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Portfolio Update – April 2020 – Covid-19 – Time to reflect and prepare for next crisis

Contents of today’s post

  • Summary of April 2020 in the economy
  • The most important lessons from the coronavirus crisis to remember and to prepare for future crises
  • My All Seasons Portfolio is up 3.93% month by month. Total value now over EUR 4,000
  • Bought Stocks and Commodities this month, and switched Long-Term Government Bonds ETF to US Treasuries instead of global bonds

Welcome back for another monthly update of the All Seasons Portfolio blog. This time around, we have had to digest another month in lock down and April 2020 could perhaps be remembered for us all wanting to forget it.

Anyway, I hope that both you and your families and loved ones have stayed in good health, and that you haven’t been too restless at home.

On my end, things have been hectic at work with long days, which is not surprising when you work with loans to corporates. These are interesting times but I am holding up. Hope we will soon be seeing an end of the tunnel. However, I am very pleased and humbled to still have job, as I know not everyone have been that lucky. And at least in Sweden, we have been able to exercise outside, but if our government have employed the right strategy through the outbreak, I am not the right person to take a stance on. All I know is that I have been working from home the past 8 weeks and been avoiding to go to the bars (which cannot be said for all my countrymen). Just hoping that we all will soon be able to get these crazy times behind us.

These are crazy times in our daily lives and for the economy, it has not been uneventful on the financial markets either. It feels quite difficult to summarize everything that goes on when so much happens. It also feels like there is so much going on that you lose the sense of time, like did the WTI crude oil flash crash happen 3 weeks ago or 3 months ago? It seems s hard to keep track of time when stuck at home.

Anyway, let’s begin with commodities, as we already mentioned the WTI. It has been a tough month for commodities in general, and for oil and energy specifically. While it was a trading error that triggered the crash to -$40.32, when an ETF portfolio manager flooded the market with WTI futures the day before physical delivery of the oil in Cushing, Texas, oil prices still had a rough month due to low demand when global trade has halted.

Stocks, that really took a hit in the end of February and during March, have begun to recover. For example, the S&P500 closed up 12.68% by 30 April when compared to 31 March. Still, the stock market is in negative territory YTD, but now there is less uncertainty on the market than a month ago. And everyone knows that the stock market is not a big fan of uncertainty.

Also the gold price has recovered after the big slump down to below $1,400/oz in the beginning of March, to having surpassed $1,600/oz a few times during April. By month end, the price was hovering around the high 1,500s. Some believe that the rally will continue. For example, Bank of America has predicted that gold prices will hit record high levels of $3,000/oz during the next 18 months (link to Business Insider from 21 April 2020).

Government Bonds, on the other hand, have been moving more or less only sideways this path month. This is quite natural, as the asset class seen a good rise YTD of about 24% by 30 April (calculated for iShares $ Treasury Bond 20yr+ UCITS ETF).

It has been evident that we have been going through a time of lower economic growth than expected. It is also interesting to see that the assets in the All Seasons Portfolio have done exactly as expected during such scenario. Just look at the matrix below.

Illustration of the assets in the all seasons portfolio

As you may know, this is the four seasons of the All Seasons Portfolio Strategy, complete with what assets perform best in what seasons. What you can read from this that during times of falling economic growth, Government Bonds and TIPS would excel, while Stocks and Commodities would decrease in value. That is at least how it would be in theory.

Does it sound familiar? I think so, because these are the exact patterns that I have seen from my portfolio these past months. And as this part of the theory holds up, I am also pleased to have noticed that my assets in the portfolio have acted accordingly, so that I have managed through this crisis without any great drawdowns. But more on that further down.

How should you invest now?

Now that we are more than two months into the coronavirus crisis and have spent plenty of time home in isolation (most of us at least), have you taken the time to really look at what has happened around you and how that has impacted your portfolio?

If you haven’t done so, you really should pause for a second and reflect. Think about what has happened with the economy, what you see around you and how that has impacted your investments. Perhaps you see that you have been exposed to more risk than you thought, and that you may not be so comfortable knowing this.

These kinds of crashes happen only once every decade or so, and it is now that we can really learn and prepare for the next one. One of the greatest risks among especially the younger generation for the past years has been that they have not experienced a crash or a crisis, so they’ve not been able to prepare mentally or financially for the day when the crisis hits. It has been unheard for many that stocks can actually decrease in value. Read more about risk in my post with the Portfolio Update for March 2020, in case you missed it.

But what should you do now when investing, and what lessons can you take away from this? Begin with pondering about this quote from Howard Marks for a bit.

You can’t predict. You can prepare.

