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Post by steadyeddy on Jul 2, 2023 1:23:45 GMT
Folks,
If one were to position their portfolio to weather a recession (caused by higher interest rates), is there merit in picking funds with attractive downside capture % and investing in them?
I am thinking of both stock and bond funds - particularly stock funds.
If you agree, what is the best source of data for this metric?
Thanks.
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Post by yogibearbull on Jul 2, 2023 2:50:21 GMT
U/D CR (Upside/Downside Capture Ratio) is useful but there are some tricky aspects because it depends on the benchmark used.
M* provides them in Risk tabs, but uses category benchmarks. So, you cannot compare data across the categories.
StockCharts provides them in Metrics tab, but uses SP500 as benchmark default. This is fine for US stocks, but not so good for hybrids, international, EMs, and bond funds. Moreover, the unusual sharp drop in both stocks and bonds in 2022 will distort recent U/D CR.
For most funds, U and D should be looked at in pairs rather than as self-standing. Clearly, one wants funds with U > D
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Post by steadyeddy on Jul 2, 2023 3:12:43 GMT
U/D CR (Upside/Downside Capture Ratio) is useful but there are some tricky aspects because it depends on the benchmark used. M* provides them in Risk tabs, but uses category benchmarks. So, you cannot compare data across the categories. StockCharts provides then in Metrics tab, but uses SP500 as benchmark default. This is fine for US stocks, but not so good for hybrids, international, EMs, and bond funds. Moreover, the unusual sharp drop in both stocks and bonds in 2022 will distort recent U/D CR. For most funds, U and D should be looked at in pairs rather than as self-standing. Clearly, one wants funds with U > D , thanks for alerting about index being compared to - and also looking at pairs. |
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Post by yogibearbull on Jul 2, 2023 11:36:40 GMT
BTW, BEFORE the recent Quote page revisions, M* used to have much more data for U/D CR - for 3yr, 10yr, 15yr, AND it could also be tricked to change the benchmark used. But in the new dumbed-down Quote pages, only 3yr U/D/CR is presented and it cannot be tricked in any way (that I know of) to change the benchmark. I am sure that such data now exist in M* professional versions but I cannot pay $10K/yr for those.  |
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Post by steadyeddy on Jul 2, 2023 13:01:23 GMT
BTW, BEFORE the recent Quote page revisions, M* used to have much more data for U/D CR - for 3yr, 10yr, 15yr, AND it could also be tricked to change the benchmark used. But in the new dumbed-down Quote pages, only 3yr U/D/CR is presented and it cannot be tricked in any way (that I know of) to change the benchmark. I am sure that such data now exist in M* professional versions but I cannot pay $10K/yr for those. What they have in the free version is sufficient for my needs. I am trying to broaden my equity exposure away from the top 7-10 stocks therefore S&P500 or total market. For example, ACWV which has 3-year U/D of 69/77; the index they used is appropriately the world stock index. Backtest shows ACWV performing like a moderate alloc fund, with less dividends but more cap appreciation. And it gives the smoother ride I am looking for. |
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Post by bigseal on Jul 2, 2023 14:10:13 GMT
Warren Buffett and Charlie Munger would say concerning yourself with downside capture is total nonsense. I agree with their thinking.
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Post by steadyeddy on Jul 2, 2023 17:33:46 GMT
Warren Buffett and Charlie Munger would say concerning yourself with downside capture is total nonsense. I agree with their thinking. Yeah.. they have so much money that capital preservation is perhaps the last thing they think about... unlike me a mere mortal.  |
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Post by roi2020 on Jul 2, 2023 18:57:13 GMT
Warren Buffett and Charlie Munger would say concerning yourself with downside capture is total nonsense. I agree with their thinking.
If an investor does not have the risk tolerance or risk capacity to endure significant losses,
it makes total sense to be concerned about downside capture and/or maximum drawdowns. |
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Post by steadyeddy on Jul 2, 2023 19:27:04 GMT
Warren Buffett and Charlie Munger would say concerning yourself with downside capture is total nonsense. I agree with their thinking.
If an investor does not have the risk tolerance or risk capacity to endure significant losses,
it makes total sense to be concerned about downside capture and/or maximum drawdowns.Well said roi2020. I think that describes me. |
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Post by bigseal on Jul 3, 2023 9:00:24 GMT
I guess this depends on one's perspective.
If an investor does not have the risk tolerance or risk capacity to endure significant losses,
it makes total sense to be concerned about downside capture and/or maximum drawdowns. Well said roi2020 . I think that describes me. As Charlie Munger has said many times, just because the price wiggles a lot doesn’t mean it is more risky. |
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Post by roi2020 on Jul 3, 2023 9:19:23 GMT
I agree with Mr. Munger since standard deviation is not the best risk measure.
Maximum drawdowns and downside capture may provide more pertinent risk information.
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