2. Strategy Chosen:
70%-30%
$700,000 in Assets
$300,000 in cash reserve
“Dry Powder” to go in and outside of
speculative bets and buy insurance
The BenchMark
All Century Portfolio
20 percent total U.S stock market
5 percent U.S. REITs
5 percent U.S. small cap value
15 percent Pacific equities
15 percent European equities
10 percent U.S. TIPs
10 percent U.S. high yield corp bonds
20 percent U.S. total bond market
3. “...the risk-adjusted returns are not
meaningfully different whether a
portfolio is rebalanced monthly,
quarterly, or annually; however, the
number of rebalancing events and
resulting costs (taxes, time, and
labor) increase significantly”
Jaconetti, Colleen M, Francis M Kinniry, and
Yan Zilbering. "Best practices for portfolio
rebalancing." Vanguard Research, Vanguard
Group (2010).
Choosing the Composition
Research has shown that
fees and taxes can take the
most of the bite out of
returns. Therefore, choices
of ETFs with low fees for
diversified exposure became
important.
4. SPDR S&P 500 ETF Trust (the Trust) is an exchange traded fund. The Trust corresponds to the price and yield performance of the S&P 500
Index. The S&P 500 Index is composed of 500 selected stocks and spans over 24 separate industry groups. The Fund’s investment sectors
include information technology, financials, energy, health care, consumer staples, industrials, consumer discretionary, materials, utilities and
telecommunication services.
Broad Market: SPY
Range 209.61 - 211.29
52 week 181.92 - 212.97
P/E
EPS
Beta
6.91
30.45
1.00
210.53
-0.91 (-0.43%)
Apr 29, 4:20PM EDT
Bought: 205.82
Sold: 211.65
Profit: 4,660.70
Percent Gain: 2.83%
6. Small-Cap:SLYG
SPDR S&P 600 Small Cap Growth ETF (the Fund), formerly SPDR Dow Jones Small Cap Growth ETF, seeks to closely match the returns and
characteristics of the S&P Small Cap 600 Growth Index. The S&P SmallCap 600 Growth Index measures the performance of the small-
capitalization growth sector in the United States equity market. The selection universe for the S&P SmallCap 600 Index includes all the United
States common equities listed on the New York Stock Exchange, National Association of Securities Dealers Automated Quotation (NASDAQ)
Global Select Market, NASDAQ Select Market and NASDAQ Capital Market with market capitalizations between $250 million and $1.2 billion.
The Fund's investment advisor is SSgA Funds Management, Inc.
52 week 158.17 - 191.95
Open 188.93
Vol. 973.00
Mkt cap 528.34M
P/E 5.68
Div/yield 0.45/0.87
EPS 33.04
Shares 2.80M
Beta 1.17
7. Pacific Equities:EFA
Description: exchange-traded fund. The Fund’s investment objective is to seek investment results that correspond to the price and yield
performance of its underlying index, MSCI EAFE Index (the Index). The Index has been developed by MSCI Inc. as an equity benchmark for its
international stock performance. The Index includes stocks from Europe, Australasia and the Far East. The Fund invests in a representative
sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative
sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund's investment advisor is BlackRock Fund
Advisors
Range 66.43 - 66.92
52 week 58.29 - 70.79
Mkt cap 60.26B
Beta 1.15
66.51
-0.71 (-1.06%)
Apr 30, 4:12PM
EDT
Bought: 62.19
Sold: 67.40
Profit: 5,204.79
Percent Gain: 8.38%
8. European Equities: DRR, NBG
National Bank of Greece
EPS0.04 Shares 3.53B
Beta 2.52 P/E 34.67
Market Vectors Double Short
Euro Exchange Traded Note
Shares 910,000.00 Beta-1.19
9. TIPS: STIP
IShares Barclays 0-5 Year TIPS
Bond
Bond Yield to Maturity is a proxy
for investment horizon.
Div/yield -/0.74
Shares 5.25M
Beta 0.07
10. High Yield Corporate Bonds: ANGL, DHY
Credit Suisse High Yield Bond
Fund
Div/yield 0.02/10.29
EPS 0.21
Shares 99.88M
Beta 0.34
P/E 13.14
Market Vectors Fallen Angel High
Yield Bond ETF
Div/yield -/5.33
Shares 950,000.00
14. Semiconductors: AMD
Advanced Micro Devices, Inc. (AMD) is a global semiconductor company located in the United States, with facilities
around the world. The Company offers x86 microprocessors, as standalone devices or as incorporated as an accelerated
processing unit (APU), for the commercial and consumer markets, embedded microprocessors for commercial,
commercial client and consumer markets and chipsets for desktop and mobile devices, including mobile personal
computers, or PCs, and tablets, professional workstations and servers and graphics, video and multimedia products for
desktop and mobile devices, including mobile PCs and tablets, home media PCs and professional workstations, servers
and technology for game consoles.