Howard Marks, co-founder of Oaktree Capital Management – title of one of his memos to investors, November 2001

At least for myself, the most important lesson here is that it is impossible to predict what will happen on the financial markets and in the world. This crisis has been a healthy reminder of just that.

This also reaffirms my conviction of the All Seasons Portfolio Strategy. Because we don’t know what will happen next, which season will follow in one month or six month, the only thing we can do is to prepare for which ever way the economy goes. Then, we need to prepare accordingly and be ready for it.

I believe the All Seasons Portfolio Strategy is a healthy way of investing – we get continuous gains but without the risks. A part of this strategy is that each quadrant of the matrix is its own portfolio that performs well in each season. But still, all of these sub-portfolios will increase in value over time. Thus, you would not lose out on return, but would cancel out the changes in seasons. That is what risk parity is about – cancelling out the risks and then only collect the risk premiums for yourself.

Thinking about what we have witnessed this crazy spring of 2020 on the financial markets, I have decided I will continue to employ this strategy, and I feel that it works very well. I think that it is good to see how any strategy works during times of turmoil, and now we have really had a chance to evaluate this strategy when shit has hit the fan. I am still feeling confident.

Let me know what you think has been the most important thing to remember and take away from this crisis. Share your thoughts in the comment section, to remind all other readers what to think about to prepare for the next crisis, because I promise you, this was not the last crisis we will experience in our lives.

Portfolio Update April 2020

Time now for the regular segment each month: the quick look at the portfolio.

Starting with the special items: I have during the month a) switched the Long-Term Government Bonds ETF and b) added new funds by buying Stocks and Commodities.

But what about timing for my purchase. Is now the right time to buy stocks and commodities? I think so. At least, it is better to buy them now than mid-February when they were more expensive.

Now, by buying stocks and commodities, I have rebalanced the portfolio as I will discuss again further below. I also believe that after a while, these assets will recover, which means I would have now bought them at a lower price. Granted, it is impossible to know if the bottom is now behind us or if another dip is yet to come. As we cannot know that, we should keep adding funds to the portfolio on a monthly basis and try to keep it balanced.

But maybe this was the bottom? As you know, the stock market is always forward looking when valuating the price. This could mean, that if Q2 is a bad quarter, but the economy would recover in Q3 and Q4, then price of stocks would keep rising as the investors discount future earnings. However, if the close down would continue for a longer period, then we might see another dip. But for now, it appears that countries are beginning to open up, which would be good for the economy.

Regarding the bonds ETF change, you can read more about my reasoning at the end of the Portfolio Update for March 2020. I have just changed from All-World exposure to only being exposed to US Treasury Bonds. I am confident this is the right change for the long term, all though the timing might not have been perfect.

So, with all the changes and the new funds, my portfolio allocation is now once again close to the aimed All Seasons Portfolio allocation, bringing back stocks and commodities closer to their intended shares. Still, I am a bit too overweight in gold and underweight in intermediate-term government bonds, as you will see from comparing the pie charts below.

Historically, the development of my portfolio has recovered decently after the dip in March 2020.

As you will see from the graph here below, all assets have increased in value since end of last month, even when not taking into consideration of the added money in stocks and commodities, which are shown in the respective fields below.

The greatest bump is naturally in gold, which saw a good recovery after the initial dip at the beginning of the Covid-19 outbreak.

The increase in portfolio value becomes even more evident with the next graph. As a reminder of what you see here, this graph shows the monthly development for each asset class, as compared to the average purchase price as at the end of each month. The thick black line with the values included, is the weighted development of the portfolio.

So now, we are almost back to the same levels as when the coronavirus outbreak began to spook the market by end of February. Decent recovery in other terms for the All Seasons Portfolio!

And finally, here is the usual summary of the ETFs that I have in my portfolio and the development against previous month. See also the notes for certain assets, to help you read the comparison.

iShares Global Inflation Linked Govt Bond UCITS ETFTIPSIE00B3B8PX14€440.73€458.494.03%
Invesco US Treasury 3-7 Year UCITS ETFGovt Bond MidIE00BF2FNQ44€400.20€402.500.57%
iShares USD Treasury Bond 20+yr UCITS ETFGovt Bond LongIE00BSKRJZ44€0.00€1,156.000.38%*
iShares Global Govt Bond UCITS ETFGovt Bond LongIE00B3F81K65€1,151.59€0.00
Invesco Bloomberg Commodity UCITS ETFCommoditiesIE00BD6FTQ80€353.27**€366.513.75%
Xtrackers Physical Gold ETCGoldGB00B5840F36€518.74€543.694.81%
Vanguard FTSE All-World UCITS ETFEquityIE00B3RBWM25€1,085.47***€1,177.928.52%

* Change for Long-Term bonds is compared between the ETF held beginning of month and end of month
** Commodities end of March includes purchase price of EUR 92.88 for new units
*** Stocks end of March includes purchase price of EUR 144.95 for new units

I think I have now exhausted all I had in mind for this month. I am glad to see that it appears that the recovery has now started. Maybe when we catch up next time, we will have been back to office as well? That would be odd in itself – I haven’t ironed a shirt for so long now. Crazy how life has changed.

