Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer.

Mostly Mary [0:18]

A different drummer. And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:36]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program. And those are episodes 1, 3, 5, 7, and 9. One of our listeners, Karen, has also reviewed the entire catalog and has additional recommendations as foundational episodes. Ain't nothing wrong with that! And Karen's recommendations are episodes 12, 14, 16, 19, 21, 56, and 82, in addition to the first five that I mentioned. Now I realize women named Karen get a bad rap these days, but I assure you that all of our listeners are intelligent, thoughtful, and savvy. Yes! And don't forget that the host of this program is named after a hot dog. That's not an improvement.

Mostly Voices [1:41]

Lighten up, Francis.

Mostly Uncle Frank [1:45]

But now onward to episode 205. Today on Risk Parity Radio, it is time for our weekly portfolio reviews. Of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page.

Mostly Voices [2:02]

Boring. But before we get to that, I'm intrigued by this, how you say, emails. And?

Mostly Uncle Frank [2:13]

First off, First off, we have an email from Connor.

Mostly Mary [2:20]

And Connor writes：hi Frank, what's your opinion about the new single bond ETFs being launched? Anything useful to us firees?

Mostly Voices [2:29]

Boring!

Mostly Uncle Frank [2:33]

Well, I took a look at this article that you linked to, and I will also link to it in the show notes. The title of the article is Single Bond ETFs Solve Some Key Investing Problems.

Mostly Voices [2:45]

I don't think it means what you think it means.

Mostly Uncle Frank [2:48]

So what is a single bond ETF? In this case, they are taking the most recent 10-year treasury bond and putting that individual bond into an ETF and then rolling it over when a new bond comes out. Surely you can't be serious. I am serious. And don't call me Shirley. I tend to agree with the author that this is probably Only really useful if you're using it as a trading vehicle. And I would worry about the rolling over of the bond and whether that would generate some slippage or transaction fees or something else. So I can't see any particular reason why a long-term do-it-yourself investor would feel a need to hold such a thing. Forget about it. Because if you want to buy a treasury bond and hold it for maturity or however long you want to hold it, You can simply go to Treasury Direct and just do that. And I always chuckle at the Wall Street jargon stuff that comes out of this. In Wall Street speak, the most recent Treasury bond that's being issued is referred to as being on the run, bond on the run. Band on the run. Band on the run. It reminds me of other Wall Streety financial media jargon speak.

Mostly Voices [4:18]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [4:21]

One of the most annoying is instead of saying the CPI came in at 8.2% last month, they'll say things like, the print on the CPI came in at eight spot two. as if saying print and spot made it more interesting or legitimized it. Forget about it. But anyway, now this is just a good example of an ETF put out there for trading purposes. And a lot of ETFs these days are put out there for people to trade. And whether or not they'd be useful for a long-term investor is often questionable. So you have to pick and choose as to which things you try. And oftentimes, even if you think it might be useful, it's much better to wait till it's been around for a few years to see how it actually performs. But thank you for that email. Second off. Second off, we have an email from Paul. And Paul writes.

Mostly Mary [5:26]

Hi Frank, I really enjoyed your comments on the last portfolio I sent you in May. I'm sending you an improved portfolio which performs better overall, much better in recession, only slightly worse in inflation. From January 2022 to July 2022, it's down 8.2% and slightly better in bull markets. This is a drawdown retirement portfolio that I mean to implement over the next one to two years and it's meant to last 40 years. My main goal is having a smooth ride while still attaining some growth to comfortably ride out the inevitable bumps. I backtested to 2007 instead of only 2013 as I did with my previous portfolio. This seemed useful in case we end up in another severe recession. No crystal ball here. A crystal ball can help you. It can guide you. The revised portfolio contains VSFIx 5%. VedTX 17%, GLD 11%, XLV 15%, RHS 17%, PBJ 5%, XLK 12%, PSA 13%, O 5%. The mutual funds and GLD are just for backtesting, and the actual holdings would be VGSH, EDV, and GLDM. The Portfolio Optimization Tool at PortfolioVisualizer.com was quite useful in making small percentage tweaks to minimize volatility while maintaining returns. Over the period 2007 to 2022, this portfolio's compounded annual growth rate was 3.8% more than the 0.55% I planned to withdraw on a monthly basis. 6.6% annualized. The perpetual withdrawal rate is 7.53%, so I don't mind that it has a growth blend value ratio of 31.41.28. I'm also fine with this 68% weighting in large cap because it provides lower volatility even at the expense of some growth. The free Morningstar Portfolio Fund Analysis tool you recommended was essential to me in identifying these numbers, so many thanks for that. So does this portfolio look to you like something reasonable as a real life drawdown portfolio or is it just optimizing the historical data and I am missing something? Do you have any suggestions on where it might be improved? This is the brightest rabbit hole I found myself in. Thanks as always and my wife appreciates my providing the sparkling wine you recommended last time, Paul. Yeah, baby, yeah!