Range 2.26 - 2.31
52 week 2.14 - 4.80
Mkt cap 1.76B
Beta 2.24
EPS -0.73
2.26
-0.02 (-0.88%)
Apr 30, 5:04PM EDT
Bought: 2.86
Sold: 2.58
Profit: -1,145.75
Percent Gain:-10.01%
17. Futures: S&P Emini
Bought: 2,058.17
Sold: 2068.50
Profit: 3,100.00
Percent Gain:0.50%
Bought: 2,069.10
Sold: 2076.25
Profit: 1,787.50
Percent Gain:0.35%
September and June
futures: designated
by the commodity
ticker symbol ES, is
a stock market index
futures contract
traded on the
Chicago Mercantile
Exchange's Globex
electronic trading
platform. The
notional value of one
contract is 50 times
the value of the S&P
500 stock index.
23. The search for yield:
returns coming in too slow for
the investment timeline cause
managers to leverage bets in
futures/Options markets
The Strategy: Passive portfolio with Active
Alpha
24. International Malcontent(Oil
Producer woes)
Herbalife Court Filings
AMD Earnings
Futures Contracts: timelines
originally too short,
quantities too large to be
manageable with acceptable
levels of risk
What Could Have Been Better
Increased Diversification through other markets
before leveraging up. Leveraging up with other
markets instead of using the Market and
Currency derivatives.
Intro Slide: Who we are, what we did, and why we did it.
Mike:The Benchmark Slide: The All Century Portfolio
The portfolio was broken up into the following weights to capture general market trends. The strategy wasn’t totally ahered to, in certain situations a position in a stock, ETF, ETN, or derivative contract took the place of the total weight. The $1mn was divided into 700k and 300k, with the weights being distrubuted into the 700k, and the 300 lying on the sidelines to enable us to purchase portfolio insurance products and to add to the portfolio itself. Each weight was goaled at: a 25 asset subdivision of each weight forming an efficient frontier at each weight class. The profits from the first positions and the derivatives would pay for the expansion of each weight.
The opening trades: Setting up the portfolio and choosing the categories composition: Why 70-30, Risky-Cash
To choose the actual components of the composition, numerous data sources were used to shuffle between ETFs, Mutual Funds, and Stock products. Trying to focus on attaining the lowest maintenance fees possible with the largest returns was a steep goal, and in certain instances switching from the bargain fee into a better maintained fund was a better investment.
20%total US Market: SPY
Hugo-
American markets have had a significant rise since the collapse in 2008, with the unemployment rate and the unemployment claims both at their lowest levels in recent memory, we expect that the expanding work force will participate in the conspicuous consumption necessary to drive the markets to higher plateaus. Spider’s S&P500 ETF tracked the market with a beta of 1 and we were able to profitably enter and exit the position.
Mike:5% REITS: Choices and Why Vangaurd switched to MORT
Real Estate has taken a significant beating the past few years. People who were able to fund a home before the collapse were unable to maintain that level of spending. Since then, the economic conditions have showed improvement, This position will be influenced by the Rental Occupancy Rates and the Mortgage rate environment, both indicators have shown mixed signals. Rates and refinancing for mortgages have been slower than we’d like to see, but the positive signs of the rental occupancy rate allude to future gains.
5% Small Cap: S&P
Mike- Small Cap is an outlier strategy for portfolios. (less information about performance, more risk more return). Interest in this position should increase as the market rises, activity in the Mergers&Acquisitions markets should also embolden this security.
15 %Pacific Equities: EFA
Hugo:
Index developed as a benchmark for its international stocks. provides exposure to large- and mid-cap stocks domiciled in developed Europe, Asia, and Australia. This market-cap-weighted index fund invests in companies in 21 developed markets. This fund does not hold companies domiciled in the U.S., Canada, or the emerging markets. Top holdings: Nestle, SA Novartis, AG Roche Holding AG Dividend Right Cert, HSBC Holdings PLC, Toyota Motor Corp.
Tom:15% European Equities: NBG, Short Eur,
These two securities were selected as proxies to the european exposure in the portfolio. Market Vectors ETN was chosen to amplify the exposure to the currency risks of the European Union, despite recent interest rate signals they have yet to fully personify Koo’s Balance Sheet Recession. The ECB is collared in between having to maintain its manifesto and credibility. Draghi has been able to perform a lot with talking down the Euro, but fracture in the structure (represented by the National Bank of Greece) will cause the ECB to support the outlier banks balance sheets with asset swaps and liquidity pumps.EuroDollar parity is a far goal at the moment, along with YenDollar above 120, breaking these levels will be large hurdles.
10% TIPS: STIP
Tom:The security pictured represented the exposure to the Inflation protected securities in the Federal Reserve inventory. The 0-5 year maturation was used as the investment timeline to build the fully operational portfolio.
