Performance Tracking August 2017

I made some changes to the reporting format. Monthly returns are still calculated with the simple Dietz method. Note half of the contribution is added to the denominator. I consolidated the DGI stocks and growth stocks into a single column with the heading “all actively picked stocks”. It makes more sense as dividend is no longer my focus although I still believe DGI incorporating other factors like quality and low volatility enhances total returns. I’m also starting to show annualized standard deviation, STDEV(monthly returns) X SQRT(12), and the Sharpe ratio, AVERAGE(monthly returns)/STDEV(monthly returns) X SQRT(12). For simplicity the risk free rate is taken to be zero.

SPY gained 0.29% for the month of August but the number doesn’t remotely do justice to the episodes of tension with North Korea. After shrugging off threats of a nuclear war is it any wonder that this market brushed aside Presidential antics and hurricane Harvey alike? Though bonds and gold disagree: AGG had one of its best months, up 0.94%; spot gold gained 4.1%. My portfolio delivered significant outperformance: the passive, active, and total portfolio returned 0.98%, 4.45% and 2.87% respectively, vs. 0.55% for the 60/40.

Generally speaking, there are two ways to outperform: 1) when the market is down, non-correlated assets like PM and crypto advancing; and 2) when the market is up, the leveraged option positions advancing even more. For most of August, the outperformance was of the first kind. The final week saw a preview of the “post August moon-shot” my model has been calling for and the outperformance was more of the second kind. YTD the total portfolio has now exceed SPY (13.88% vs. 11.75%) at a volatility comparable to the 60/40 even though it contains many highly volatile (albeit non-correlated) assets. The active accounts did even better (YTD 18.37%) but still with a volatility lower than SPY. I now expect to make back the ground lost in the fall of 2016 by the end of this year.

This month the return also benefited from market timing — in particular, adding to CEF and option positions on August 10-11. I had bids out in the third week of August that were never hit. Timing is an additional source of alpha and risk management that layers on top of all sources of return: equity, PM, credit, and crypto. Going forward I’ll cover trading and position adjustments in weekly updates instead of monthly.

Added Sept 4th: AllocateSmartly now tracks 39 different tactical asset allocation strategies. In August the highest monthly return was 2.63%, trounced by the 2.87% and 4.45% returns of my total and active portfolios. YTD the best return was 18.71% and the 2nd best 13.05% vs. 13.88% and 18.37% for mine. We shall see whether the market continues its upward trajectory as my model predicts.