Golden Butterfly Portfolio

[iwealth]

Thanks Tyler.
I am trying to identify an asset that correlates well with a rising dollar and so far only UUP ETF appears to meet the requirement.

I have no way of testing this, but I bet you'd be better off shorting a basket of international currencies. Easily done through a brokerage like IB.

[mathjak107]

Small and Mid Cap Blend work almost as well.  Even if the "value" premium is a thing of the past, it still seems like there might be value in broadening exposure beyond large cap funds that are influenced by fewer companies than their high-level index count implies.  Even large cap international funds just don't have the same effect. 

But that's just an observation based on the data and not on any theory behind the asset class.  I'm curious if anyone disagrees. 

talk about a great call. i own slyv and what an amazing year we had up 32% .. but it can fall just as heavy . since the new year it has been A WILD RIDE

[ochotona]

"THE SMALL CAP VALUE PREMIUM IS DEAD"

or not?

2016 index performance

SC blend +18.17%

SC value +24.65%

[mathjak107]

the low volume on slyv scares me a bit . i have more than 3,000 shares so if i sold it , i can actually depress the price some days myself . i would definitely use limit orders to sell

i am thinking of going to ijs which has much higher volume

[buddtholomew]

the low volume on slyv scares me a bit . i have more than 3,000 shares so if i sold it , i can actually depress the price some days myself . i would definitely use limit orders to sell

i am thinking of going to ijs which has much higher volume

Significantly less than IWN though.
Any reason for selecting IJS over IWN as I too hold IJS and 10 minutes can go by without a trade.

[mathjak107]

just the fact the trading volume is much higher than slyv, other than that not much other preference between them .

[mathjak107]

here is a nice summary of the difference between ijs and iwn .

Russell 2000 Value Index Fund (NYSEARCA:IWN)

Russell 2000 Value Index Fund is the oldest ETF which provides exposure to the small capitalization value sector of the U.S. equity market. The ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of small cap value stocks, as measured by the Russell 2000 Value Index. The product appears to be liquid as approximately 1.5 million shares change hands on a daily basis. The fund invests its $3867.5 million of net assets in 1360 stocks. The fund invests just 4.6% of its asset in the top ten holdings which suggest that the fund is hardly concentrated. BioMed Realty Trust Inc. (NYSE:BMR) and National Retail Properties, Inc. (NYSE:NNN) occupy the top two positions in the fund.

Among the sectors, Financials, Producer Discretionary and Consumer Discretionary hold the lion’s share making up 65.3% of the total investment. (Play A Consumer Recovery With These Discretionary ETFs) For the investment made in the ETF, the investor pays an expense ratio of 40 basis points. Due to heavy weighting towards Financials, the fund delivered a negative return of 1.2% over a period of one year.

S&P Small Cap 600 Value Index Fund (NYSEARCA:IJS)

S&P Small Cap 600 Value ETF, introduced in July 2000, seeks to provide exposure to U.S. small-cap value stocks and tracks the S&P SmallCap 600 Value Index. The fund holds a total of 455 small cap stocks. The fund has a total asset base of $2,125.5 million of which 8.2% is invested in the top 10 holdings. So like IWN, the fund appears to be diversified with assets not just concentrated in the top 10 holdings but also spread among other companies beyond the list of top 10. Among the different sectors Financials and Industrials occupy the top two positions with 46.2% of investment made in these two categories. The fund charges a premium of 25 basis points for the investment. Despite a tilt towards the financial sector, the fund could deliver a return of 4.51% over a period of one year

[LazyInvestor]

What are other reasonable SCV alternatives in a portfolio such as this? For example, plugging in 10% REITS 10% EM gives me pretty much the same results as SCV and it seems more diversified?

[ochotona]

I think EM is a good move. I think on a point forward basis, USA-only faces severe valuation headwinds. The only thing that scares me is EM indices are 25% China. If you think China is a bubble waiting to pop then maybe us an EM ex-China ETF like XCEM.

[mathjak107]

the risk in foreign now is the dollar . it is a crap shoot where even if their markets are good that you will make money . the eafe was up 7% last year . you lost money in dollars terms .

i think small cap value was high before the election and now it is very high and very very volatile . it may not be a bad idea to cut small cap back in the model to 15 or 10% and put the difference in the s&p . those small cap value funds are way more volatile than the russell 2000. 2 to 3x the s&p 500 is the norm .in my portfolio slyv moves 12k in a day sometimes by itself .

i can't see taking on multiple risks else where instead . foreign is market risk and dollar risk , reits are market risk and interest rate risk . i think just a bit less in those volatile small cap funds after such a big run up on not earnings but perception may not be a bad idea .

[Kbg]

Rather than try to figure this stuff out, just follow. Use something like a ratio of the two assets vs. a moving average of same or dual momentum. If there is a switch these types of things tend to be LT secular changes.

