Portfolio , TAA Investing


Time for my annual post updating statistics for the various portfolios that I track. This is the last post rounding up 2019 statististics. All portfolio stats were gathered using AllocateSmartly P123 , various other sites like MSCI, and the wonder that is Excel. Obviously, there are many more portfolio options out there. This is just a sampling of three main portfolio varieties; buy and hold, TAA (tactical asset allocation) and quant portfolios. See my Portfolios page  for a description of many of these portfolios. Also, go to  AllocateSmartly  for more on all kinds of other TAA portfolios.

This year I’ve added one more benchmark portfolio, the Vanguard Model Portfolio. You can see the allocations for the various buy and hold portfolios and benchmarks on my portfolios page . On the TAA side, I added three strategies, VAA, GPM, and Meta. You can find detailed info on each of these at AllocateSmartly . Also, like last year, I average the various buy and hold and TAA portfolios so you can better see the bigger picture as to what each of these approaches offers without getting lost in the details of each approach.

This post updates the portfolio statistics, through 2019, for all the various portfolios I track that I have data for going back to 1973. It is not comprehensive by any means but contains a good sample of various diversified global buy and hold portfolios, tactical asset allocation portfolios, and quant portfolios, as well as the popular benchmarks. Last year’s post is here  and the portfolios are defined on the portfolios  page . I’ll present the comparison of the portfolios in several ways with my favorite being risk adjusted returns. On to the data. The table below sorts the portfolios by compounded annual returns, from 1973 to 2019, the longest period.

As the table shows, over the last 47 years quant and TAA strategies have delivered higher annual returns than any buy and hold strategy. The highest ranked buy and hold approach is the IVY 13 Buy and Hold portfolio from Meb Faber. It is the most diversified buy and hold strategy across assets, regions, and factors. Now, let’s look at risk-adjusted returns as measure by Sharpe ratio.

In this table, it is pretty clear what TAA really brings to the table. Higher risk-adjusted returns than buy and hold, which greatly helps investor behavior. The spread to buy and hold is even greater. The highest ranked buy and hold strategies in this metric as you might expect are Risk Parity and the Permanent Portfolio. The secondary impact of these higher risk-adjusted returns, particularly for investors in the portfolio withdrawal phase of their lives, are higher SWRs (safe withdrawal rates) in retirement (see column marked ‘1966 SWRs’ in the tables). The table below shows the strategies ranked by safe withdrawal rates. TAA strategies are the best in raising safe withdrawal rates.

Again, TAA strategies are the clear winners. Simple right? TAA for the win by almost any metric. Not really. What I said in last year’s post still applies. The market will always make these decisions hard, especially in the short term. Take a look at the performance differences over the last 10 yrs. Table below.

In this recent period, the avg buy and hold strategy has outperformed the avg TAA strategy. In very strong bull markets, in particular time periods not including a significant recessionary period, buy and hold CAN outperform TAA. It is not always the case. In the 1982 to 2000 bull market, TAA outperformed buy and hold (due to international markets) but buy and hold has a better chance of outperforming in bull markets. And that is what we’ve seen in the last 10 years, 20010 to 2019, buy and hold outperforming TAA. What’s made the last 10 years even tougher is the combination of buy and hold and US market outperformance so you get the 60/40 US centric portfolio blowing the doors off the average buy and hold portfolio.

As an aside, recently Meb Faber did a great tweetstorm turned post about the importance of global investing . In light of the dominance of US markets over the last 10 years I think it is important to keep the long term in perspective and remind ourselves the investing globally is the best long term approach. Even more so when the inevitable mean reversion comes to pass.

That about it for this year’s roundup. The overall table will be posted over on my portfolios page for future reference.