Portfolio Update – March 2021 – The Madness Is Not Over

Now that we have put the month of March behind us, it marks the one-year anniversary of the coronavirus pandemic and societal restrictions. Hardly, this is something to celebrate, as it has been one of the worst 12-month periods for a very long time, and all we want now is for the madness to end and for us to be able to go back to normality.

We have reached a few months into the vaccination process and hopefully the worst parts of the pandemic should be behinds us. But, it seems like we are not yet over crazy events to surprise us in the markets. Two such impactful evens in March alone were the blockage of the Suez Canal and the blow-up of Archegos Capital Management, both of which were significant events to occur in March. We will look more closely into these events in this article and their potential impact on the economy in the near term.

My point is, that while stock markets are regularly posting ATH marks, there is quite a lot of uncertainty left in the economy, that can be a surprise on the downside for equities. The $1.9tn American stimulus package may help to keep up stock valuations for a little bit longer, but voices are raised that we are witnessing the final exuberant stages of a bubble.

Before we dive into a dissection of three most impactful events of March 2021, I received fantastic feedback on my last post with book recommendations for reading material on risk parity investing, which was published a few weeks ago. I was recommended the book Adaptive Asset Allcation, written by the team behind ReSolve Asset Management, and while I am only half-way through it yet, I think this is a recommendation worth sharing to a broader audience. Check out the description and the bottom of this article for more details of what to expect.

But let us now head straight to a catch-up of what exciting events March 2021 had to offer us.

Continue Reading Portfolio Update – March 2021 – The Madness Is Not Over

Portfolio Update – February 2021 – Dire Outlook for Bonds?

In the last week of February, the bond market came under scrutiny in a culmination of a rapid hike in yields and a failed US 7Y Treasury Bond auction on Thursday February 26th.

A complete dry-up of risk appetite in fixed-income space briefly pushed the 10Y treasury bond yield above 1.60% in an intra-day posting. This was the crown of a month-long trend throughout February with rising treasury yields. The 10Y yield closed the month at 1.41%, being up 55% YTD.

In this February 2021 Monthly Blog Post, we focus on the recent ripples on the bond markets, the outlook from here, and what you as a risk parity investor should ow do about your bond portion of your portfolio.

Continue Reading Portfolio Update – February 2021 – Dire Outlook for Bonds?

Insight – How to Improve Portfolio Performance and Risk-Adjusted Return with VIX ETFs

This post was originally published on the Patreon page on November 5th, 2020. https://www.patreon.com/posts/43569940  If you like the content I publish on this blog, I appreciate your support to cover hosting costs etc. Even small contributions are greatly appreciated.

Contents:

  • How all common asset classes had weak performance at the same time in March 2020 due to the Coronavirus crisis.
  • That the only asset class actually performing well in that time was VIX ETFs
  • What the VIX is and how you can use it as an insurance policy in your portfolio to protect against volatility, uncertainty and black swans,
  • How including only 3% of a VIX ETF in a risk balanced portfolio increased return, lowered volatility and increased the Sharpe ratio of an example All Seasons Portfolio. This is shown with an extensive case study through first half of 2020 and the 30 month period leading up to 30 June 2020.
  • All raw data on which the analysis, graphs and tables in this article is based on, are exclusively found in the Patreon version of this post. Support the blog to get access.

All assets under-performed in late March.

Do you still remember how different asset classes performed amidst the most urgent phases of the coronavirus crisis? Or have you intentionally suppressed those bad memories and only chosen to remember the recovery in assets such as stocks?

As a reminder, there was period from about March 10th to March 20th when every major asset class declined in valuer, regardless if they were biased to perform well in increasing or decreasing economic growth environments. Stocks and commodities had already fallen by then, but by March 10th, also gold, treasury bonds and inflation-linked bonds fell as well. Nothing managed to offset the declines in growth assets, and any balanced portfolio suffered.

While a risk parity strategy, such as the All Seasons Portfolio strategy, performed much better than the stock market or a 60/40 portfolio, the Covid-19 crisis caused a dent also in the All Seasons Portfolio. The All Seasons Portfolio even turned into negative territory on a YTD basis, even though it recovered rather quickly from that temporary dip.