Mike: 10% High Yield Corporate Bonds: HYEM, ANGL
The more aggressive portion of the bond positions were allocated to ANGL and DHY. The two funds enter into bonds trades that deal with debt that may be much riskier than the risk free bonds represented by the STIP position.
20% Total Bond Market:Mike
The Investment Grade Floating Rate ETF was selected to represent to Bond Market exposure, this is riskier of a position to enter than other funds with higher requirements for AAA rated bonds only, it doesn’t focus solely on Corporate bonds like the previous two funds. Any type of debt corporate or sovereign level of investment grade ratings can be traded freely in this ETF.
Tom:Brent Crude Oil Fund BNO was chosen to short the commodity in the face of a rising power of the United States entering the export market of oil. WIth larger and larger amounts of inventories being stored and added to both domestically and abroad the price of crude oil is being pulverized.
Tom:Hard, non edible commodities have taken large blows to their valuations since the peak of 2012. With other metals and oil derivatives being priced lower, the Double Gold Short ETF is a way to leverage up the commodity market trends without having to worry about hedging out the risks of finding bouillon to short itself.
Hugo
Advanced Micro Devices is a semiconductor company that offers an array of microprocessors as solutions for various computing applications. (For Dell for example) Very cheap stock so we could play with quantity instead of price.
Herbalife was chosen as a short due to the media and legal attention it has attracted since its inception. There are large accusations on both sides of the argument, however after the last two court hearings the price has not returned to it’s 52 week high in the $80 range.
Tom
Positions chosen to amplify the BNO and commodity short weightings.
Hugo- Counter Clock wise: June, March, September 15:
An "e-mini" is an electronically traded futures contract that represents a portion of a standard futures contract. The contracts are sized at a certain value multiplied by the futures price; this value depends on the particular e-mini. The e-mini S&P 500, for example, has a contract size of $50 times the e-mini S&P 500 futures price.
Thinking that the market will keep rising, we bought E-mini futures contracts of the S&P, which allowed us to use more leverage since valued a lot more.
Leveraged bet one Japanese stock market going up
Hugo
Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the U.S.
We believe that Japan's Nikkei 225 share index will go up thanks to ultra-easy monetary policy rekindling confidence in the world's third largest economy.
Hugo
Correlated to the past slide, we believe that because of Japan’s monetary policy to stimulate the economy, the national currency is going to keep devaluating.
Mike: Euro area issues with productivity and currency convertibility may cause the ECB to choose to further devalue the currency against the dollar. While at historic lows, the recent 5 year high is expected not to last. ECB policy is counter keynesian, and utilizes alternate means to bring about devaluation. This approach has been failing as of late, and the prospect of full blown bond purchases by the ECB is a reality.
The Australian Markets have withstood numerous attempts at taking on the size of it’s housing bubbles. The reactivity of the Central Bank has enabled the coutnry to deftly avoid issues that the flattening of the world has wrecked on most other nations. Being a hard commodity producer, they need to remain price conscious. Chinese market have experieced a slowdown that the Australian market will react to in order to maintain it’s percentage share of export to chinese manufacturers.
The Strategy: From Set and Forget to Active Management
Usage of Future to try to add Alpha: unsuccessful attempts at Oil Market, Currencies,-> Time Line
What we could have done better to improve performance: Hedge with different contracts in different markets, spread exposure, diversify, Don’t match stock trades with futures trades (not insurance)
Performance Metrics: Sharpe, Alpha, Beta, Standard Dev.
Percent loss: 3.3.8% Sharpe Ratio: -0.31 Alpha: -1.37% Beta: 0.94
Our portfolio was moving in correlation to the market, we then got into Futures and found a way to beat the market. But overreaction + volatility = loss in our portfolio Performance metrics.
Actual performance: Before April 10th
Mike,Hugo
The max Sharpe Ratio was 11.82, and an Alpha of 1.32 (Beta of .68). This was in line with the goals of the fund originally, Minimizing Risk, Maxizmiing Returns efficiently with a high Sharpe Ratio. Positive Alpha from market appreciation and macro-reaction. The Metrics immediately fall, with Beta Rising, as Futures (leveraged) positions increased. Speed and proper tranching of positions wasn’t sufficently traded to allow for the maintenance of the high ratios early on.
Actual Performance: After April 10th
Tom
The unwinding of the positions shows the real damage done by the matching of portfolio macroeconomic positioning with leveraged futures positions. Instead of using derivative products as insurance based ways to purchase more market share during downturns, the portfolio was positioned to leveraged appreciation only. Negative impacts from news, inventory, and earnings reports placed significant pressure on the contracts and positions of the portfolio. With no cushioning, the ratios plummeted to the market floors.
The Wrap up: Going forward, beliefs in the trades? Continuing the Portfolio strategy or going back to Set and Forget.
Tom,Hugo,Mike
