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Is your lowly-correlated diversified portfolio working?

Discussion in 'Exchange Traded Funds (ETF)' started by venger0, 24th Feb, 2008.

  1. venger0

    venger0 Active Member

    30th Jan, 2008
    G'day :)

    Some nice portfolios have been shared by the generous members on this board. They look good, and each example had good reasons behind how and why the portfolio was split up the way it was.
    One common feature was diversification into several funds or ETFs with the concept that each fund/ETF represented a 'different' asset class or subclass.

    I guess my question is: If you had chosen these funds/ETFs for low- or no- correlation, but expected similar returns, how have your portfolio actually faired during the volatility that we've seen in the past 6-8 weeks?

    Did each asset class prove to be as lowly correlated as you expected?
    If you have real-life examples to share, please do :)

    My experience with my 'training' portfolio:
    - Australian shares: STW (drop the most) and Vanguard High Yield Aust Shares
    - LPTs : SLF
    - International : Ishares: IOO, IEM, IJR
    - direct resi property

    The entire pie has certainly grown smaller - but the diversification DID reduce the volatility - which for me was a feature that i wanted.
    The only negative correlation that i was able to get was thru my resi property - but really, i think this might just be a simple lagging effect. Maybe when the credit crunch arrives on our shores, it too may go south(?). Not sure.

    Any thoughts?
    Last edited by a moderator: 24th Feb, 2008
  2. samaka

    samaka Well-Known Member

    30th Sep, 2007
    I assume you're meant to have STW and SLF around the other way?
  3. Glebe

    Glebe Well-Known Member

    15th Aug, 2005
    Sydney, NSW
    I've proposed some porfolios in the past around LIC's or ETF's, but as I've also said, I don't employ them at present. If I had the chance to start my portfolio again, I would (I hope this will happen around June/July this year, I need to start understanding instalment warrants better first). So I can't answer your question venger0. dkmc should be able to though.
  4. dkmc

    dkmc Well-Known Member

    24th Aug, 2005
    Well I hold 2 portfolios since oct 07 that have been buy and hold
    its definitely too short a time frame to make any interpretations

    portfolio 1 is ETFs / LIC
    ARG - done really well - down -11% not including dividends - so probably about 10% down - there is an offer to buy more shares at a discount which I will do
    STW down 14.25% as of today - excluding dividends
    SLF -property - down 27.9% - excluding dividends

    CTN - -35% - this is not an ETF and was a result of my stupid stock picking which I wont do again.

    Overall portfolio 1 down 21%, but if excluded CTN which is not based on index principles then probably down about 16%

    Compared to a portfolio of bank shares and bhp - i believe this has held up well in the current market.

    The ASX200 accumulation index (ie including dividends) over is down 14.2%
    - this is not what I should benchmark against as I hold property and ASX shares and international

    DFA/vanguard portfolio
    Nb my portfolio is aggressive and Id expect big volatility for the return im chasing
    Its down 18%

    Its really hard to benchmark against.
    Im sure if I had have picked stocks there are a lot that are down 25-30% like banks.

    Because US property has been hit, Aust property followed then the banks - so both the property sector and shares have been hit.

    The only thing that stayed up - was
    fixed interest
    I dont hold much of the above

    If you held decent percentage of cash and fixed interest then most portfolios would do a lot better but long term return would be less

    However I do hold a lot of residential property and thats been going gangbusters in adelaide and brisbane
    So in the context of the whole portfolio its going to plan
    Direct residential property with leverage - up 20-25% last year, and adelaide may get another year of double digit growth.

    I have not got margin loans and Im glad I took the advice of my planner and did not get a ML back in october

    Cash in an offset account is 10% guaranteed!!!! and a good investment

    The good thing is that whether down or up, I dont sell
    Youll only see the advantage of my DFA portfolio after 3 yrs +
  5. Mitch_

    Mitch_ New Member

    22nd Nov, 2007
    dkmc - about CTN - l wouldn't get too concerned and stick with your timeframes. They are quality managers in the small cap space.

    Have a look at the performance of some of their top 20 holdings lately (MIN, MGX, NMS, JML, MUN) and you'll see these guys are well positioned for recovery and the stock has been way oversold over the last 2 months. Their NTA is tracking at huge discount relative to others in the LIC sector.

    I know l am a single digit poster, but wanted to let you know l really like your approach to investing.

    From a investor "newby" I have learnt so much over the last 2 months reading the forum and looked at a lot of other info and l have finally started investing my LOC over the last 4 weeks. I have invested approx ~35% of my funds and so far the performance has been very encouraging.

    Keen to get your thoughts but here is my current portfolio allocation :
    STW: 40% (entry price $53.05)
    IZZ : 25% (entry price $155.80)
    CTN : 20% (entry price $1.27)
    ABS : 15% (against my core portfolio but spec played yesterday and got in at $1.30).

    I looking to invest the balance of my LOC over the next 9mths and am looking at ARG, GMI (large resources LIC) and possibly SLF (although still not convinced with property at the moment) & IEM. My investment timeframe is a minimum of 4 years. Do you see any major issues in risk / allocation / diversification in my portfolio above.


  6. dkmc

    dkmc Well-Known Member

    24th Aug, 2005
    Debt to equity ratio with ABS is quite high 92.6%
    ABC learning is currently in a trading halt - possible buyer

    I used to hold ABS but got concerned with their overseas expansion
    Either way I got out of stock picking

    I dont own any ishares
    I note IZZ is the large china fund top 25 red chip shares
    It looks like its highly volatile - -31% in last 3mths til end of jan
    but 17% 1yr return and 32% 3yr return

    Id be concerned that a lot of your portfolio is very volatile -IZZ, CTN, ABS
    SLF Id say is a good time to buy
    helps bring your yield on your portolio up too - important if you use LOC
    ARG id agree with
    I reakon you should devote only about 30% to overseas, and have it mainly in a broad index with the more speculative / volatile stuff limited to 10%
    The other factor is $A currency fluctuations add more volatility
    Australian shares have the advantage of imputation credits too.
    property has the advantage of higher yield.
    International has potential for higher return maybe, -ve correlation maybe
  7. The Stig

    The Stig Well-Known Member

    3rd Dec, 2007
    Central Coast NSW
    I hold something similar to IZZ in the USA. The fund moves more than most stocks I watch. It is amazing how much it moves.

    It makes for great buying opportunities.

    Personally, I think they are on the way back up now. I watch it very closely every day. But if I am wrong, March will let me know. So I'll be buying more ;)
  8. dkmc

    dkmc Well-Known Member

    24th Aug, 2005
    Mitch thanks for the heads up on CTN
    the NTA has been doing relatively well, and is now at a big discount
    to NTA