StumpGrinder: Allocations

Posted on April 7, 2013 by

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Watch this post each month for updated allocations to each of the ETFs, we’ll keep them all in one place.

Related Articles

(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.

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