Anyway, thank you very much for your attention also this month. Hope that you really take the time to sit down and reflect over your investment strategy and what you are doing right and what you can perfect further. I doubt there will come any better time for this, considering it is now that we are sitting bored at home without distractions. Use your time in isolation wisely.

I hope to see you here again in a month, and feel free to share your thoughts in the comment section below.

Until next time, and stay safe,

Book tip: The Most Important Thing by Howard Marks

Are you looking for some good reading material while still in isolation? Then I have a great tip for you in a book written by famous investor and co-founder of Oaktree Capital Management, Howards Marks. He is now considered to be one of the world’s most legendary investors and beacons of wisdom, after more than four decades in the asset management business. For example, the quote at the beginning of this post was pulled by him.

In the book “The Most Important Thing”, Marks discusses several key aspects for becoming a great investor. It is more or less a collection of the best observations and insightful assessments from his memos to investors. All of these memos, all the way back to 1990, can be found on Oaktrees website, and they carry the same weight as for example Warren Buffett’s famous letters to Berkshire shareholders.

That is 30 years worth of memos to go through, which can be a burdensome task to read through, regardless how important and valuable they may be. Luckily, the most important observations and lessons are included in this handy book.

The book is wise and witty, and shares a great historical perspective to value-investing. By reading this work, you get a great tool for continuing to build your future wealth and to make more right choices when investing.

One key quote from this book is that if riskier investments would reliably return high return, it would not be considered to be a high-risk asset. This is an aspect that is commonly forgotten by retail investors, and many fall for this trap. But maybe you already understand this, as you have found your way into risk parity investing? Or would you need to brush up on your relationship with risk.

In any case, I highly recommend this book, even though it can get a bit repetitive toward the end as Howards appears to really want to hammer in the important things so that you absolutely will not forget it.

Buy it on

This Post Has 6 Comments

  1. Carlo

    Hi Nicholas. It is always nice to read your blog. Here are some questions and observations about what you wrote in this article:
    1) Right now you are a lot more underweighted in Tips than in intermediate bonds… Maybe you didn’t see it because you didn’t mention
    2) Shouldn’t be intermediate bonds 7-10 years instead of 3-7 years?
    3) Did you abandon the idea of using emerging markets bonds? If you should add them to the portfolio in which % and instead of what?
    4) I live in Italy and the 20+ years bond Etf and the inflation linked one are not available on borsa italiana. Did you buy them In the German market? With which broker? Can I change them with some available Etf in Italy?
    5) Finding some space for BTC, maybe just 1% of the portfolio, is a thing to be done. This is just my personal opinion anyway.

    Thanks for the answers.
    Have a good may in investing but even more in everyday life. Stay healthy!
    Ciao ciao


