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1. 

   Carlo October 11, 2020 Reply

   Great article as usual. I removed the commodities Etf from my portfolio. The reason is that the ones available are not liquid enough with all the problematics that such a thing brings with it. I replaced it with more single commodities Etf or big cap commodities stocks. I also removed all the Etf that were not in eur (I live in Europe) to reduce the volatility of the portfolio. Last I added a little bit of Btc because I think they have to be in every balanced portfolio. These are my changes in September. See you next month!

   1. 

      Nicholas October 17, 2020 Reply

      Grazie mille Carlo!
      Investing in stocks in commodity producers is a viable option. That’s for example how RPAR ETF attains exposure to this asset class. So I think both ways are good ways, i.e. either investing in commodity producers (equity) or in a diversified commodity futures contract index with a good rebalancing strategy (Rogers International Commodity Index). Which ETF do you have for your commodity exposure if I may ask?
      I think that at least for commodities, the currency exposure is of less importance. This is because it is the price movements of the underlying commodity which is the key factor regardless which currency the commodity is traded, and then most of the currency effect should be cancelled out. With a (somewhat) effective market, there would otherwise be huge arbitrage gains available if you could have the same commodity but trade it in another currency vs. changes in a particular currency pair, but as there are no such free lunches, the currency exposure should be minimal.
      I note that BTC has had good development lately, surpassing USD 11,000 again in October. Where do you see that Bitcoin and cryptocurrencies fit in the seasons? At least in theory, I’d say it is an asset which is biased to perform well in a high growth, high inflation environment, but do you think that applies also now when the sector is still in its infancy? As I think you know more about crypto than I, I would love to hear your thougts.
      Looking forward to hearing from you again,
      Nicholas

2. 

   Tomas October 15, 2020 Reply

   What broker do you use and how much do you pay in fees? I’m just curious because you have already made a couple of changes in your portfolio and they could be quite costly to execute.

   And what about the tax perspective of switching between two different ETFs? Do you pay taxes in such cases or is there some exception for this in Sweden?

   By the way, when I was reading this post, I first thought you left Bloomberg Commodity Index because of its high exposure to gold. But your reasoning makes a lot of sense. I might also switch to Rogers International Commodity Index in the future.

   1. 

      Nicholas October 17, 2020 Reply

      Hi Tomas,
      These are very important items that you bring up.
      I use Degiro as my broker, which have a transaction fee of €2 + 0.03% for ETFs. They have a list of ETFs as well that can be traded without costs, but none of my holdings qualify for free trading.
      As for taxes, this is very much dependent on country, and important to be aware of. In Sweden, we have a special tax exemption with a certain account type, which allows trading without tax impact. Instead of being taxed 30% on capital gains when any asset is sold, we have an annual standard tax calculated on the total value of your portfolio (30% of a “standard yield” which currently is about 1.5%). This means that if your average CAGR is more than 1.5%, then this tax treatment will always be more beneficial than the usual capital gains tax. It also means that I can trade as much as I want within that account without tax implications.
      I have the impression that this tax treatment is not that common in other countries (I have seen similar regulations in only Finland and Norway, and perhaps the U.K.(?)). But regardless, as I still do have transaction costs, my aim is to keep changes at an absolute minimum. The whole point of the All Seasons Portfolio strategy is that you can more or less forget about it, only to rebalance it occasionally. And even then, my main means of rebalancing will be by adding funds in asset classes have lower exposure to than what I have aimed.
      As for commodities, yes, the BCOM index has a bit more gold, and as gold anyway constitutes 7.5% of the aimed allocation, it slightly throws off the balance. That is, however, not the main reason, as the key word here is “slightly”. As BCOM has 13% gold, that would mean the total gold exposure goes from 7.5% to 8.475% (7.5% gold + (13% of 7.5% commodities)). This could also be adjusted for by decreasing the gold tracker, but it requires a bit more items to always keep track on when maintaining the portfolio. Hence, as you say, the gold exposure was not the most important decisive factor, but rather the diversification and weight adjustment rules were more important to me.
      As a side note, the American RPAR ETF (managed by Alex Shahidi) used commodity stocks instead for the commodity exposure. That is also one way to go if you want to look into what will suit you best (Rogers International Commodity Index or a Commodity stock index), but I am yet to look closer into the correlations between such index vs commodities and the stock market respectively. I am comfortable with attaining my commodity exposure through an index tracking futures contracts instead of stocks, but it is something you could bear in mind and consider. 🙂
      Nicholas

      1. 

         Nicholas October 17, 2020 Reply

         Just to add regarding the RPAR: check out their latest Q3 review: https://rparetf.com/quarterly-reviews/Review–1602725674-RPAR-Risk-Parity-ETF-Quarterly-Review-3Q20.pdf
         On page 3, they (extremely briefly as a bullet) mention their commodities exposure through equity in commodity producers.

