Category Archives: Performance Tracking

Performance Tracking October 2017

For calculation methodology see this post.

Contrary to many top-callers, October was once again a great month for stocks, in fact it was the second best this year after February. $SPY picked up 2.36% for the month. Bond yields shot up after John Taylor was rumored to be Trump’s pick for the next Fed Chair. Both the rumor and yields settled down, leaving $AGG 0.1% higher for the month, and the 60/40 up a more than respectable 1.45%. Great as those numbers were, my portfolio performed even better. The total portfolio and the active accounts gained 3.8% and 6.04% respectively. Both were a record since blog inception.

Breaking down individual components: PMs were a drag for about a quarter of a point for the month in passive accounts. YTD passive w/o PMs returned 11.65% vs. 11.18% with PMs at much higher volatility. The absolute return was on part with 60/40 at 11.14%. Individual stocks gained 3.56% vs. 2.36% for $SPY, thanks predominantly to tech. CEFs had a down month. The taxable multi-strategy CEFs are recovering from the hit piece on SeekingAlpha while their NAVs continue to mover higher. The loss in muni CEFs had a more rational basis but I believe the distribution is safe and I’m ready to buy more if valuation becomes more attractive. Cryptos were a big contributor as bitcoin roared above $6400, but the real heroes were the options which were responsible for half of the gains.

End of Month Portfolio Composition

PMs were at 10.1%, equities 57.8%, fixed income 23%, cash 4.3% and other 4.9%. The “Other” category was composed of cryptos 2.6%, 3X ETF 0.8%, and (market value of) options 1.5%. Option delta times the underlying gave an equivalent value equal to 60% of the total portfolio, or a leverage ratio of 40X. Note that as I moved up the strike of the short put leg, the market value was reduced and the leverage ratio increased.

Potential Transactions before Year-End

Purchase gold bullion coins, TLH individual stocks, add to CEFs, and continue to manage option positions.

Comparisons

AllocateSmartly tracks over 40 different tactical asset allocation strategies. In October my total return of 3.8% would have led the pack whose highest return was 3.3%. YTD the first and second ranked strategies are at 23.42% and 16.86% respectively, vs. 19.18% and 26.85% for my total portfolio and active accounts. While my portfolio is currently at 120% long equities, knowing when to use leverage is part of art of the portfolio management. I expect to open up further distance with these strategies as well as the benchmark for the rest of this year.

Performance Tracking September 2017

For calculation methodology see this post.

Stocks had a very strong September with the SPY gaining 2.02%. Yields rose and the TBM declined -0.57% for the month, leaving the classic 60/40 portfolio still up a very respectable 0.98%. In contrast my total portfolio gained only 0.82% in September, the passive and active strategies returning 0.55% and 1.06% respectively.

Contrary to August when cryptos and PMs provided extra boost, in September they were laggards. Cryptos were responsible for a -0.8% decline. Approximately the same decline was due to PMs; however hedging (with 3X ETFs) mitigated the loss by 0.1%. I find it interesting that losses from cryptos and PM were evenly matched although that was the intent behind sizing the positions inverse to their daily volatilities, assuming all correlations were zero. I’m still amazed that it worked so well. The amount of decline gave a clue as to the maximum allocation I would give to cryptos from a monthly draw-down perspective: no more than 5-6%. At their lowest point this month the decline was about -1.2% overall from an end-of-August weight of just shy of 3%.

Other parts of the portfolio continue to perform well. The individual stocks had a banner month (+3.41%) and have returned more than 2% over that of SPY since April. The CEFs continue to deliver strong performance, up another 1.78% vs. a down month for AGG, my trimming down $PCQ this week notwithstanding. The option positions are starting to deliver as indices break out. The fact that cryptos and PMs were a drag this month is evidence that they’re serving as a portfolio diversifier as intended. For the remainder of the year, I expect cryptos to fully recover, and gold to bottom in late October before recovering, but the main performance driver will still be derived from equities.

AllocateSmartly tracks 40 different tactical asset allocation strategies. In September my total return of 0.82% would place it 14th; and the active account return of 1.06% 8th. YTD the first and second ranked strategies there have returned 19.91% and 14.44% vs. 14.82% for my total portfolio and 19.63% for my active accounts. I pay a lot of attention to the performance of my active accounts as that’s where I’ve devoted most of my energy but in the end the total portfolio is what will pay the bills. YTD it has delivered more than SPY at a standard deviation just above that of 60/40. It has also more or less caught up with 60/40 in total return from last August.

