Overall, this has been a good year for the TSP funds, as managed by GGT. We operate two portfolios, one that is a 3-ETF/Fund portfolio, which omits AGG/F-Fund, and a 4-ETF/Fund portfolio, which includes everything. The 3-ETF/Fund portfolio is a bit more volatile than the 4-ETF/Fund portfolio, but the gains are a bit higher too, as you would expect. I do not anticipate any changes to strategy enactment in either portfolio going forward in 2010.
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GGT TSP 3-ETF/Fund Portfolio
This portfolio invests in the following ETFs/funds, and the new calculations for allocation for January:
- EFA / I-Fund (9%)
- SPY / C-Fund (24%)
- VXF / S-Fund (67%)
In terms of strategy for January, DO NOT realign your portfolios until we get another signal. TSP only allows two transfers per month, so we need to keep our powder dry. Presently, keep your allocations at 46% for SPY / C-Fund and 30% for VXF / S-Fund, with the balance in cash / G-Fund. If a signal to move funds occurs, we'll re-balance at that time.
Here are the performance stats to date. As with all my images, click on the following images to enlarge:
The flat portions in the equity curve above are where the strategy is 100% in cash. It happens, so be prepared for it. Furthermore, also realize that the goal of this strategy it to keep you out of large drawdowns, so do not second-guess the calls. If you think that you have the "killer" strategy to further reduce drawdowns yet improve gain, then contact me, as I can test your ideas far easier than you.
Refer to the figure above. For the 3-Portfolio fund, we've been successful at just over 50% of the trades. GGT works using moving averages, and since we sell when the MA is less than optimum, we are limiting our down-side risk. Hence, on our trades to date, we typically gain $4032 per winning trade, and lose $1052 each losing trade.
Of particular relevance is that the Mathematical Expectation (ME) of this 3-Portfolio system is 1.274 -- values over 1.0 are considered very good. Please note that the Compounded Rate of Return (CRR) of this system is 17.02%; we'll use that number in a bit.
The figure above shows us that over the same time the buy-and-hold approach to the market, using the VectorVest Composite (VVC), is a loss of (7.87%), whereas this system is returning an Annual Rate of Return (ARR) of 17.49%. Our total gain from August 2008 has been just over 23.42%.
Of specific importance here is the Max DrawDown (MDD) value of 9.05%. This is used, in conjunction with the CRR value of 17.02%, to provide a Reward:Risk ratio known as the Calmar Ratio. Calmar Ratio (CR) is defined by CRR / MDD, so we have CR = 17.02 / 9.05 = 1.88. Ideally, we want values in excess of 2.0, but this is not a bad number, and simply states that we are risking only $0.53 for every dollar that we invest. This is a winning system, and it will pay to stay the course.
GGT TSP 4-ETF/Fund Portfolio
This portfolio invests in the following ETFs/funds, and the new calculations for allocation for January:
- AGG / F-Fund (5%)
- EFA / I-Fund (18%)
- SPY / C-Fund (26%)
- VXF / S-Fund (51%)
In terms of strategy for January, DO NOT realign your portfolios until we get another signal. TSP only allows two transfers per month, so we need to keep our powder dry. Presently, keep your allocations at 42% for SPY / C-Fund and 27% for VXF / S-Fund, with the balance in cash / G-Fund. If a signal to move funds occurs, we'll re-balance at that time. Note that these allocations are different than the 3-ETF/Fund portfolio, so take your time to understand why.
Here are the performance stats to date. As with all my images, click on the following images to enlarge:
Above is the equity curve for the 4-ETF / Fund portfolio. It closely mirrors the 3-ETF / Fund portfolio, but because of the introduction of AGG / F-Fund, this portfolio is a bit more conservative. Nevertheless, the performance is solid.
The graphic above shows that the 4-ETF/Fund portfolio wins about 57% of the trades, providing a 14.73% CRR since inception and a ME of 1.099. Each win in the portfolio typically returns $2103, or about 2.1% of the basis, and each losing trade loses $731, or about -0.7% of the basis. These are solid numbers. Not stellar, but not bad.
The figure above shows that although the gain is a bit lower than than 3-ETF/Fund portfolio, the corresponding MDD is lower at 7.1%. Our reward:risk ratio is determined by Calmar Ratio = CRR/MDD = 14.73% / 7.1% = 2.07, which is higher than the 3-ETF/Fund portfolio, which had a CR of 1.88. The value here of 2.07 tells us that we're risking $0.48 for every dollar gained, which is a nice metric.
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So the challenge becomes subjective: should you invest in the 3-ETF/Fund portfolio, which has a higher CRR (17.5%) but a slightly higher MDD, or should you invest in the 4-ETF/Fund portfolio, which has a lower CRR but an even lower MDD, resulting in a better reward:risk ratio? The answer is individual -- you bank gain, not reward:risk ratios, so if you can live with a higher MDD, then the 3-ETF portfolio is wise. If you're older, fewer years to regain losses, etc., then I would stick with the 4-ETF/Fund portfolio.
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Remember, you are responsible for your own investment decisions, not me.
Regards,
pgd
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