It was a humbling month for Risk Parity portfolios and a good one for traditional portfolios, as they took the top 3 places. It was a down-then-up month, with equities rising in the past few weeks and bonds, especially Long-term Treasuries, tanking. This took many RP portfolios down with them.
March 2022 started off with deep declines in most assets in the first part of the month, before a rally for equities in the second half of the month. The Federal Reserve raised interest rates on March 16 in order to slow down inflation, which remains high. Inflation in the twelve months preceding March was 7.9%, or a monthly figure of .658%. The rise in rates apparently spurred equities upwards and all equity ETFs in the test portfolios finished positive. VTI came in up 4.9% and the Leveraged UPRO three times that. Real estate did even better, with VNQ up 6.81% and the leveraged version (DRN) up 24.9%. The rise in interest rates predictably pushed bonds down, and all bond ETFs finished negative, including -3.9% for Intermediate-term Treasuries and -5.8% for Long-term. Of course, the leveraged versions responded even more dramatically. Commodities, as shown by PDBC, continued their strong progression, up 4.7% in March and leading to them surpassing allocation thresholds in five portfolios.
The decline in bond funds meant bad months for the portfolios with the largest allocations, and those with the leveraged bond funds did worst of all. The Qian portfolio, which has 22% each in two leveraged bond funds, was down 5.7% for March. This portfolio performs as a 33/142/25 (stocks/bonds/alternatives), which is a real nightmare when bonds are down this much. The All Seasons portfolio, which is unleveraged but has 55% in bonds, finished second worst. Traditional portfolios with higher stock allocations did the best, with the 100% Equities portfolio coming in first, the 80/20 in second, and the 60/40 in third. Not quite a good month for RP advocates to publicize.
Overall though, the RPC Income continues to hold the top spot, followed by the 100% Equities portfolio then the RPC Growth portfolio. The Qian is in ninth, and the Levered Seasons is last, with a net drop of over 9% since starting in July of 2021. All ten portfolios remain under the initial amount they started with, suggesting that the 4% withdrawal rate is, so far, unsustainable. In a nutshell, the past six months or so continue to be an instructive lesson of “sequence of returns risk”: a bad stretch of asset performance as you begin to withdraw from portfolios can make it hard to climb back up.