Their Model, Our Funds

Alpha Architect Tweeted a link to its model portfolios. They are essentially the same batch of funds in different weightings depending on the asset allocation. So 90/10 has 35% in the S&P 500 while the 10/90 has about 4%. The models allocate between equities, alternatives and fixed income. There's no login required so I think sharing the details is ok.

Everything in the replication is in my ownership universe except SHRIX while CAOS from their model is a client holding. 

Their model has done very well. I think the only difference between it and the replication is QMOM and IMOM which target something called quantitative momentum. I added those two funds to the backtest to try to illustrate the challenges of holding them. The drawdowns tend to be pretty big and IMOM's outsized growth rate occurred just since November. A less impactful difference (probably) is the heavy exposure to SCHR which is a Schwab treasury ETF that has lagged our fixed income substitutes. 

I thought I wrote about this model before but couldn't find it in the archives, Copilot couldn't find it either.

If we replace HIDE in their model with Cambria Trinity which is think is similar in terms of a lot of trend and volatility, we can go back a few more years. 

Their model clearly outperforms VBAIX but with roughly the same volatility, probably because of QMOM and IMOM. I think their concept is well put together, this is just another example where we can learn from someone else's valid concept and marry it with our own ideas. 

I'll close with a quick bit of capital efficiency history.

Corey concedes that his mention of QDSIX might benefit from hindsight bias.

Portfolio 3 just kicks out GOVT and replaces it with QDSIX, so no leverage in the portfolio other than the extent that QDSIX might use leverage. QDSIX has done much better than GOVT with only slightly more volatility. We've mentioned QDSIX a few times over the years but Portfolio 5 better captures the approach we've blogged about here. 

Most of the people talking about capital efficiency and products providing access rely on plain vanilla bonds with duration but as we've seen countless times, a similar effect can be created without the complexity of the leverage or the volatility and unpredictability of the duration. 

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