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Asset Distribution Modelling

A helpful place to also put any annual reports etc, of your own portfolios
forrado
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Asset Distribution Modelling

#97971

Postby forrado » November 22nd, 2017, 10:40 pm

Once upon a time over at The Motley Fool I posted a couple of updates on the Portfolio Management & Review board under the title of “This Foolish Money Digger's Journey”, the last posting being on 27th September last year on the 5-year anniversary of my SIPP portfolio. And, thanks to Breelander’s post of 10th August pointing me in the direction of Web Archive.org, I was able to locate and convert the post to a PDF that can be viewed (as a point reference) at …

https://1drv.ms/f/s!ApxMvaOnHy3Fg3wAy_KTgJwN9Pda

Click on the "Open" tab (top left-hand corner) to open PDF in browser

More than a year as now past by since I made that post, so maybe time for an update. However, that’s not really what I want to go on about as the title heading of this post should indicate. Nevertheless, I feel I can’t let the matter of an update pass. Therefore, rather than post an update direct to this board I’ve put together a little presentation for anyone interested enough to want to access it at …

https://1drv.ms/f/s!ApxMvaOnHy3Fg3u4GKJ2bsy1yz28

Basically, the headline numbers are:
Since last update on 27th September last year … UP +17.2%
Since commencement on 1st October 2011 … UP in total +126.6% after 6.15 years

Rather what I’ve been giving thought to during recent days, following an exchange of PMs with a fellow Melon Fool, is how I am doing this and what part (if any) has asset distribution modelling played in my success to date - or have I just been lucky.

As stated in my TMF post of a year ago, I’ve adopted an asset distribution model along the lines pioneered by the California Public Employee’s Retirement Scheme (CalPERs). The methodology centres on the use of ‘Interim Strategic Targets’ – referred to as ISTs ...
Interim … meaning the intervening time.
Strategic … meaning the identification of long-term or overall aims and interests and the means of achieving them.
Targets … meaning the aim of attack.

As value-driven investors, CalPERs reasoning was that value appears then it disappears only to appear somewhere else, and so on, and so on. In fact, investing for value is a never ending search for opportunities. And, therefore it follows, that the composition of assets being held must also change over time in order to meet the retirement expectations of California’s public employees. Interim strategic targeting being at the centre of CalPERs chosen way of facilitating such changes in portfolio composition.

So, how do I make interim strategic targeting work for me?
Well, if you care take a look at the uploaded image at …

https://1drv.ms/f/s!ApxMvaOnHy3Fg32J_6fqCNV6CK3-

Column 1: Contains text information of holdings and regional area distributions
Column 2: Contains portfolio % weightings of “Current Capital Distributions” of holdings and regional areas
Column 3: Contains portfolio % weightings of “Current Income Distributions” of holdings and regional areas
Column 4: Contains “Model IST Allocation” of holdings and regional areas
Column 5: Contains “Under Over” % amounts that Column 4 “Model IST Allocation” differs from Column 2: “Current Capital Distributions” of holdings and regional areas
Column 6: Contains “Under / Over in Sterling Terms” being the amount that Column 4 “Model IST Allocation” differs from Column 2: “Current Capital Distributions” of holdings and regional areas
Column 7: Should be self-explanatory

Other than having to manually adjust the “Model IST Allocation” of Column 4 when required, the data generated in the other columns is linked into data generated by a ‘master’ spreadsheet containing more detailed information of the holdings located on another sheet of the workbook.
The spreadsheet display can be configured to accept other asset classes and regional localities if required.

The more I use this approach, the more I think what CalPERs have come up with is a form of tool for macro management. For as the macro manager, I’m the one who decides …
… where the money goes or does not go?
… what the money buys or does not buy?
… what part of the world I want that to be or do not want that to be?
… who am I going to pick to do the micro stock picking jobs and who I’m going to steer clear of?

It can’t all be luck I must be doing something right. I’m just thinking out loud as what it could be.

Discuss.

torata
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Re: Asset Distribution Modelling

#98013

Postby torata » November 23rd, 2017, 3:25 am

Just to check I've understood, this is a rebalancing approach based on %s you've decided yourself, so similar to the 'lazy portfolio' approach by Tim Hale and others (as outlined on Monevator), although they are passives focused.

torata

forrado
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Re: Asset Distribution Modelling

#98157

Postby forrado » November 23rd, 2017, 1:18 pm

Not to my way of doing things. Where I differ with the Hale's approach you refer to is that I’m more proactive when it comes to sifting positions if I can make the case to myself for doing so. In terms of this portfolio, passive I am not. Also, there is no such thing as ‘key asset classes’ to me. As the ‘macro manager’, I take the responsibility for deciding what asset classes the portfolio should be invested in. Just because others want to include key asset classes in the mix, irrespective of whether such asset classes are perceived to be value or not, solely for reasons of being key doesn’t sit comfortably with me. As far as I’m concerned there is only one key asset class – and that’s money.

torata
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Re: Asset Distribution Modelling

#98680

Postby torata » November 25th, 2017, 3:14 am

OK got it.
If you could keep us updated occasionally on the performance.

torata

Itsallaguess
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Re: Asset Distribution Modelling

#98682

Postby Itsallaguess » November 25th, 2017, 6:10 am

forrado wrote:
Discuss


Well firstly forrado, I'd like to say that this is one of the best and most informative posts I've yet seen on this website.