3. 

   Alex October 20, 2020 Reply

   Hi Nicholas, great article.
   I see crypto currencies as “digital precious metals”. They do not possess beauty or industrial potential, but currently they are backed by a lot of energy, so bitcoin becomes trustable in terms of agreement adoption and could eventually take part of your gold portfolio share with a larger volatility. In a stable world, they would take part just in between of gold and commodities.

   But since the idea of the all-seasons is to “buy&hold&forget” on these days of inmense debt and ultra-low-interest rates I would rather protect against future inflation by reducing a small percentage of the TIPS+bonds part (official price indexes will be always lower than real inflation) and add the cryptos in there. What about a 5% ? I have done so by including the 21 shares swiss ABTC (in EUR) ETF, but I am also considering adding an extra part on BTCW (in USD) of the better-known WisdomTree.

   1. 

      Nicholas October 23, 2020 Reply

      Hi Alex,
      Thanks for the great comment.
      I agree that crypto would fit next to commodities in a portfolio, and I base that on the fact that they should, in theory, act as a protection against inflation. But what about economic growth – do you have a view on crypto’s bias here? It is to me not 100% clear if crypto will be biased to perform best during times of higher or lower economic growth.
      I use future tense, as I believe the theoretical use of crypto in a portfolio is dependent on it having reached a status of being stable and well-renowned. These assets are still in their infancy, meaning that their behaviour will be volatile until they are widely accepted as an asset. Two examples of this is 1) the hype by end of 2018 and 2) the high correlation with the stock market in the spring of 2020 when economic growth fell.
      It is my view, and please correct me if you disagree, that currently, crypto is mostly held for speculation purposes of its potential, rather than it having been adopted as an accepted asset class. It will thus rise and fall based on belief in its future potential, meaning that it still is rather volatile and unpredictable in a balanced portfolio. And will it even be BTC, ETH, or a completely different cryptocurrency or stablecoin that reaches wide acceptance? I’d be eager to hear your thoughts on this.
      A thought that occurred to me while writing this comment is that perhaps crypto’s bias with respect to economic growth is similar to that of gold and cash, i.e. they should increase in worse times. I base this on that cryptocurrencies should function a substitute for cash, meaning that during volatile times, risk assets would be traded in for cryptocurrencies (at least in theory). Does this make sense?
      I have one main concern with cryptocurrency ETFs, and that is the dependency of the key to the wallet. Here, I consider the death of a crypto exchange’s CEO who had the only key, causing losses of $190 million for its customers in 2019, or when OKEx more recently halted withdrawals when they lost contact with an employee co-operating with a Chinese investigation in October 2020. Such additional risks exists when trading all such crypto-backed ETPs, which is worth bearing in mind. Have you thus considered to have your exposure in your own wallet, albeit I agree that from a portfolio management point of view, an ETP facilitates a lot?
      I may sound negative to crypto, which I really am not – there is much potential in it, and I believe it is just a matter of time before they become widely accepted and used – and I feel I need to learn more about crypto as an asset. In the meantime, there are many risks to consider. I still think it is worth having some exposure to crypto in a portfolio, and I think around 3-5% sounds sensible.
      In due course, I think I will dig into crypto a bit more, and perhaps write a blog post on that as well. It is a greatly intriguing area, with potential to provide great gains.
      On another note, if you believe in lower inflation, government bonds is still OK to hold, as these general perform well in a low inflation environment. What RPAR ETF (a risk balanced ETF in the U.S.) has done, for example, is to allocate a part of their TIPS to long-term government bonds and gold, to protect against deflation, while not losing the inflation protection, if that would “unexpectedly” increase.
      Hope to hear from you soon again,
      Nicholas

      1. 