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.

Performance Tracking July 2017 and One Year Review

For calculation methodology see this post. Tracking growth stocks and fixed income CEFs started in April’17.

July was an excellent month all around. My total portfolio gained 2.22% exceeding both SPY at 2.06% and 60/40 at 1.37%. The active accounts gained 2.65% and the passive accounts 1.87%. YTD the total portfolio is at 10.71% vs. 11.43% for SPY and 7.89% in 60/40. For the actively picked stocks, growth stocks had a blistering gain of 10% only to be weighed down by the barely negative showing from the DGI compatriots. Combined they delivered 2.46% in July well above the SPY. Since April, my individual stocks are 0.6% ahead of SPY which is exceeding my expectations. In the “other” category, leveraged options are starting to perform although with a high volatility as expected. There were responsible for about 1% of the overall gains — nothing to sneeze at. Cryptocurrencies recovered a little, just ahead a controversial hard fork; though I don’t expect them to move much probably until year-end. It looks to me that institutions are managing the price levels to accumulate quietly.

AllocateSmartly is now tracking 39 different tactical and static allocations. In July, 2.22% would have placed my portfolio at 11th out of 39, while 2.65% would have tied for 6th. YTD 10.71% would have been 8th out of 39. The active accounts’ YTD gain of 13.33% would have been 2nd overall.

This is the 1-year anniversary of this blog which means there is 12 months worth of return data. My portfolio is still suffering from last July to November such that the 12-months performances are still lagging. On the other hand, the YTD numbers are excellent all around, both absolutely and risk-adjusted. The reason for this improvement is several-fold. Adjustments were made in the composition and location of CEFs that I have written about. In individual stocks, greater emphasis was put on growth over current dividend payout. Lastly, the relative performance of the precious metals was a large contributor to “tracking error” — I put that in quotes since the differential in performance is entirely intentional. PMs reached a peak in July 2016, declined hard for the rest of 2016 and are relatively stable in 2017. Below are two summary plots for my main taxable account at InteractiveBrokers. In terms of account value, today it’s over half of my active accounts, So it’s quite representative of the qualitative behavior of my total portfolio.

Both figures cover the period from the end of 2015 to 7/28/2017. The first shows the cumulative gain vs. SP/EFA/VT. My portfolio outdistanced the benchmarks from the start and never looked back. The decline from July-November 2016 is visible. Then the climb resumed and appeared to be accelerating in the last month. The acceleration is due to the leveraged option positions that I initiated at the end of June and continued adding to in July. If the market continue to behave as my model predicts, the out-performance should pick up momentum. Looking at the relative performance of passive with and without PMs (at parity YTD), PMs appear to have finally turned the corner from the decline going back to July 2016. While I expect a lengthy build-up to a blow-off phase in several years time, PMs should no longer be a detractor for performance for the rest of 2017.

The distribution of monthly returns in the second figure is rather interesting. First of all, international (EFA) was bipolar in the last two years. It was barely positive(?) in 2016 and tremendously strong YTD. As such it had both large gains and losses. My portfolio had positive skew and less big monthly losses than the benchmarks. I dare say these were the return characteristic that professional managers would be proud of.

Performance Tracking June 2017

For calculation methodology see this post. Tracking growth stocks and fixed income CEFs started in April’17.

For June my total portfolio returned 0.9% exceeding both SPY at 0.64% and 60/40 at 0.38%. YTD the total portfolio is at 8.3% vs. 9.18% for SPY and 6.43% in 60/40. In terms of stock picking, growth stocks lagged this month as can be expected from the headwind faced by leading tech stocks. The DGI stocks were strong in part because of the realization of dividend payment (cash basis on when they were paid, shifting about 0.3% from last month). When the growth and DGI stocks were taken as a whole, they slightly exceeded SPY for the past three months which was better than expectations. CEFs continue to be a highlight of the portfolio as previously mentioned. Cryptocurrencies were a positive driver despite entering a correction since BTC reached $3000.

AllocateSmartly is now tracking 37 different tactical and static allocations. In June, 0.90% would have placed my portfolio at third overall, albeit a distant third. YTD 8.3% would have been 11th out of 37. The active accounts’ YTD gain of 10.29% would have been 2nd overall.

Going forward I see a difficult summer ahead with continued consolidation in erstwhile leading stocks. Gold may finally find a bottom in July. I have been hedging my miners using DUST and I’m finally looking to buy more gold coins for my passive accounts. To be discussed further in an upcoming market commentary.