Mostly Uncle Frank [8:24]

All right, just for reference sake, the prior episode where we talked about Paul's portfolio, or at least the portfolio he had at the time, or was talking about at the time, was episode 179, if anybody's looking for that. And now looking at this new version, I think that the first fund that you listed was maybe mislisted, that you intended to list a short-term bond fund instead of what you listed. And so that's what I took it to be, as you mentioned, an actual holding of VGSH, which would correspond to that 5% holding. So what you've basically got here when you look at it is a portfolio that is about 50% in stock funds and several sector funds is really what they are, and then 18% in REITs, and then the rest in bonds and gold. So that's a pretty decent mix. What I did to analyze it besides running through the funds that you listed is take a look at them in terms of their basic factor characteristics. And I'm talking, are they large or small or mid? Are they growth oriented or value oriented? And so this fund, RHS, is really large cap value. XLK, which is technology, is really large cap growth. PBJ, the consumer staples and food fund, is really mid cap value. XLV, you would characterize as large cap blend or value. So I took out those funds and then substituted in a large cap growth fund, an S&P 500 fund, a large cap value fund, and a mid cap value fund. as generic substitutes and ran that. And it performs about a point less in terms of its compounded annual growth rate. The reason that's useful is if your particular funds would revert to means over time, you would expect them to revert to that generic holding of them. And when I did that comparison, I left all the other components the same. Just you compare the stock portion of it. So basically you have a stock portfolio that is tilted towards large cap value. And what you are missing there is small cap funds. And the advantage to that is that is the most stable part of the stock market. So in years like this one where everything looks like it's going badly, people are moving more towards large cap value and it's not doing as badly. The disadvantage is that it will not grow as much as either growth or small cap stocks when things are doing better. And what you should also be aware of is that the period that you're testing, which is essentially from the Great Financial Crisis until now, was a period that was particularly good for large cap stocks and not small cap stocks of the two of those, which is not always the case. And in fact, over many decades of time, small caps tend to outperform large caps, particularly if you're talking about the small cap value sector.

Mostly Voices [11:48]

I could have used a little more cowbell.

Mostly Uncle Frank [11:52]

Which, for example, was up every year from 1975 until 1987, which you could not say about large cap stocks in that era.

Mostly Voices [12:03]

Well, I'm telling you, fellas, You're gonna want that cowbell.

Mostly Uncle Frank [12:07]

So I think that you'll probably be better off over the very long term at least having some of that value move from mid cap and large cap into the small cap value sector.

Mostly Voices [12:19]

It doesn't work for me. I gotta have more cowbell.

Mostly Uncle Frank [12:23]

My other comment has to do with the REITs that you picked and the percentages for them. You have 13% in PSA and 5% in O. And if you were only going to be able to pick a couple of REITs, those would be pretty good ones to pick because PSA is public storage and has thousands of individual storage outlets all over the country. And O has about 12,000 leases all over the country. That being said, that still is a large concentration to be having in any individual security. And so I would probably spread that out over five or six REITs. And so I also did a variation on that in Portfolio Visualizer that you can check out in the show notes. Because again, I think those two particular REITs had a particularly good performance since the great financial crisis that might not be quite as good as other REITs going forward. You never know what you're going to get. So overall, I think this is a reasonable kind of portfolio for you to hold, but I would not expect it to outperform its sort of generic equivalence over the long term necessarily, like it has for the past 14 or 15 years. On the other hand, if you've got a crystal ball that says that those particular sectors are still going to outperform, Then what can I say? The crystal ball is a conscious energy. I'm glad you're enjoying the podcast and the tools.

