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A replicating portfolio. Devo's April exercise

WABACWABAC
edited April 2 in Fund Discussions
I have previously commented that Lipper treats DIVO as an equity income fund, while M* treats it as an options fund. I discovered DIVO running screens on MFO Premium, and subsequently added it to my taxable, and then to my IRA.

I think I have correctly replicated Devo's method described here.

And here is the result for DIVO since inception.

Well. That looks OK to me. And I don't have to fiddle with rebalancing, unless I want to.

I look forward to more fun with this exercise over other time periods, and with other investments. One of these days . . .

Thank you Devo

Comments

  • Devo
    Kudos @WABAC
  • WABACWABAC
    I really should be doing something else right now, but this is for all you fans of PVCMX.
  • Devo
    I like that a lot. Something new to learn.
  • WABACWABAC
    Versus VDIGX.
  • Devo
    Maybe I am visualizing but i can see the confidence coming through. Positions are much better held when conviction goes up. Plus the ability to grow positions when opportunity arises.
  • WABACWABAC
    I'm not sure I understand what you're visualizing, but most people probably shouldn't be fiddling with their positions all the time.

    I enjoy the process of replicating a portfolio--as you described it-- because at this stage in my life I have become interested in funds with average, or better, returns, and betas below 1. I am also a fan of Sortino, Treynor, and Martin.

    I wouldn't say it's different this time. But things are different than they were a few years ago. And without looking, I'm not sure the market, as defined by the 500, has been all that kind in the 21st century. So anything approaching, or exceeding, "market" performance with less beta is of interest to me for my IRA at least.

    What I'm wondering about is how far this exercise can be pushed. So far I have only exercised a few funds, sectors, and portfolios; e.g. IYK looks much better than FSUTX. And here is LCORX.
  • Devo
    @wabac I think the exercise can be pushed a lot farther. There is no points for perfection. If the fund doesnt prove itself useful through a simple lens and with enough history, then there better be good reasons.
  • BaluBalu
    why is that i am not able to open your PV links?
  • WABACWABAC
    BaluBalu said:

    why is that i am not able to open your PV links?

    It's nothing personal. :).

    I really have no idea. I don't have an account there. I'm using the free access features. That hasn't been a problem in the past. Maybe there is new fine print?
  • WABACWABAC
    Devo said:

    @wabac I think the exercise can be pushed a lot farther. There is no points for perfection. If the fund doesnt prove itself useful through a simple lens and with enough history, then there better be good reasons.

    @Devo, I wouldn't begin to know how to evaluate bond funds, or foreign funds. I see that beta scores are assigned to such, but I don't know what they are based on, or how they could be replicated as simply as you showed with the option funds. Seems like a matter of education. But I don't know what I don't know.

  • Devo
    Was thinking us equity funds and options funds.

    For foreign it might work but needs some r&d. Will revert.
  • yogibearbullyogibearbull
    edited April 3
    MPT stats Alpha and Sharpe Ratio (in the PV runs, Metrics tab) also capture the essence of the comparative evaluation of funds with their beta-bogeys (beta% in appropriate benchmark).

    Alpha > 0 means that fund outperforms its beta-bogey, alpha = 0 means that fund just keeps up with the beta-bogy, and alpha < 0 means that fund underperforms the beta-bogey.

    Indirectly, these will also have, correspondingly, Sharpe Ratios of high, OK, low.

    Beta-bogeys would be different for US stocks (SPY), US bonds (AGG?) and foreign stocks (VXUS?).

    Unfortunately, PV doesn't provide options for bogeys. Its default bogey is SP500/SPY.

    Morningstar has a few built-in bogeys, but those aren't selectable by users. Check M* Risk tab.

    So, some limitations aren't conceptual, but those of the analytics software used.


  • Devo
    thank you @yogibearbull. I've also asked the PV support if they can throw some light on the Foreign stocks Beta measure. Your info is probably researched already but will come back with updates.
  • yogibearbullyogibearbull
    edited April 3
    FYI, separate PV runs for core-plus FBND & foreign VXUS show US stock market benchmark for MPT data.

    Same when multiple funds or portfolios are run.

    MFO Premium Watchlist (extended results) show fund beta with respect to SP500 AND Best-Fit-Benchmark (BF-BM), but BF-BM are NOT identified. MFO Premium doesn't provide this info for funds or portfolio.
  • Devo
    Good outcome. in PV, we can choose Benchmark. TBH, I dont know if they just created this or if I had missed earlier.

    "The benchmark is noted in the footer section of the performance metrics table. Typically this is the benchmark you have explicitly selected in the analysis parameters, but if you have not selected any benchmark the default benchmark selection will match US stock market.

    Thanks,
    PV Support Team"

    This should allow us to choose passive Vanguard funds as "benchmarks" for running beta etc for Foreign funds/bond funds/etc.

    @yogibearbull @wabac
  • yogibearbullyogibearbull
    Great!

    I had set SP500 as the benchmark ticker, so all my PV runs defaulted to it. This may not even be a new feature.
  • WABACWABAC
    From the metrics tab I would also look at the Treynor and Kalmar numbers. Along with Sortino, they can help make a little more standard deviation a little more palatable, to me at least.

    Now I'm wondering how hard it would be to add these calculations to MFO P.
  • yogibearbullyogibearbull
    edited April 7
    MFO Premium Watchlist has the following for funds:
    Alpha
    Beta
    MaxDD
    R, R^2
    SD, SDdownside
    Sharpe, Sortino, Martin, Reamer, Ferguson
    U/D CR
    etc

    The main issues are that (i) timeframe isn't customizable (although there are several built-in timeframes), (ii) charting isn't available for portfolio values (but only for individual funds in a list), (iii) mention BM-BF* for beta.
    May be @Charles can review this thread and the MFO April 2024 issue.

    *Edit/Add. These are found by right-scrolling to "Benchmarks" and included are BM- BI (Broad Index), PI (Peer Index), LG (Lipper Global), BF (Best Fit), ETF.
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