Defensive Portfolio

The Defensive Portfolio aims to preserve capital with a secondary objective of income and inflation protection. It may be suitable for people in their 70s, who are in later stage of retirement. The static portfolio targets 20% in risk assets such as equity, commodity, real estate and energy master trust and 80% in bonds as strategic long-term allocations. The dynamic portfolio has 20% in risk asset on average, though the allocations on risk assets vary across different stages of economic and market cycles.  Historically, this strategy delivered 11% annual return with a 9% drawdown.  The following are the backtesting results based on monthly data since 1970.

Long Term Performance Compared to Benchmark (20% S&P 500 +80% Barclays Aggregate Bond Index)

Portfolio Composition in 12/2011

Equities Static Dynamic
SPY US Large Cap 15% 7%
IWM US Small Cap 15% 2%
EFA Developed Market Equity 15%
VWO Emerging Market Equity 15%
Dividend Assets
IYR US REIT 5%
AMJ US Energy Master Trust 5% 7%
Commodities
GLD Gold 5%
GSG Commodity 5%
Bonds
HYG US High Yield 5% 22%
AGG US Bond 5% 31%
TIP US Treasury Inflation Indexed Bond 5% 16%
IEF US Treasury Bond 5%
TLT US Long Term Treasury Bond 16%
SHY US Short Term Bond

Two-year Monthly Performance

Forty-year Annual Performance

Portfolio Performance Statistics

Static Dynamic Benchmark
Average Monthly Return 0.7% 0.9% 0.7%
Monthly Standard Deviation 1.6% 1.6% 1.6%
Annualized Return 8.9% 10.8% 8.0%
Annualized Standard Deviation 5.7% 5.6% 5.5%
Sharpe Ratio (Risk-free Rate =   5.5%) 0.6 0.9 0.5
Maximum Drawdown (Loss) 15% 9% 7%
Expected Time to Recover (yrs) 1.7 0.8 0.9

Current Portfolio Composition

Be Sociable, Share!

Comments are closed.