January 2016
To Investors:
In 2015, global equities (VT) fell by 2%. Domestic (VTI) and foreign developed equities (VEA) were flat, while emerging markets (VWO) lost 16%.
Real estate (VNQ) and medium-term treasuries (IEF) both delivered relative outperformance with each gaining 2% for the year. The biggest decline was in commodities (GSG) which fell by 34%.
Long-term treasuries (TLT) and treasury inflation-protected securities (TIP) both fell by 2%, and the total bond market (BND) gained 1%.
The investable benchmark portfolios fell by 1% to 2%. The trailing 10-year total return range is now 85% to 102%, or 6% to 7% annualized. These efficient portfolios yield over 2.0% annually, with blended expense ratios under 0.2%.
Over the past 29 years, the combination of U.S. equity indexing and trend following delivered impressive performance. The 60/40 SI portfolio, 60% Systematic Index and 40% S&P 500, delivered annualized returns of 9%, 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.
Our ETF Trend Following presentation (pages 4-10) provides data supporting this 60/40 SI portfolio, and our 50/50 portfolio. On page seven, we show that trend following delivered important portfolio protection during extreme market volatility, with extraordinary outperformance in six out of 29 years, or 21% of the time, including three stock market crashes. However, trend following underperformed indexing in 22 out of 29 years, or 76% of the time.
Over the past eight years, our 50/50 Portfolio gained 29%, while the eMAC rose by 47%, as central bank stimulus helped indexing more than trend following. The Tactical (T) and Tactical 2x (T2) portfolios have 18 months of performance, and they fell by 4% and 10%, respectively, while the eMAC was flat.
While indexing has outperformed trend following in recent years, the current broad market weakness strongly favors the additional protection and risk control inherent in trend following.
As always, please let me know if you would like to plan a call or meeting to discuss.
Happy New Year!
David S. Kreinces
Founder & Portfolio Manager
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