[mathjak107]

i don't think we had to many time frames where this small cap 600 index jumped more than 50% in 15 months .

so some thoughts are , like i said maybe a 10-15% stake with the rest in the s&p 500 or perhaps a more diversified small cap fund . even the wilshire 2000 is about 1/2 as volatile .

[Tyler]

What are other reasonable SCV alternatives in a portfolio such as this? For example, plugging in 10% REITS 10% EM gives me pretty much the same results as SCV and it seems more diversified?

If you play around with the Portfolio Finder you'll see that there are all types of portfolios with 40% stocks and LTT/STT/Gold that cluster around the GB. So don't get too hung up on SCV. IMHO, a reasonable alternative is best measured by your own confidence to stick with the plan.

[mathjak107]

The nice thing about slyv in up markets is it is like being leveraged. You get a nice 2 to3x move compared to the s&p.

But boy when that thing reverses it will be pretty nasty.

[Dieter]

By going "light" on gold vs PP, have less dollar diversification, so might look at (unhedged) international stocks to increase that diversification.

For example:

20% S&P 500 or US Total Stock Market
10% US Small Value
10% Total International, International Mid/Small Balanced, Emerging Markets, or ...

or 1/3 of stock in each to increase the tilt.

The stock in my PP-Ish portion is currently 1/3 TSM, 1/3 Sm (mid) Value, 1/3 Intl Small Balanced.

[Dieter]

By going "light" on gold vs PP, have less dollar diversification, so might look at (unhedged) international stocks to increase that diversification.

For example:

20% S&P 500 or US Total Stock Market
10% US Small Value
10% Total International, International Mid/Small Balanced, Emerging Markets, or ...

or 1/3 of stock in each to increase the tilt.

The stock in my PP-Ish portion is currently 1/3 TSM, 1/3 Sm (mid) Value, 1/3 Intl Small Balanced.

That's a good point. EM and gold respond similarly to changes in the strength of the dollar. EM is also pretty strongly influenced by commodity prices.

What fund are you using for international small?

Vanguard Internation Explorer. More a Mid/Small, and yeah, active.

I used to split my ISB 50%/50% Intl Exporer & Vanguard FTSE AW xUS Sm-Cp Idx Inv, but simplified a short while ago and forgot why I picked Intl Exl -- probably because it had done better and thought that if active could do well anywhere would be international small....

So of course Vanguard FTSE AW xUS Sm-Cp Idx Inv has done much better since I sold it.

[Dieter]

I think the Explorer fund is a fine fund for IS. But of course it will underperform immediately after purchase, as do all funds that I buy.

Please buy Vanguard FTSE AW xUS Sm-Cp Idx Inv so it goes down and I feel better about my Intl Explorer purchase.

[ochotona]

Since I'm a Dual Momentum user, I've noticed that my mid-cap value fund has stopped racing ahead of my S&P500 fund on a 3 and 6 month basis, so I'm being tactical taking the profits today and moving the proceeds back to the S&P500 fund. I'm simplifying and de-risking a bit.

[mathjak107]

I am thinking of cutting back on the small cap 600 fund. It too has become not only extremely volatile but way over valued after last years 30% run up.

I think i will cut it to 10% from 20% and put the difference in the s&p 500. It acts leveraged most of the time moving 2 to 3x what the s&p 500 does so when it falls it weighs very heavy on things.

All great when things are going up , but i think with trumpmania pushing their valuations up so high the time has come to take some gains off the table and go more s&p 500

[mathjak107]

i had decided to cut the small caps by 5% before the drop the last few days making it 15% of the portfolio . it find so far 15% is a nice balance with 25% in the s&p 500. after such a big run up slyv was incredibly volatile running 2 to 3x the s&p 500 daily .

[mathjak107]

coincidentally the newsletter i subscribe to issued a swap last night for all models , selling off small cap funds which they felt were now way over valued and large caps were better deals . i wouldn't eliminate them from the butterfly but i do think a reduction to 10-15% is a good idea after the huge run up they had . the difference should go in to the s&p 500.

that almost leveraged like volatility from SLYV should still add plenty of ooomph .

[ochotona]

In a new thread tell us what newsletters you like

[mathjak107]

i used the fidelity insight newsletter for just about 30 years

[mathjak107]

if small caps move up another 5% i will further reduce from 15 to 10% in the butterfly while increasing the s&p 500 to 30% . but i would not try to market time by going below 10% in slyv . .

sensibly reducing risk is one thing, which is what we do when i say dynamically nudging a portfolio but trying to predict what assets will do over all as in all or nothing rarely ends well .

[mathjak107]

what a crazy day today . with assets lately acting more correlated than uncorrelated it was a hell of a day for the butterfly , except to the upside for a change .
my portfolio moved far greater than even a 100% equity model i track . with the exception of a downward move my portfolio made pre butterfly during brexit this was the 2nd biggest move ever dollar wise that i had . at one point the butterfly was up more than 30k in this one afternoon .

great when all assets act correlated and move upward for you but it gives you an idea of the downside damage that it can inflict as well under these new conditions of correlation for all the assets that we seem to have lately . .