         Alex October 23, 2020 Reply

         I admit agreeing with you in the all the points you mentioned and please feel encouraged to dig deeper and surprise us with a new article on the matter. Just to extend a bit the reply:
         With respect to the hype of 2018, I doubt there was any reason for that, it just happened to bubble like the dotcoms in 2001 for being a disruptive newcomer with lot of potential. I feel better because the first pop already happened, but surely we will see quite important ups and downs along the way.
         The correlation showed in spring appears to be correlated with most of the assets which need to be sell of in order to redeem cash in a panic. I can hardly think of something which remains solid/growing apart from the long term bonds, but they are on my opinion not anymore what they used to be and we will see if this is the case in the next drawn.
         Those entering the crypto stocks were true believer enthusiasts and speculators, but the appearance of ETPs and support of larger companies, either as investor or technology adopters is changing the game. Probably now is the moment for a wider early-adopter public. With a low amount in the portfolio one is neither risking too much (do you allow your portfolio to fall a 3%-5%) nor feeling terrible for having missed completely one of the first runs. The problem with the return of the all-seasons portfolio is that it is focussed on returns but safety, so weighting extra losses is the point to think about it. It is, to some extent, an equivalent question to if you would just add plain gold to your portfolio or a mix of gold/silver.
         About your concern of the crypto keys, there is little that I can say. Probably a good review of the custodian protocols may give you more peace of mind, but I feel that once you assume your gold, cryptos, etc is not “in your hands” the rest are just convenient ways to adhere to the price index. Still ETFs or ETPs physically backed feels way better than other derivative means.
         What I do not like about RPAR or other mixes is that all the fun of do-it-yourself is gone. For instance, I like the philosophy on investing with safeguards, but on themes which I like, not universally minimal volatility global stuff, which eventually, in my opinion, would just be just a reference for the actual inflation. But I think it is a good move given the current conditions.

         Cheers

         1. 

            Nicholas October 25, 2020 Reply

            Thanks Alex,
            I very much agree with your view that now the first hype bubble is behind us, which should mean that more stable times lay ahead (but of course not entirely without volatility).

            The correlation showed in spring appears to be correlated with most of the assets which need to be sell of in order to redeem cash in a panic. I can hardly think of something which remains solid/growing apart from the long term bonds, but they are on my opinion not anymore what they used to be and we will see if this is the case in the next drawn.

            I hear what you say, but I meant that while gold and treasury bonds bounced back within 10 days, it took 2 months for BTC (still much quicker than stocks) and the dip was about 50% (compared with 10% for gold). On the other hand, as I believe you and I agree, the longer time that passes and more acceptance BTC gets in the investor community, the more stable it will be as an asset.
            I will continue to look into crypto, as it is definitely an intriguing asset class with huge potential, so may perhaps include it in my portfolio in the future. In the meantime, I will gather more information, and try to compile my thoughts into an article. Out of curiosity, how big share of your portfolio is crypto / ABTC ETP, and do you have plans on expanding its share much further?

            Regarding RPAR, I would recommend it for investors who do not want to do the job themselves. I agree with you that it is much more entertaining and educational to build the portfolio on your own, and it gives better freedom to include other asset classes. However, one could also have RPAR as the base of a portfolio and tweak with additional assets, if one is looking for a middle way. Regardless, RPAR ETF is not UCITS classified and is therefore not available in the EU, so we’re having to get our own hands dirty anyway. 🙂

            Best of luck on your all seasons journey!

            Warmest regards,
            Nicholas

4. 

   Liam October 30, 2020 Reply

   Hi,

   Thanks for an interesting blog. What’s your rationale for using USD bonds instead of SEK? Given that you are based in Sweden and fixed income in other currencies increases the volatility without any increase in expected return.

   Best regards

   1. 

      Nicholas October 31, 2020 Reply

      Hi Liam,
      Many thanks for your comment.
      Mainly, I prefer USD bonds or a broad basket of bonds ahead of SEK bonds for two main reasons:
      1) in the time of a global crisis, many investors will derisk their portfolios and turn to safe havens. Currently the safest of such havens is the USD and USD denominated government bonds issued by the U.S. Treasury. When there is great demand for US Treasury bonds, their price will increase, which in turn will help offset decreases in stocks in the same period. That is a key part of a risk parity portfolio.
      2) SEK is a very small currency from a global perspective, and SEK bonds are also a rather exotic and niche asset class. I therefore find it less likely to be a satisfactory offsetting factor to my global stocks from a risk parity perspective.
      I have nothing against SEK bonds per se, and would like to have exposure to long-term SEK bonds in a broad basket of government bonds from different countries, but I do not want my whole bond allocation to be in SEK bonds. Unfortunately, most long-term ETFs investing in several European countries only invest in the Eurozone. Broader bonds ETFs tend to have much shorter maturities than I seek, as the maturities are usually around 8 years, while I look for 20+ years to get the benefits from volatility.
      I am currently looking at decreasing my USD bond exposure and adding a broader basket of European long-term government bonds. In doing so, I would increase my exposure to euro, which I find to be a more acceptable currency to be exposed to than the dollar, given that the Swedish economy is more closely linked with European neighbors than the U.S. I am also looking into switching my USD bonds exposure from the non-hedged one I now have, to a EUR hedged version of it, for the same reasons.
      I could also consider adding SEK bonds separately as a small part of my portfolio to add a bit more “home market exposure”. May I ask if you have invested in an ETF or mutual fund with SEK bonds with underlying asset, and preferably with maturities longer than 20 years?
      Hopefully this is at all helpful. Otherwise, please let me know and I would be happy to discuss further.
      Best wishes,
      Nicholas