Annual Letter 2014

January 2015

To Our Clients and Prospects:Chart Annual Letter 2014

In 2014, global equities (VT) gained 4%, led by U.S. equities (VT) which rose 13%. Foreign markets underperformed, with foreign developed equities (VEA) down 6%, and emerging markets (VWO) down 1%.

Real estate (VNQ) and long-term treasuries (TLT) both delivered strong returns with respective gains of 30% and 27%. The biggest decline was in commodities (GSG) which fell 33%, due to a 42% drop in oil (USO).

Medium-term treasuries (IEF) gained 9%, while treasury inflation-protected securities (TIP) rose by 4%, and the total bond market (BND) increased by 6%.

The investable benchmark portfolios performed very well delivering 9% to 20%. The trailing 10-year total return range is now 110% to 130%, or 7.7% to 8.7% annualized. These efficient portfolios yield over 2.0% annually, with blended expense ratios under 0.2%.

Over the past 28 years, the combination of indexing and trend following delivered impressive performance. The 60/40 SI portfolio, 60% Systematic Index and 40% S&P 500, gained 9.7% annually, with far lower risk. Trend following lowered the portfolio’s worst three-year total return to -2%, versus -38% for the S&P 500 alone.

See the 28-year “escalator-like” return stream online in our ETF Trend Following presentation. On slides 4-10, we explain the supporting data for our 50/50 Portfolio, which combines indexing and trend following. Over the past seven years, the 50/50 gained 37%, while 60/40 SI rose by 49%.

The presentation also introduces Tactical (T) and Tactical 2x (T2). Since inception, these strategies gained 8% and 11%, respectively, while the S&P 500 returned 6%. On slide 14, we highlight the extraordinary risk control and non-correlation in Tactical, by showing the gains it delivered on the roughest individual days for the S&P 500.

As always, please let me know if you would like to plan a call or meeting to discuss.

David S. Kreinces
Founder & Portfolio Manager

Click here for a PDF version.

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