Fun With Finominal!

I spent some time playing around with the portfolio evaluation tools available to the free tier at Finominal. I thought it would be a good way to circle back to some ideas we blogged about in the past and see how they stood up.

First up is a portfolio I saved a year ago (I have a folder of screenshots on my desktop) that I called RR 75/50. The idea with 75/50 is to capture 3/4 of the market going up but only half of the market going down. It's difficult to pull off of course but the math works if you can do it. 

"Imported portfolio" is what I put into their template.

The goal is not to keep up with equities it is to significantly smooth out the ride. If done correctly, it will lag on the way up and outperform on the way down. The weighting to gold is pretty high, more than I have IRL, but was not too much of a problem in gold's recent selloff.

This is the portfolio simplification tab. It misses the mark. Finominal suggests a benchmark and for this it suggested gold, just gold which makes no sense since the portfolio only has 15% in gold. The suggested simplified version has 4x the gold I started with. The result of their suggestion delivers a completely different outcome than what we're going for.

Next is a mashup of the Permanent Portfolio and a loose replication of the Cambria Trinity ETF.

I'm not sure of the exact date but it is close to two years that I wrote about it.

Finominal suggested that replacing it with iShares Momentum (MTUM) for simplification. Again a miss, this idea is far from 100% equities but I think if we look at enough of these there will be some interesting simplification suggestions.

I have a link for the next one, the Yieldy Put which is from a research report by Man from two years ago. We had two versions, the more realistic one was 30% ACWI, 20% TFLO, 25% AQMIX and 25% QLEIX. The other version had 25% in BTAL. The starting point for Yieldy Put was that bonds don't diversify the way they used to but that sized correctly, managed futures and long short can help fill the void left by bonds. 

I cheated. I split the long/short sleeve to put 12.5% each into QLEIX and BTAL. The portfolio is not an equity proxy. The S&P 500 left this one in the dust. It compounded about 300 basis points behind VBAIX for the entire backtest with just over half the volatility. However, since yields bottomed in late 2021, Yieldy Put has done much better.

This shouldn't be a surprise, Man derived the concept in reaction to bonds losing their utility as diversifiers. 

The last one for now is an All-Weather from Man Financial that I built with 50% HEQT, 16% AQMIX, 17% MERIX, 9% SHRIX and 8% RSIR. 

All-Weather is not intended to keep up with equities, it is more of a 75/50 type of idea, maybe even more mild than that. We can't compare it to 60/40 or Dalio via Finominal so we pivot back to testfol.io.

Portfolio's 1 and 2 are not identical but I think they are very close despite being conceived many months apart. 

Taking a broader perspective on most of these that we've built over the last few years, they mostly all take very similar paths toward a portfolio with plenty of opportunity for growth but with a decent amount of robustness not necessarily to make something truly all-weather but help soften the blow to the downside. My perception of truly all-weather is closer to an absolute return without a "normal" allocation to equities, maybe 20% instead of 40-60% in equities. 

Twenty years ago, it was obvious that funds would evolve to democratize access to increasingly sophisticated tools leading to increasingly sophisticated portfolios and that's what has happened. It certainly would be easy to misuse useful tools and some of the funds coming probably aren't that useful so I do think there is a lot of work required to learn how to use them correctly. 

The part about using Finominal, they have a couple of resources not available on the other sites we use. One of the useful things is they have a sort of AI apparently that assigns a benchmark based on the holdings. Comparing what we've built to hedge fund benchmarks and seeing the results supports the validity of what were trying to do/learn. 

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