October 2022 Portfolio Review

A real Tale of Two Cities kind of month for investors: stocks boomed, fixed income bolted in the opposite direction, with alternatives plugging along. Great month for the traditional portfolios, as diversification meant “de-worse-ification.” RPC Stability still in the lead, though.

Good or bad, I don't know, but it looks like we may be at an inflection point. The month was excellent for stocks: AVUV, my new small-cap value fund, was up 15.6%, DFAX, my new international fund, was up 4%, and the venerable VTI went up 8.1%. And then there is TNA, a 3X Leveraged Small-Cap Fund, which was up 33.2% in the month (still waaay under than what I started at, though). This could be the bottom, or maybe just be a bear market rally. Or, with inflation still high (8.2% for the twelve months ending in September), maybe October was just the eye of the hurricane - a brief respite to step outside and see the sun before flying tree branches impale you. My predictions are worth what you pay to read them.

Meanwhile, investors in “safe” US Treasuries got hit by all that debris: lawnmowers, pool chairs, rusted automobiles, etc. EDV was down 9%, and VGLT down 5.2%. And the 3X leveraged fund TMF? Down a whopping 18.8%. I’m just wondering if we’re starting to see the re-establishment of the negative correlation between stocks and bonds. This doesn’t change my investor behavior, as always I just buy what the numbers tell me I should buy - but it would be interesting if that relationship were established again.

As for portfolios, it was a pretty clear test to see if it was a good month: Lots of equities? Good month. Anything else? Not as good. The 100% Equity portfolio was up 6.8%, followed by the 80/20 which was up 4.8%. The Qian portfolio, the most bond heavy of them all, was in last place and the only one to finish in the red, at -.4%. Risk Parity portfolios poorly, in general, as the higher allocations to assets besides equities was not a winning formula for October. The RPC Stability continues to hold first place; the Levered Seasons portfolio continues to be the caboose.

Otherwise, it was a big month for the RPC test portfolios as it saw the implementation of several changes to the asset selections in various portfolios:

VIOV out —> AVUV in
VXUS out —> DFAX in
PFF’s allocation halved —> USMV added
PFF out —> DFAX in
GDLC’s allocation slashed —> higher allocation to DBMF and PDBC

Then, new portfolio rebalancing rules have been put in place for two portfolios to test the idea that a 20% relative threshold rebalancing rule can boost performance and help maintain risk profiles. The rebalancing just took place with this review, though, so you’ll see the first differences next month.