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Investors keen to keep an eye on their own investment portfolio can still rely on the basic wisdom of a 60/40 weighting to equities and bonds despite the recent souring of sentiment towards it, industry participants say. BlackRock warned at the end of April that, despite the recent rebound for this classic investment approach, investors should now buy a wider range of assets, but its biggest rival provider of exchange traded funds insists the traditional portfolio still has good long-term prospects.
“Research from Vanguard dating back to 1977 shows last year was a historical anomaly for the 60/40 portfolio in that it was the only year in which both equities and bonds sank in value — delivering double-digit losses.In every other year, either both were in positive territory or gains in one offset losses in another. Roger Aliaga-Diaz, Vanguard’s chief economist for the Americas and head of portfolio construction, maintains that knee-jerk responses to market upsets are unwise. He points out that over the 10 years to the end of December a classic 60/40 portfolio would have delivered an annualised return of 6 per cent. Over the past four years that figure would still have been 5.9 per cent and the Vanguard Capital Markets Model projection for the next 10 years as of the end of December was for returns of 6.1 per cent.”Above excerpted from The Financial Times - June 17, 2023
https://www-ft-com.ezp.lib.cam.ac.uk/content/8b6221f8-daa4-4cd9-8c76-58c8e0f7fff0(May require subscription to access)
I checked the recent performance of three funds sometimes viewed as “safer” alternatives to a traditional 60/40 mix. (I’ve owned each of these in the past.) Returns going back to 3 years aren’t encouraging:
TMSRX 3-year annualized +1.22% / YTD +1.49%
BAMBX 3-year annualized +0.42% / YTD
-0.31%
CCOR 3-year annualized +0.91% / YTD
-10.51%
(Numbers from M*)
Three years could be viewed as
”short-term”, but we live in a world where many view it as
”longer-term” - for better or worse. Did not check for 60/40 balanced funds. Would not expect near-term results to be much better. Balanced funds pretty much got “clocked” in 2022. More questions than answers here for conservative investors designing a portfolio with both growth potential and a risk profile they can cope with.
Comments
Side note: Although a totally funky 1 year for a broad U.S. bond fund, a current real return for a total U.S. equity index and and total U.S. bond fund, each with about 3,000 + holdings; and these two within a 529 account at a 50/50 have a combined total 1 year return of 11.1%. So, not getting the big equity bump from the averaging down of the bond fund, which has a 1 year return of +.36%; but bonds have tempered equity draw downs since 2006. I expect the bond portion to perform better going forward. For 15 years, this 50/50 has provided a decent tax sheltered return.
*Nice article in Barron's by Lewis B..I'm invested in PVCMX and have recently invested in MRFOX...also noted that MAFIX, managed funds are in the article...BLNDX similar to MAFIX who knows maybe there is some magic in blending futures with Stocks?
*Would be interesting to see number of funds who beat a 50/50 stock/bond index combo the past two years? I'm going to check if TSUMX has (I am invested in it)
* I loaded Tbil onto the chart that Catch 22 noted...lot smoother ride without the ups/downs, no returns...makes you wonder if these experts can't figure it out did the others in LB's article just get lucky or skill involved?
* Such a dichotomy going on right now...Biden spouting how economy is great, but tax receipts way down even though he increased corp tax, seat of the pants view, folks traveling bigly, airports full, restaurants are full, some companies still hiring, some letting folks go, maybe rolling recession, car dealers still charging list plus for new cars...strange, no? Makes you think the markets could go up another 20% and just as easy go down 20% plus...
YTD 10.49, 1 YR 16.16, 3 YR 10.32, 5 YR 10.56, 10 YR 10.79
Returns for VBINX, a traditional 60/40 index fund are:
YTD 9.81, 1 YR 12.70, 3 YR 6.12, 5 YR 6.84, 10 YR 7.77
Compared to SP 500 fund, VFINX:
YTD 15.71, 1 YR 22.17, 3 YR 13.80, 5 YR 11.45, 10 YR 12.46
SD for PRWCX is 13.01 vs VBINX 12.58 vs VFINX 17.91
With PRWCX you get just a bit south of 90% of the SP 500 return for 10 years with less volatility. For 5 years you get 92% of the SP 500 return. The people who constantly claim 60/40 is dead and useless don't invest in a moderate way and frankly don't know what they are talking about.
Of course, once TCAF has some record, its proper comparison would be with VFIAX /VOO, SCHB, SCHD, etc.
My Roth IRA is mostly with T Rowe Price but I’ve gradually been moving from TRP to Fidelity funds. I’m ticked at TRP for not letting me invest in PRWCX even though I’ve invested with them for 30+ years. Their other choices for balanced and allocation funds at TRP are mediocre at best. PRWCX’s returns are meaningless for other investors who can’t own it, and it’s returns are not matched by other TRP funds.
Very, very few funds can continue to outperform over long stretches of time, especially when they grow in size. Giroux has been great. Will that really continue?
Answer: YES.
Why: Because I don't own any.
Someone on Big Bang! recently started a thread titled "How can we match or beat PRWCX?".