Mostly Voices [13:57]

We have the tools. We have the talent. And thank you for that email. Last off.

Mostly Uncle Frank [14:05]

Last off, we have an email from a different Paul. Paul Z this time.

Mostly Mary [14:13]

And Paul Z writes, Hi, Frank. Love your podcast. Thanks for sharing your knowledge and humor with us all. In a previous Risk Parity Radio episode on the topic of factor investing, you mentioned five different factors that can be considered. In your opinion, does the Avantis U.S. Small Cap Value ETF ticker symbol AVUV do this well? I need some more cowbell in my portfolio. I got a fever. If you had to do it over again, would you choose AVUV over VIoV for the small cap value portion of your risk parity portfolios? Tax efficiency is also a consideration for me, as I am in a high tax bracket and will be holding my U.S. small cap value funds in a taxable brokerage account. Thank you, Paul. Well, the first thing you should recognize is that AVUV and VIoV are investing in the same things.

Mostly Uncle Frank [15:12]

AVUV is just a smaller set of what VIoV is investing in. So you would say it has greater potential, but also greater variance potential. So they both are focused on small cap value stocks. What AVUV adds to this analysis or in terms of an additional filter is it's looking at something called profitability to book, which is another ratio. And so it's looking at the gross revenues minus operating expenses as a measure of profitability, and then comparing that in a ratio to the book value, which is the assets minus liabilities. And the idea there is I think they're trying to find small cap value stocks that have decent profitability and aren't likely to be value traps or going into bankruptcy anytime soon. You would characterize that metric as a quality factor and that's really what AVUV is adding to this. I will link to the description of AVUV from its website in the show notes so you can look at that. That's where I'm getting this information from. Make sure you look at the notes at the end. I will also link to something I think I linked to before. It's an interview by Rick Ferri of the head of Avantis Funds, who used to be at DFA, a guy named Repetto. I believe it's Eduardo Repetto. But that also discusses what is going on with these Avantis Funds. My view is AVUV could be better, but I don't have any way of knowing that or verifying that in advance. I think they both fill the same spot, if you will, in a portfolio. and they are very useful for tax laws, harvesting for sure, because you can exchange them. So you could pick one or you could pick both and you'll probably have similar outcomes in terms of your overall portfolio. In terms of the sample portfolios, I actually intentionally pick very generic funds for the most part because I want the focus to be on the overall methodology and not fund picking. So I've tried to just usually generally pick the most popular fund or a popular fund in each category for that. Now, I'm well aware you can find different and better choices in many of the categories, but I'd rather show something that works generically and let somebody improve upon it.

Mostly Voices [17:50]

I think I've improved on your methods a bit, too.

Mostly Uncle Frank [17:54]

Then try to arrive at Some kind of perfect portfolio.

Mostly Voices [17:58]

Trogdor strikes again!

Mostly Uncle Frank [18:02]

Because none of those sample portfolios are intended to be perfect. They're intended to be samples or examples that somebody might improve upon. That's not an improvement. Because every year it seems we have more and better ETFs to choose from.

Mostly Voices [18:18]

That is the straight stuff, O'Funkmaster.

