Hear ye, hear ye: A Few Changes to the Test Portfolios!

Announcing some changes to some test portfolios to reflect new perspectives on the best assets to hold in an RP portfolio. And another change freeing my growth portfolio from the 10,000 pound anchor dragging it to the bottom of the sea.

A few posts ago, I complained of passing up on all sorts of possible portfolio improvements in order to beat the dead horse that is the traditional 60/40 portfolio. One change was improving the assets within the portfolio, and with the rationale already provided, I have made some changes to a few of the portfolios.

Based on my on-going looks at preferred assets in various asset classes, I now have a better sense of some places where better fund selection can make a difference. This is all part of the mission of Risk Parity Chronicles: researching, testing, and sharing insights into risk-balanced portfolios for the individual investor.

About Risk Parity Chronicles; About Me
...in which I explain the motivation to produce a blog: to research, test, and share insights about Risk Parity. And a disclaimer at the end!

Relatedly, I want to be realistic about the performance of my portfolios, and if I notice an obvious flaw, make the same changes that I might make in real life. I have made a change in the allocation percentage for digital assets in one portfolio. I was very reluctant to do this, but I didn’t want to be hidebound by rules that I originally set, if I knew they weren’t working towards my larger goal of testing realistic portfolios.

I made the changes using prices as of October 1st, so the upcoming portfolio review about October coming up in a few weeks will feature all five changes.

Here is what I have changed:

RPC Stability:

VIOV out, AVUV in

AVUV tested better than VIOV in my comparison of small-cap value funds, so I changed it in my original portfolio. VIOV is also in the Golden Butterfly portfolio, but since this is a comparison portfolio, I figured it was better to leave it as is. The creator of this portfolio (Tyler of Portfolio Charts) prefers very low-cost index funds, so I wanted to honor that principle. Actually, he does use a different set of funds in his version, but I changed them slightly to make tracking their performance easier. Those changes really aren’t that major, though (he uses ITOT, I use VTI, for example).

VXUS out, DFAX in

Similar to the change above, DFAX beat out VXUS in my look at all-around International ex-US equities, so I swapped these two for each other in the RPC Stability portfolio. VXUS is also part of the Bogleheads 80/20 and the 100% equities portfolio, but since these are the traditional portfolios I am comparing RP constructions to, I didn’t want to change these.

RPC Income:

15% in PFF is now 7.5% PFF and 7.5% USMV

This alteration comes out of my recent look at low(er) beta equity funds where I found VPU and USMV to be better than PFF in most respects (hold that thought). Since I already had VPU in the portfolio due to an earlier change where I split my allocation to VNQ to make room for the utilities fund (after it beat out VNQ in a head-to-head comparison), I decided to take PFF’s share, split it and allocated that 7.5% to USMV. Interestingly, I now have 7.5% each to VPU, PFF and USMV, providing me with a great real-world test of these three funds. I did consider scrapping PFF entirely, but want to keep it so I can still track its performance.

Note: PFF also has a place in my RPC Stability portfolio, and I considered swapping it out or splitting it, just as with the RPC Income. The one strong point of PFF, though, was that it was the most stable out of the three. Despite the fact that I bet it will underperform VPU and USMV, it is the one that most follows the original intent of that portfolio, so I kept it as is.

Levered Butterfly:

PFF out, DFAX in.

Since this portfolio is my levered version of the Golden Butterfly, I figured it was fine to adjust this one mid-stream. Honestly, the rationale for using PFF in it in the first place wasn’t that strong – I had just wanted a low-volatility equity to help calm down the leveraged equity funds already in there. That’s fine, but as I looked at it, I thought the need to lessen geographic bias outweighed that concern.

RPC Growth:

Crypto's 5% allocation (GDLC) now 2%; extra split between Managed Futures and Commodities.

I’m mostly pulling the plug on crypto in real life, (mentally) moving the crypto assets I have bought over the past two years or so from my main portfolio (based on target asset allocations) to my “random asset sandbox”, whose allocations I don’t track. I’m not selling, but I won’t be buying more to get it to reach a certain proportion in the portfolio. If I were, I’d be shoveling massive amounts of money into it, but that feels like it would just be throwing good money after bad. GDLC, my preferred asset for digital currency, is down more than 70% since July, 2021, and it’s not looking good.

If it’s something I’d change in real life, then it’s something I’d adjust in the test portfolios, as well, which means changes to my most aggressive original portfolio - the RPC Growth. I still do want to track GDLC, so I resisted the temptation to get out of it completely. Instead, I’ll be reducing the allocation from 5% down to 2% and will equally split that 3% between Managed Futures and Commodities. Those had been at 7.5% each, so they’ll now be 9%. Thankfully, this is the only portfolio with digital assets!