Watch this post each month for updated allocations to each of the ETFs, we’ll keep them all in one place.
Related Articles
- StumpGrinder: An Open Source Actively Managed Portfolio of ETFs introductory overview.
- StumpGrinder: An ETF Arsenal where we discuss our selection of ETFs for the portfolio.
- StumpGrinder: Performance where we track the performance of the fund.
(latest) July 23, 2013:
StumpGrinder suffered losses in May and June. We moved to cash in late June. Here’s a blog explaining why we believe StumpGrinder (and other strategies) were down during that period. We’re planning a reentry to the market, but with a change up in assets.
21 June 2013
Because several of our sanity checks have failed recently: Namely anti-correlation of BOND and USMV, we exited the portfolio to cash. I will follow up with two blogs: 1) Details about the sanity checks, and 2) Plans for re-entry.
If you are reading this after 21 June and have not exited, you’re actually in decent shape because the portfolio has rebounded somewhat.
23 May 2013: Exiting GLD
Gold has been an important part of my portfolio for a long time, but it’s not performing the role I intended for it: Namely to provide reduced overall volatility through anti-correlation with the rest of my portfolio. So this morning I sold our positions in GLD.
1 May 2013: We continue with our bearish sentiment on stocksSee the previous month’s post regarding our bearish sentiment. Accordingly we’re continuing to hold our min and max limits at the same settings as last month, namely:
See the previous month’s post regarding our bearish sentiment. Accordingly we’re continuing to hold our min and max limits at the same settings as last month, namely:
Anchors:
- BOND: 20% to 30%
- SPLV: 7.5% to 12.5%
- USMV: 7.5% to 12.5%
Satellites: (all others): 1% to 20%
Allocations for 1 May 2013
| Symbol | Name | Allocation |
| BOND | PIMCO Total Return | 30.00% |
| IEI | iShares 3-7 Year Treasury Bond | 20.00% |
| SHY | iShares Barclays 1-3 Year Treasury Bond | 20.00% |
| SPLV | PowerShares S&P 500 Low Volatility | 7.50% |
| USMV | iShares MSCI USA Minimum Volatility Index | 7.50% |
| HYD | Market Vectors High Yield Municipal Index | 5.70% |
| VCIT | Vanguard Intermediate-Term Corporate Bond | 4.30% |
| EELV | PowerShares S&P Emerging Markets Low Volatility | 1.00% |
| GLD | SPDR Gold | 1.00% |
| HILO | Egshares Low Volatility Emerging Markets Dividend | 1.00% |
| VYM | Vanguard High Dividend Yield | 1.00% |
| XLU | Select Sector SPDR Utilities | 1.00% |
17 April 2013: We ramp up leverage to 2x
Our back testing, and now actual performance show a high Sharpe Ratio, so we’ve decided to lever up 2x. Look for more information about this in the performance blog.
(oldest post) 8 April 2013: Our Reference Strategy: Anchors and Satellites
Our back tested reference strategy uses an anchor/satellite strategy where we set direction for the portfolio by emphasising a few core holdings, then allow our algorithms to set allocations for the other holdings. Our reference strategy uses the following weights (or constraints for the optimizer). These constraints represent our human insight/input to the system:
Anchors:
- BOND: 20% to 30%
- SPLV: 10% to 15%
- USMV: 10% to 15%
Satellites: (all others): 1% to 20%
These settings represent our biases: namely that we think our core, anchor assets (BOND, SPLV, USMV) are going to provide positive return. Note that we’re assigning about equal weight to fixed income and equities. After setting those constraints we allow the optimizer to turn the knobs on all the other assets to minimize risk in the portfolio.
But wait! This month we’re bearish, and we’re going to adjust the weights
Many pundits think the market is poised for a downward correction. In addition to that, Lucena’s forecasting technologies are bearish as well. Given all that bearish sentiment, we think it wise to reduce our weighting in equities, so we’re going to reduce the limits on SPLV and USMV:
Anchors:
- BOND: 20% to 30%
- SPLV: 7.5% to 12.5%
- USMV: 7.5% to 12.5%
Satellites: (all others): 1% to 20%
Allocations for 8 April 2013
Without further ado here are the allocations this month:
| Symbol | Name | Allocation |
| BOND | PIMCO Total Return | 29.90% |
| IEI | iShares 3-7 Year Treasury Bond | 20.00% |
| SHY | iShares Barclays 1-3 Year Treasury Bond | 19.90% |
| SPLV | PowerShares S&P 500 Low Volatility | 7.50% |
| USMV | iShares MSCI USA Minimum Volatility Index | 7.50% |
| XLU | Select Sector SPDR Utilities | 5.60% |
| EELV | PowerShares S&P Emerging Markets Low Volatility | 2.70% |
| HYD | Market Vectors High Yield Municipal Index | 2.00% |
| HILO | Egshares Low Volatility Emerging Markets Dividend | 1.60% |
| VCIT | Vanguard Intermediate-Term Corporate Bond | 1.00% |
| VYM | Vanguard High Dividend Yield | 1.00% |
| GLD | SPDR Gold | 0.90% |
Disclosure:
Tucker Balch manages an account with long positions in GLD, EELV, HILO, XLU, VYM, USMV, SPLV, BOND, HYD, IEI, SHY, VCIT.