Mostly Uncle Frank [18:21]

Now as to the tax issue, I'm not sure I can answer that. I'll tell you in theory, AVUV will have more turnover because it has more filters and fewer individual securities in it, whereas VIoV just tracks an index and so is less likely to have as much turnover. I'm not sure it's going to be significantly different in any way just because of the way ETFs are managed in a tax efficient manner anyway. So you would not expect to see capital gains, for example, coming out of them like you would out of a mutual fund. You're basically just going to be looking at the dividend payouts for each one. And on that score, I don't think they're significantly different. But they could be in the future. Who knows? Don't be saucy with me, Bernaise. Anyway, that's all I got on that and thank you for that email. Now we're going to do something extremely fun. And the extremely fun thing we're about to do is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio. com on the portfolios page. And unlike the past month or so, the markets were generally Up last week, so we were having a little bit of fun. Extremely fun. Just looking at the markets, we had the S&P 500 up 3.65% for the week. The NASDAQ was up 4.14% for the week, which is basically reversing the prior week. Gold was up 1.1% for the week. Long-term treasury bonds are represented by TLT. We're the only thing that was down really. It was down 1.73% for the week. Reiths represented by the fund REET were up 3.6% for the week. Commodities represented by the fund, PBDC were up 0.29% for the week. Preferred shares represented by the fund PFF were up 0.49% for the week. The managed futures were also eking out a small gain. DBMF, our representative fund was up 0.64% for the week. Going to the sample portfolios, they were all up modestly. First one is this All Seasons portfolio, this reference portfolio that's overly conservative. It's got 30% in stocks, 55% in treasury bonds divided into long and intermediate, and then the remaining 15% is divided into golden commodities, GLDM and PBDC. It was up 0.57% for the week. It's down 15.44% year to date and down 1.69% since inception in July 2020. Now we get to our three bread and butter portfolios. The first one's a golden butterfly. This one's 40% in stocks divided into a total stock market fund and a small cap value fund. It's got 40% in bonds divided into long-term treasuries and short-term treasuries. And the remaining 20% is in gold, GLDM. It was up 1.02% for the week. It's down 12.34% year to date and is up 9.56% since inception in July 2020. Boring. Next one is the Golden Ratio. This one's 42% in stocks, 26% in long-term treasuries, 16% in gold, GLDM, 10% in REITs, R-E-E-T. with the remainder in cash. It was up 1.49% for the week, it was down 15.55% year to date and is up 7.35% since inception in July 2020. Next one is the Risk Parity Ultimate. It's got 15 funds in it. I'm not going to go through all of those. You can see them on the website. It was up 1.62% for the week. It's down 19.1% year to date and up 2.57% since inception in July 2020. And now we move to these experimental portfolios. Abbe someone. Which are having a hideous year. These all have leveraged funds in them, which makes them hideous in a year like this. Abbe normal. First one is the Accelerated Permanent Portfolio. This one is 27. 5% in a LevEraged Bond Fund, TMF, 25% in a leveraged stock fund, UPRO, 25% in a preferred shares fund, PFF, and 22.5% in gold, GLDM. It was up 1.27% for the week. It was down 34.02% year to date and down 9.71% since inception in July 2020. Next one is our most leveraged and least diversified portfolio, the aggressive 50/50. It is one third in a leveraged stock fund, UPRO, one third in a leveraged bond fund, TMF, and the remaining third divided into preferred shares and an intermediate treasury bond fund. It was up 1.48% for the week. It's down 40.92% year to date.

Mostly Voices [23:38]

I demand that you shoot me now.

Mostly Uncle Frank [23:42]

It is down 12.82% since inception in July 2020. And our last one in our newest portfolio on the block is the levered golden ratio. This one's 35% in a composite fund, NTSX, that is the S&P 500 in treasury bonds, 25% in gold, GLDM, 15% in a Reit, O, 10% each in TMF and TNA, which are a leveraged treasury bond fund and a leveraged small cap fund. and the remaining 5% is in a volatility fund and in a Bitcoin fund. It was up 1.62% for the week, it's down 21.18%, year to date is down 16.66% since inception in July 2021. So not really too much to say about these things this week, I think. Everybody is waiting with bated breath for the Next CPI print, if you want to call it that. And then what the Fed has to say about interest rates. Last report I saw was that there was an 82% chance of a three-quarter point rate hike. I suppose we should say Spot 75 for that. All that all probably means is just more volatility. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com That email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars or a view. That would be great. Mmmkay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio, signing off.

Mostly Voices [26:02]

All the land on the road, we'll search forever more, all the land on the road, the land on the road, the land on the road,

Mostly Mary [26:34]

The Risk Parity Radio Show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.