    1. Nicholas

      Buongiorno Carlo,
      Always a pleasure to hear from you, and many thanks for your good questions and comments here! Hope you are staying in good health, despite everything that has been going on in Italy. Hopefully the progress will continue in the right direction so the lock down can be lifted further.
      I’ll share my thoughts to your question here:
      1) You are right, and I seem to have made an error here: it is of course TIPS that I will need to top up next. Thanks!
      2) Well, both 3-7 and 7-10 year tenors are considered to be intermediate bonds (short-term are <3 years and long-term are >10 years). I stay in the lower end of the spectra, as these would be more likely to move on rate cuts from the FED than longer term bonds, and should also be less volatile than long-term bonds during distress events such as now during the Covid-19 outbreak. I think both 3-7 and 7-10 will do the trick with similar return over time and that it is a matter of preference. I’d be more than interested in hearing your thoughts on this.
      3) I have excluded EM bonds from my portfolio for now. It was too difficult to keep the percentages right at this moment as I still have too little capital invested in the portfolio to be able to really have control over the splits. With the experience from the past months, I would count EM bonds in the stocks bucket, as they have moved with great correlation with the stock market during times like this with a big portion of fear on the market. The big money (institutional investors) will be moving their money from risk assets, such as stocks and EM bonds, to safe havens such as the liquid long-term US Treasury bonds. Therefore, I would not count it toward the bond portfion of the portfolio, as it would offset the risk parity model.
      Fore example, the EM bond I held before (iShares II plc – iShares EUR Govt Bond 7-10yr UCITS ETF; ISIN: IE00B5M4WH52) has returned -10.23% YTD (as per 7 May) while long-term US Treasury Bonds have returned more than 20% (intermediate bonds are up 10-15% depending on if you are looking at a 3-7 year or 7-10 year tenor).
      4) It seems like this particular ETF is only available on Xetra, London Stock Exchange and Swiss Stock Exchange unfortunately. I am currently using Degiro which gives me good access to European exchanges from Sweden (Swedish brokers only give fragmented access to Xetra) and I have bought it from Xetra (Germany). Presumably there should be corresponding ETFs available on BI, but keep in mind low fees and making sure the terms are really over 10 years. I’d think that at least Lyxor and UBS would have products available there, but maybe also Xtrackers or Vanguard? I’m afraid I’m not too familiar with the availability on the Italian market 🙂
      5) I’m still a bit vary of cryptocurrencies, even though it seems that Bitcoin is having a renaissance now. I am not sure on in which bucket it would fit in the All Seasons Portfolio, as it did not do so well in the covid-19 decline. Perhaps BTC is behaving similarly to stocks, i.e. when investors are looking for risk?
      Talk to you soon,

  2. Paolo

    Hello Nicholas, congratulations on your site. I write from Italy and I am also a fan of the all seasons portfolio. With regard to your asset allocation, can you explain what role you attribute to government bonds with an average duration, in which quadrant do you place them? Why don’t you just use long-term government bonds? Thanks. Greetings, Paolo

    1. Nicholas

      Ciao Paolo, Thank you so much for your good comment! Hope you are staying safe and in good spirit despite the situation in Italy.
      Perhaps I should try to write this blog in Italian, as it seems that most readers and visitors are your countrymen. Ma parlo solo un po d’italiano.
      Regarding your great question on the intermediate term government bonds, I place them in the same category as long-term bonds, as in essence, they behave similarly during the different seasons. During times of lower than expected economic growth, investors will be moving their money into government bonds, both into long-term and intermediate term bonds, while more in the long-term ones.
      However, intermediate term (or mid-term) bonds are less volatile, while the move in the same direction as long-term bonds. Thus, by including some intermediate-term government bonds to somewhat reduce the overall risk level of the portfolio.
      Also, if the central bank – FED for example cuts rates, shorter term bonds react more than longer term bonds. And as FED would only lower the steering rate during a recession or when they fear a looming recession, the intermediate term bonds will be faster in increasing in value than long term bonds, but not as much as short-term bonds.
      During periods of great uncertainty and when a black swan event occurs (like now with the coronavirus), it is likely that both of the above described factors occur at the same time: investors will be buying treasury bonds in general, pushing up prices on longer-term bonds, and central banks will be cutting steering rates to support the economy, causing shorter-term bonds to increase in price.
      By including some intermediate-term bonds, I believe I would therefore have more protection against distressed times on the financial markets and we will take advantage of the general price movements of bonds, but with less volatility than what short-term and long-term bonds offer.
      Kind of a long answer, but this is how I reason and I hope it makes sense. The shorter answer is: to diversify the government bond part of the portfolio for different kinds of turmoil and FED actions.
      I’d love to hear how you see this. Have you thought about it in another way?
      Stay safe,

    2. Paolo

      Hi Nicholas, thanks for the reply.
      I think that a risk parity portfolio needs long-term government bonds. It is true that long-term government bonds have greater volatility, but it is contrary to that of equities. Precisely because they have such volatility as to compensate, at least in part, for equities. In other words, long-term government bonds are able to give the bond part of the portfolio a leverage effect, thanks to their duration. The concept is explained very well in this book “Balanced Asset Allocation: How to Profit in Any Economic Climate” by Alex Shahidi. The author, taking up the concepts of Ray Dalio, explains how to build an all seasons / rish parity portfolio.
      Best wishes.

      1. Nicholas

        Hi Paolo,
        Thanks for the book tip, I’ll definitely look into it.
        Sure, I still have long-term bonds – 30% of the portfolio – I just include intermediate-term bonds (10%) and TIPS (15%) also inte the 55% bonds part of the portfolio. So still, most of my bonds are exposed to long-term bonds. I very much appreciate what they add to the portfolio, and they have certainly been great these past months. But what about yourselves? How does your portfolio with long-term bonds?

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