[3,500 more words]

Continue Reading Insight – How to Improve Portfolio Performance and Risk-Adjusted Return with VIX ETFs

Portfolio Update – October 2020 – U.S. Elections and Risk Off

  • Monthly portfolio update: Election jitters and a risk off sentiment in markets toward late October brought down most asset classes. Most losses have been recovered since.
  • Diversified risk parity strategies such as the All Seasons Portfolio will bring stability to uncertain times ahead
  • Book tip: The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy (link at the bottom of the post)
  • In case you missed it: My latest article about How VIX ETFs can improve portfolio performance and stability in volatile environments (Now available exclusively on Patreon; to be posted on this blog in late November 2020)

Hello, and great to have you back for a new portfolio update.

I hope that in these challenging times, you are staying positive and testing negative.

I can barely believe we are already in November - the darkest and gloomiest month of the year (here in Sweden it will now be cloudy, windy and murky for the next 2-3 weeks at least). And on top of it, the Covid-19 virus soon celebrates its 1 year birthday, and we are on the ninth month of working from home here, with renewed lockdowns all across Europe. It seems hard to find things to cherish about, but we'll need to try our hardest to not let that affect us too much. I have just received a delivery from Amazon for two books on risk parity, which I will be burying myself in while autumn storms blow outside.

This past week I have spend a lot of my time in analysing how investing in VIX (CBOE's Volatility Index) through a VIX ETF would have impacted a risk parity portfolio in the spring of 2020 and the Covid-19 crisis. As you may recall, all asset classes (including government bonds and gold) declined for 10 days in March, so I looked into if there were any asset class available that could have offset the losses in a distressed market.

Continue Reading Portfolio Update – October 2020 – U.S. Elections and Risk Off

Portfolio Update – August 2020 – How downgraded credit ratings may impact your portfolio

  • Monthly portfolio update: Fairly stable month: bonds down on Fed policy shift, but offset by K-shaped recovery in stocks and commodities
  • Book tip: The Everything Bubble: The Endgame For Central Bank Policy by Graham Summers (link at the bottom of the post)
  • In case you missed it: I have ditched all intermediate-term bonds (post from 3 August 2020)
  • Coming soon: a post on real estate investing and how it fits in the All Seasons Portfolio. Stay tuned, and subscribe to newsletter for notifications!

Buongiorno!

I hope you have had a great summer under the circumstances, and are ready for the next (non-economical) season!

When posting this article, I have just come home to Sweden after a few weeks of visiting my girlfriend's family in Italy. For sure, the virus has put a great strain on the country, but it is good to see that things are moving in the right direction with society opening up. With few exceptions, new cases have been declining in Italy and Europe, which has bolstered investors with renewed confidence the past months.

Our vacation this year was not as we had initially planned (beaches in Sicily), but of a less touristy, and much more responsible, sort. Instead, we have stayed with her family and taken a few day trips to selected non-crowded destination (Venice has not been this empty for centuries). While more and more flights are opening up across Europe, it is still important to be cautious and not take unnecessary risks. One should not think that the danger is over, just because travelling is again somewhat possible. We can just hope for a full recovery as soon as possible.

But this is not a travel blog, but a financial blog, even though I wish to one day be able to sustain a life abroad thanks to my finances.

In this light, I have lately been thinking about how Covid-19 has affected the financial stability of countries, and how that in turn will impact sovereign credit ratings. For example, if debt-to-GDP would increase too much, if the affordability of the debt would fall, or if the economic outlook or stability of a nation would decrease, it will impact the country's ability to service its debt.

The ability to service debt - or a sovereign state's credit worthiness - is what the credit rating agencies Fitch, Moody's and Standard & Poor, are all analysing and rating. If a sovereign state has a good credit rating (AAA, Aaa etc.), this gives great comfort to the investors who purchase the country's bonds that there is a low risk of that the state defaults on its debt.

Continue Reading Portfolio Update – August 2020 – How downgraded credit ratings may impact your portfolio

Correction of my Portfolio – Ditching Intermediate-Term Bonds

It is time for a kind of blog post that I hope will be as few in number as possible, but which I fear are inevitable from time to time. I have corrected a mistake, and want to tell you about it.

In my All Seasons Portfolio, I have until 20 July 2020 (the time of writing this post) held a certain amount if intermediate-term treasury bonds, i.e. bond with a duration of less than 10 years. I have held this in addition to my long-term bonds (20+ years) as part of the bonds portion of the portfolio. The splits have been 10% intermediate-term bonds and 30% long-term bonds, out of the whole portfolio.

As I have come across new and better information, I have chosen to reconsider the decision to hold intermediate-term bonds. They are not a bad investment as such – on the contrary, they are good when considering the risk-adjusted return – but they do not suit the All Seasons Portfolio Strategy. 

Continue Reading Correction of my Portfolio – Ditching Intermediate-Term Bonds