Multi-Asset Real Money Benchmark Backtest

Jun 04, 2013 in ETF Multi-Asset 100

The ETF 100 is a measure of real money performance.   Rather than pick a single index --- like the S&P 500 ---  we use a mix of assets that is weighted in proportion to how investors actually hold their assets.    We do this because this is reality --- how is the overall multi-asset-allocated world doing on a high-level basis?    This portfolio owns a lot of S&P 500, it is the biggest holding by far --- but it is not the majority.

We make as few assumptions as possible and we sought to benchmark a meaningful chunk of assets.   We think over $1 trillion is a meaningful starting point to represent a multi-asset portfolio benchmark.

Below is the path for 2013 beginning with the actual starting asset levels for the top 100 ETFs.



This benchmark allocation has made $48 billion for investors this year (total return includes dividends). It was down a bit in May and this highlights the divergence that has occurred between many different kinds of assets vs the S&P 500.    Indeed, while this portfolio has made +~24 billion on SPY/IVV,  it has lost -$14.5 billion in GLD/IAU.     That said, Gold had gone up 12 years in a row and was frankly long overdue --- investors who don't know the longer history of gold have paid the price in 2013  (see Gold Blog From December.)

As a sanity check, we also check in on the multi-asset HFRX hedge fund index.    These have drawn even in 2013.   Hedge funds have seen very poor performance for multiple years now but in relation to this broad portfolio,  the underperformance is put into better context.   Multi-asset portfolios don't go up and down with the S&P 500.




Lastly, think about the past 10+ years from a higher level.   Money managers who exposed their clients to international markets greatly outperformed US equities.    US-only managers went through a tough time but now have major wind at their back.    The decision of which proportions to own international vs US equities is a very important decision.    If you have been exposed to US this year --- as relative strength has guided  --- you are doing a lot better than the broad benchmarks above.   

The chart below uses our Free Portfolio Combination Tool to show the changing out/underperformance of US stocks vs rest of world.

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Comments (2) -

Jun 05, 2013 23:27 #

Nice post this is, really. You mentioned about gold being up for 12 years continuous and then some downfall in 2013. Do you believe gold would go down further of we'll see it continuous upwards graph.

Fundlogik United States

Jun 06, 2013 08:06 #

We were involved with gold since the inception of ETFreplay but it clearly changed in terms of its leadership in comparison to other segments of the investment world so we have not been with it since summer of 2011.   I use backtests to research strategies on a continual basis --  if/when Gold regains a leadership role, I will get back involved.  

Things change though and you saw in that December post that Gold can (and has) underperform(ed) over some very long periods of time (decades).    There is no cash flow in gold so you earn no yield while you wait.    

There are just so many other options that people obsessing with gold is classic sign of an underperformer.   But I remain open to the option should it regain leadership.

Chris CFA United States

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