ITA Wealth Management

For Premium Clients, this is a rerun of the Barclay “portfolio” vs. a balanced Vanguard “portfolio.”  As you will recall I selected nine asset classes for this study.  When I ran an analysis on the Barclay portfolio, using iShares, I came up with the following results.

• Projected Return = 10.13%
• Standard Deviation = 18.65%
• Portfolio Autocorrelation = 34.9%
• Diversification Metric = 11%
• R^2 = 93.4%

With some tactical asset allocation tweaking, it would be possible to move the return over 11% and lower the SD.  It will be very difficult to increase the DM as 11% is quite low for a portfolio diversified over these nine asset classes. We could increase the number of asset classes and see out low correlation assets.

The Vanguard portfolio does better than the Barclay portfolio on several fronts.  Here is the data.

• Projected Return = 10.82%  (Not much difference)
• Standard Deviation = 14.04%  (Lower, but not as much as preferred)
• Portfolio Autocorrelation = 39% (Essentially the same)
• Diversification Metric = 39% (Big difference and more to our standards for this type of portfolio)
• R^2 = 74.1% (The lower number is preferred as it indicates the portfolio is not following the S&P 500 as closely. R^2 will merit further study later this fall.)

Using the power of the software, we can improve all the above values if we alter the asset allocation percentages.  For this study I used 11% for each asset class and added the remaining point to VEU.  Additional study is what is planned for the new test portfolio later this fall.

Lowell Herr