Link
PRWCX is open to investors who have more than $250K invested with T. Rowe Price.
https://www.troweprice.com/personal-investing/about/client-benefits/index.html
Giroux is hot and T Rowe Price has put gates around him by keeping PRWCX closed to most investors. As you know, anything gated is prized now - you put gates and crowd will come looking in.
In the BB thread on how to beat PRWCX, I suggested the new ETF TCAF for equity and multisector bond funds (PONAX / PIMIX, FADMX, etc), and then wait of the record to develop (as there isn't any history to show), but posters there like to post histories from PV runs, etc.
At other forums, in the heydays of VWINX, there were many posts on how to model or beat VWINX (my model was VYM + VCIT), but nobody does that now. There is a thread at M*, "Why Hold VWINX" now.
Looks like Berkshire has managed to beat it. I’m getting average annual returns for 10 years as follow: +11.53% for BRK.A / +11.43% for BRK.B / +10.79% for PRWCX. Double-check my numbers before buying. They’re from different sources and could be based on somewhat different time spans or criteria. Each has a unique set of risks of course. With the former you could move in and out pretty much at will (tax deferred accounts anyway), possibly skimming profits on the high end. With the latter you get much broader diversification but are limited to an extent by TRP’s prohibitions against frequent trading as well as any restrictions / fees your brokerage may impose in that regard.
VOO beats BRK.A over ten years with less volatility. Thus a better Sharpe ratio (higher returns divided by lower volatility).
PRWCX beats both of them on risk adjusted return (as measured by Sharpe ratio or Sotrino ratio).
Comparison at Portfolio Visualizer
Link
Both stocks and high-quality bonds experienced double-digit losses in 2022 which is very rare.
Some historians claim 2022 was the worst-ever year for U.S. bonds.
Link
Bond yields have increased significantly since the start of last year
and the Fed funds rate appears to be nearing its peak during this cycle.
In the coming years, high-quality bonds will provide "ballast" for equities
and generate greater returns than in the recent past.
Normal for exchanges involving different fund families would be a 2-day trade, sell TRPBX on day1, buy FADMX on day2.
Without margin, entering the sell order for TRPBX first may help. The experience would vary depending on whether the broker wants cash in hand vs accepts settlement dates for buy orders.
I like to look things up.
PRWCX is a unique go-anywhere fund. It's not your typical 60/40. PRWCX excels in risk-adjusted performance and can be measured by the Sharpe ratio. Most investors don't have the patience to hold funds for many years. Another good idea is to use only 3-5 funds. The more you diversify, the chances are your portfolio will not beat the indexes and why Buffett said "Diversification is a protection against ignorance". Other than that, Buffett recommended the SP500, not even 5 funds.
BTW, PRWCX beat 60/40 (SPY/PIMIX) since volatility peaked up in 2018. It had better performance, Sharpe, Sortino + close SD. see results (link).
"If you are not a professional investor; if your goal is not to manage in such a way that you get a significantly better return than the world, then I believe in extreme diversification.
I believe that 98 or 99 percent —maybe more than 99 percent—of people who invest should extensively diversify and not trade.
That leads them to an index fund with very low costs.
All they’re going to do is own a part of America.
They’ve made a decision that owning a part of America is worthwhile.
I don’t quarrel with that at all. That is the way they should approach it."
Agree with @Observant1 that Buffet has spoken in favor of index investing. I like Buffet and the philosophy at BRK a lot. But personally, going all in on any index doesn’t agree with me. It’s interesting that BRK doesn’t adhere to any index I know of. They like insurance a lot as a conservative income generating business. I get the idea that it serves as a “safety-net”, providing protection against their more aggressive forays (like AAPL).
Great discussion. Actually, what caught my attention in the FT article (linked) was a reference to Blackrock’s having spoken out somewhat despairingly about the 60/40 allocation in today’s market. They didn’t say not to use it … more like lighten up and seek out alternatives. Well, I checked their alternative fund, BAMBX, and it hasn’t exactly lit the house on fire.
Though here, PRWCX has had better risk adjusted return figures for all 10 decade-long periods (the duration used in the original article) from June 2004- May 2014 through June 2013 - May 2023 (the last decade-long span covered by Portfolio Visualizer).
The relative superiority of PRWCX based on risk adjusted returns has been rock steady for ages.
(Note: I used VFIAX instead of VOO to extend the comparisons all the way back to 2004.)
BTW, I held several funds in the past that beat the SP500. During 2000-2010, the SP500 lost money, I owned each of the following about 8-9 years SGIIX/SGENX,FAIRX,OAKBX, see (https://schrts.co/Cwpbphqk). I also owned PIMIX which beat the SP500 for several years too, see (https://schrts.co/eFdkpeJf)
Would you say it's harder now and going forward as the market dynamics have changed. Meaning markets are driven more by flow, folks putting money in every month via 401k, company share buy backs, small investors using options more, central bank intervention, less capital intensive companies out there, meaning software based etc....
Best regards
Baseball fan
Basically, I tell investors to stay within their skills. If trading worked for you which means, you look at your portfolio risk-adjusted performance over 3-5-10 years and it's better than the indexes, keep doing it. Otherwise, stop. Most should just use only 3-5 funds with a mix of indexes and managed funds and hardly do anything.