Your approach, and the meticulous records of portfolio progress whilst using it, are to be commended.

I will be digesting it's content for quite a while, as I imagine others will be too, but I just wanted to say a huge thanks for explaining your approach so well, and presenting the data from it so diligently and cleanly.

Bravo....

Cheers,

Itsallaguess

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Re: Asset Distribution Modelling

#98689

Postby Wmnr » November 25th, 2017, 8:18 am

Nice post forrado

More info on how you determine the model IST allocations would be great (or point me in the direction to where you have already written about this)

I notice that there is no allocation for America. Why is this? Have you ever held any American assets or it it a temporary situation?

Also noticed that you are currently underweight in European Assets (EAT) even though it is up over 30% this year. What's the story behind this?

Looking forward to your answers

forrado
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Re: Asset Distribution Modelling

#98860

Postby forrado » November 25th, 2017, 9:47 pm

Wnmr wrote:I notice that there is no allocation for America. Why is this? Have you ever held any American assets or it it a temporary situation?

Well spotted and a good question, which I will now do my best to answer.

First, I want to go back to the start of 2012. With the then cash available in my portfolio I made the call to near ‘bet-the-farm’ on two ITs that I viewed as representing very good value at the time. To view the pair of buy contract notes go to …

https://1drv.ms/f/s!ApxMvaOnHy3Fg34d3hD22RmiArv8

One will see that in total I laid out £110K to buy the UK commercial property trust FCPT and UK infrastructure fund JLIF. So, having only £150K in portfolio cash to kick-off with meant I was going to be very thinly spread elsewhere. Hence the decision to give the US a miss. In time my two bets on FCPT and JLIF paid off handsomely both in terms of capital and income returns. With both trusts on scary premiums I duly made my profitable exit. Unfortunately, as far as I was concerned, by that time whatever value there once was in the US had been driven out by the Federal Reserve’s QE onslaught. Since then I’ve not seen enough value in the US to interest me. All the value for me has been in Europe (ex-UK) and the Far East Asia Pacific playing catch-up with the US.

However, the portfolio has not been completely unexposed to the US during this time. The holding of the globalist income IT STS was bought for that very reason of being heavily biased to the US. The previous 60 / 40 split in favour of the US having since been cut back to 52 / 48. The other two globalist ITs in the portfolio, MYI and BTEM, also provide US exposure but not to the same extent as STS does.

Wnmr wrote:Also noticed that you are currently underweight in European Assets (EAT) even though it is up over 30% this year. What's the story behind this?

Once a time before the BREXIT vote I had my ‘Interim Strategic Target’ (IST) set at 15% for Europe (ex-UK) and 5% for EAT. Now watching as events develop, I'm increasingly turning gloomy on prospects for the UK. So, I’ve upped that previous 15% for Europe (ex-UK) to 20% (at the expense of the UK) and the previous 5% for EAT to 6%. Having recently increased the portfolio’s two Asia Pacific holdings to the IST of 15% (again at the expense of the UK) I’m currently in the process of doing likewise for the three Europe (ex-UK) holdings, using portfolio income receipts to increase the present 18% exposure up to the IST of 20%, which will include the EAT holding being increased from 5.3% to 6%. With no other monies coming in I’ve just got to wait patiently for the income receipts to build up in order to do this. EAT being at the top of my shopping list to be added to before the end of the year in order to capture the first of EAT’s 2018 payouts before the ex-dividend date, which falls usually on the first trading Monday of the New Year for payment on the last trading day of January.

Wnmr wrote:More info on how you determine the model IST allocations would be great (or point me in the direction to where you have already written about this)

Basically, all the information is contained (or should I say buried) within the CalPERs website. To give you the point that I started from go to

https://www.calpers.ca.gov/page/investments/asset-classes/asset-allocation-performance

(And, the best of British because there’s a lot of information to sift through)

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Re: Asset Distribution Modelling

#106633

Postby TheSlowHare » December 29th, 2017, 3:16 pm

Hi forrado

I have tried to follow the links you posted; they took me OneDrive. After having signed up and created an account then...well, cannot see any files at all.

Apologies - it is probably me but could you help explain how I might view the info you have posted links to?

(Cannot even see the "Open" tab (top left-hand corner))

Thanks a lot.


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