Effective Bond Exposure

[Deleted]

Please consider the following:

ACWV
100% Stocks
10 yr. annualized return: 7.27%
10 yr. Std Dev: 10.48%
Max Draw: -17.35%

VWENX
65% Stock 35% Bonds
10 yr. annualized return: 8.26%
10 yr. Std Dev: 9.97%
Max Draw: -20.19%

VBIAX
60% Stock 40% Bond
10 yr. annualized return: 7.92%
10 yr. Std Dev: 9.83%
Max Draw: -20.78

VSMGX
60% Stock 40% Bonds
10 yr. annualized return: 6.31%
10 yr. Std Dev: 9.49%
Max Draw: -21.09%

Because the numbers are fairly similar, is it safe to assume the 100% low volatility stock ETF ACWV is effectively a moderate allocation fund? That it has effectively 40% bonds? Can YBB's effective stock exposure idea work for bonds too?

[steelpony10]

@django ,

      Looking back 10 years I think it means it worked similarly over that time period. There may be hundreds of combinations that worked as well and different ones that work the next 10 years. 

[yogibearbull]

@django , the effective-equity is based on SD measurements. I like to use 3-yr SDs that are a good compromise between recent history and older history; it’s also readily available (M*, PV, SR, etc). So, for the funds mentioned,

Fund               3-Yr SD    Effective-Equity

ACWV               12.17        66.90
VWENX             12.67        69.65%
VBIAX               12.72        69.93%
VSMGX             12.15        66.80%

VFINX/SP500    18.19       100.00% (benchmark)

Effective-equity is a ratio of SDs and it’s quite stable over different timeframes.

In StockCharts for 3 years (reset time if defaults to 1 year), these 4 funds are bunched together with ACWV in the middle,

StockCharts ACWV VWENX VBIAX VSMGX VFINX

So, low-volatility leads to moderate-allocation type behavior for global ACWV. While the US and foreign “total” markets have comparable SDs, their correlation is significantly less than 1. So, that may also be contributing the damping effect.

Something similar is also observed for mild long-short (L-S) funds such as 130-30 where the small short position dampens the portfolio to almost moderate-allocation. But then, why pay high ERs for L-S 130-30 funds? In fact, they were quite fashionable at one point, but have mostly disappeared.

[steadyeddy]

Jul 25, 2023 19:37:57 GMT @django said:

Please consider the following:

ACWV
100% Stocks
10 yr. annualized return: 7.27%
10 yr. Std Dev: 10.48%
Max Draw: -17.35%

VWENX
65% Stock 35% Bonds
10 yr. annualized return: 8.26%
10 yr. Std Dev: 9.97%
Max Draw: -20.19%

VBIAX
60% Stock 40% Bond
10 yr. annualized return: 7.92%
10 yr. Std Dev: 9.83%
Max Draw: -20.78

VSMGX
60% Stock 40% Bonds
10 yr. annualized return: 6.31%
10 yr. Std Dev: 9.49%
Max Draw: 21.09%

Because the numbers are fairly similar, is it safe to assume the 100% low volatility stock ETF ACWV is effectively a moderate allocation fund? That it has effectively 40% bonds? Can YBB's effective stock exposure idea work for bonds too?

No, it does not mean that ACWV is like a balanced fund. The last 10 years only had a brief blip of a bear market. Equities are equities, in a steep drawdown minimum volatility may not mean a whole lot.

Having said this, 2022 was strange in the sense bonds lost a lot of NAV. So, past performance does not mean a hill of beans.

[yogibearbull]

Most people have settled on "their" investing approaches - some combo of objective/quantitative methods and gut-feel/sleep-well.

I am also familiar with multiple investing approaches and sometimes know more about them than their proponents.

To recap my approach, that has been described before and elsewhere, and as it is relevant to this thread, volatility/risk control is primary for me and performance is secondary - it is what it is so long as it is consistent with the market exposure. I am never all-in or all-out, so yes, I had unrealized portfolio losses in 1987, dot. com bubble 2000-02, the GFC 2008-09, pandemic 2020, and strange 2022, but those were recovered and then some; I even added to positions with some bottom-fishing (that is why I am overweight now according to effective-equity and I am taking care of that).

Good luck to the traders who only win without suffering any losses, but that isn't me or for me.

Anyway, I have found effective-equity to be a very useful tool to stick to this approach when thinks are dark, as well as when things are bright - as now, and I have been reducing my effective-equity exposure.

I hope that this thread doesn't turn into a free for all on everybody's approach to investing.

[steelpony10]

@django ,,yogibearbull ,steadyeddy ,

I’m sorry I went off track and will delete those posts @django ,

[Deleted]

Jul 26, 2023 14:12:30 GMT steelpony10 said:

@django ,,yogibearbull ,steadyeddy ,

I’m sorry I went off track and will delete those posts @django ,

No worries, steelpony.