February 2023 Portfolio Review

Whiplash…again? Horrible December, great January, and now back to dismal. Only one asset up for the month (DBMF!) led to bad performances across the spectrum. Best: Classic 60/40, worst: the bond heavy Qian portfolio. RPC Stability remains stabilized in first place overall.

I asked last month if the great performance of January would soon reverse. We didn’t have to wait long. February 2023 was another month that seemed like 2022 again, as all twelve portfolios were down, ranging from -3 to .8.4%. I don’t know all the macroeconomic reasons for the bad month: inflation was pretty flat, no huge spike in unemployment figures, etc., but anyway, that’s one value of the “prepare, don’t predict” mindset of Risk Parity. Even if your portfolio goes down, you are at least saved the never-ending burden of having to figure out why.

Pretty much everything went down in February. No surprise, the 3X embedded leverage funds were down the most, led by DRN which lost near 20% and TMF, which was down 18%. This habit of supposedly different types of assets going down together is troubling, following a pattern made all too clear by 2022. If REITs and long-term Treasuries are both down a lot, it makes it hard to balance out risks. The only asset among the 26 that I track to go up was DBMF, which earned .35% for the month.

With asset performance like that, it sort of didn’t matter how you constructed your portfolio. They were all down, only differing by how much. The Classic 60/40 was the big "winner" for the month, down just 3%. The 100% Equity portfolio finished second at -3.2%, and the 80/20 came in at -3.3%. Score this month a good one for traditional portfolios.

One of the truisms about diversification is that it works whether or not you want it to, and in this case, more diversification just meant bigger losses. The worst of the bunch was the very bond-heavy Qian portfolio, which actually has now surpassed (is that the right word for going downward?) the RPC Growth portfolios and the Levered Seasons portfolio to take last place.

Otherwise, the big news for this month's review was the introduction of the new Capital Efficient Butterfly portfolio, explained in this post and coming out of my mini-deep dive into capital efficient funds (see the wrap-up post here; it has links to all the previous posts in the series). This is 40% NTSX, 25% GDE, and 35% RSBT, creating a portfolio that amounts to 58.5% equities, 59% bonds, 22.5% gold, and 35% managed futures.

I’m quite proud of this new portfolio and eager to see how it performs, given how excited I am about capital efficient ETFs. I started it at the dollar amount of the Levered Butterfly, and it had a better month than that one, besting it by 299 basis points. Notably, though, the Capital Efficient Butterfly had a worse month than the plain ol’ original Golden Butterfly, which beat the CE version by 90 basis points. Anyway, I’m glad to have this one in the mix and we’ll see what the future holds.

Finally, as I wrote in my last post, I’ll be scaling back my writing and my twice-a-week pace for the blog. I call it a “downshifting” since the blog won’t be disappearing, and there is a chance I resume a regular pace again in the Fall. Meanwhile, portfolio reviews like this will continue unabated, a bit like the way universities will keep long-term studies going for as long as they can, even if they have a temporary dip in funding. Let’s see if we get a third whiplash in the report for March.