EM equity allocation (I am an incorrigible EM equity bagholder). Keep it simple, stupid! The result is essentially a 60/30/30 portfolio.