Performance Tracking January 2017

For calculation methodology see earlier post

2017 started with a bang — precious metals performed well even though it was looking to retest the 2015 lows at the end of last year. Since PMs are the main drivers in the “tracking error” (I hate that term!), my portfolio did well relative to the overall market. The S&P also had a good month, gaining 1.79% while the bonds gained 0.21%, meaning the benchmark 60/40 portfolio picked up 1.16% for the month.

Passive Portfolio

The total passive portfolio gained 2.11%, the portion outside of the 15% allocation to PMs gained 1.34%. In this post, I outlined my plan to increase the equity allocation by 5%. I’m about half way done. Funds has already come out of TBM but has not been added to equities just yet. The market has been directionless for a long time. Since the model has a low in February and I know it can’t be timed perfectly, I have already started to transfer funds slowly. I can only access the emerging market index fund, VEMAX, in a Roth IRA at Vanguard and the space is limited. Hence I had to dial down its allocation by 1% and shift to VTIAX. The allocation for the rest of 2017 looks like this:

Active Portfolio

The overall active portfolio gained 2.37% despite the drag from DGI whose main culprits were victims of presidential tweets and Target. Large changes are being made in FI: reducing muni CEFs in taxable and adding to taxable CEFs in taxed advantaged. I’m using this opportunity to cull back certain dividend stocks.

Plan and Forecast

Transition to my AA is straight forward and should be completed by the end of February. In the active portfolio, the goal is to maximize tax advantaged space for taxable CEFs. Consequently, dividend stocks will all end up in taxable. Tax considerations alone forces me to favor stocks with high dividend growth over high current payout. Currently, the blended payout ratio for my DGI stocks is 2.74% vs. 2.03% for SPY and 2.93% for VXUS. I expect this ratio to come down further. I’ve also started positions in MKL, aka “the baby Berkshire”. It doesn’t pay any dividends so doesn’t count towards DGI. I’m taking my time to buy the taxable CEFs as they have all been on a good run — patience is definitely a virtue. This process may continue well into March or April.

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