Earlier on Monday I look at a couple of different proxies for the Permanent Portfolio. The big idea as we've talked about here many times is that it equal weights stocks, long bonds, gold and cash at 25% each so that no matter what is going on in the world, at least one of the four is holding up well. There is a mutual fund by that name with symbol PRPFX and the concept inspires many of the portfolios we study here like the Cockroach Portfolio by Mutiny Funds.
I wanted to take a stab at trying to improve the long term result of the Permanent Portfolio which are pretty good. Portfolio 1 is 25% each to Invesco S&P 500 Momentum (SPMO), Stone Ridge Hi Yield Reinsurance (SHRIX) which is Cat bonds, SPDR Gold Trust (GLD) and Campbell Systematic Macro (EBSIX) for managed futures.
The asymmetry modeled into Portfolio 2 is Nvidia. The idea is not to imply I can pick something that goes to the moon but to understand the impact if you can pick something and get it right. The portfolios do not rebalance in the back test to show the impact of asymmetry working. If something chosen for it's asymmetry goes to zero then the math doesn't cause too many problems, just a small drag, at least early on. If from here, Nvidia went to zero, the impact would be meaningful but wouldn't be worse off from the starting point in a meaningful way.
In addition to the data in the screen grab, Portfolio 1 has the best Calmar Ratio with Portfolio 2 close behind and Portfolio 1 had far and away the best Kurtosis. In 2022, Portfolio 1 was flat, Portfolio 2 was down 10% which speaks to the impact of NVDA going down 50% that year, PRPFX was down 5% and VBAIX was down 17%.
As we said in yesterday's blog post, any sort of real world application of this wouldn't have to be limited to four or five holdings. SPMO could be replaced with a broader mix of ETFs and single stocks, one managed futures fund could be replaced by a couple or maybe add in other second responder type defensives, there are plenty of strategies with similar volatility profiles as SHRIX to diversify that sleeve and maybe the gold could be combined with some broader commodity exposure.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
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