Ben P
April 17, 2013
Hi Tucker, I have a fundamental question for you. What is your fundamental reasoning behind wanting to hold IEI and SHY? Personally I cannot build a fundamental reason I would want to hold 1 through 7 yr maturity treasuries, especially as high as 40% of a portfolio’s allocation. Do you have concerns about the bond market? Do you have concerns about the limited upside? If so, where do concepts like that enter into your allocations? I understand that the system has chosen these due to their satisfactory sharpe ratios and very low standard deviations. But I am wondering where the human fundamental reasoning comes into play. Personally I see it as an inverted risk/reward, having more risk (at this time) than their potential rewards, which are guaranteed to be paltry. Thanks in advance for your thoughts! (I love the posts!)
Tucker Balch
April 17, 2013
Hi Ben, good question.
First of all, my overall approach is to give the optimizer a diverse set of securities to work with, and a lot of leeway to figure out what the allocations ought to be to minimize risk. In the back testing there were many months when IEI and SHY were held at the minimums of 1%. But, as you observed, this month they’re at or near their maximums of 20%.
In terms of why these assets are in the portfolio: SHY is intended as a cash equivalent. IEI is are there as an intermediate bond representative.
I interpret the the current situation of large holdings in IEI and SHY as follows: Our main holdings are BOND, and (SPLV + USMV). When these two groups are anti correlated the optimizer uses other securities in the portfolio to reduce risk. However, when SPLV and BOND are correlated, or when their combination is hard to hedge, the optimizer draws on IEI and SHY to reduce volatility.
Given the recent market volatility, I would say that it has chosen well this month.
Tucker
Ben P
April 18, 2013
I see. So mainly it is because of their anticorrelation, to keep the portfolio’s movements hedged. Are you going to post these every 1st of the month? or 8th? I am enjoying the comp inv course tremendously, although it is a bit over my head programming-wise, I am still pushing through it as best I can!
Tucker R Balch
April 18, 2013
Hi Ben, I’ll post every time I trade, at the beginning of each month. Probably around the first week.
Tucker Balch
May 1, 2013
Reblogged this on the augmented trader and commented:
Updated with May 2013 allocations
Ben
June 11, 2013
Hi Tucker. Was there a rebalancing for June? Rising interest rates took a bit of a toll on the low-vol funds and bond funds in May. It seems that their strength was also their weakness! As most of the holdings were yield-oriented, which is what investors were looking for in a ZIRP environment, once the ten-year rate rose, investors exit their utilities and consumer staples dividend yielding stocks and buy the ten-year instead, causing a bit of a mass-exit from those sectors. At least that’s how I understand it from the news. Pretty interesting to consider that “low vol” seemed to underperform. Market dynamics, it’s an interesting thing…
Tucker Balch
June 11, 2013
Hi Ben,
Thanks for the comment.
I think you are correct in your analysis. We are presently a bond-centric portfolio and we’ve taken a hit in the last month. Fortunately not as strong a hit as some others.
The rebalance will be posted tomorrow (Weds). I delayed the rebalance because I was hoping for a bit more clarity on the relationships between fixed income and equity. We saw towards the end of May that the anti-correlation there was lost. However, recently that relationship is restored (including today).
Overall, when we run the numbers I expect a shift from bonds towards equities.
Tucker
Johan
September 24, 2013
Will there be an update to stumpgrinder allocations and performance soon?
Tucker Balch
September 24, 2013
I’m staying out of the market for the time being. The main reason is that bonds and stocks are correlated which violates the assumptions of StumpGrinder.
dph
May 4, 2015
Tucker, is this project still ongoing?
Tucker Balch
May 4, 2015
It has been superseded by BlackDog.