Asset Allocation Backtesting Software

There are a lot of asset allocation software choices for the professional – Morningstar’s Encorr, MSCI Barra – but not many for the individual. Very few are web based, and most are very expensive.

What are some good sites out there besides AssetPlay?

(I’ll update this post with $$ and links as I get to it.)

Zephyr AllocationAdvisor ($5,000)  Mean-variance optimization (MVO), Black-Litterman, etc.

Pertrac Analytics ($5,500 – $8,300 /year)

Gravity Investments

SmartFolio ($600 – $6,000) Multi-period MVO, Black-Litterman, etc.

Morningstar’s Encorr ($10,000 / year)

MSCI Barra

Windham Portfolio Advisor ($12,000/year), Financial Planner ($6,000/year), Planner Express ($1,800/year)

Efficient Solutions ($70-$170 one time)  Single and multi-period MVO, Monte Carlo.

DynaPorte ($20,000 /year)  Macro factor based tactical asset allocation.

FastTrack ($400-$700/year)  Poor man’s version of FastBreak.

FastBreak ($500, Pro $1,800)  Mutual fund and stock trading system to test and trade strategies using fund rotation.  Pro version features genetic algos.

Quantext ($100 – $180/year) Portfolio simulation.

Anyone speak Italian?

Not sure if this article is a pan or praise:

Vuoi un guru? Te lo copiamo noi

Lazy Portfolios, or, The Revenge of 60/40

There has been some discussion around the blogosphere regarding returns from strategic asset allocation strategies.  Here is a post on the Yale endowment & Swensen’s allocation mix,

With the news that PIMCO is launching a real assets ETF, it now becomes possible to have a truly diversified portfolio with only 3 ETFs.  1 world equity, 1 bond, and 1 real assets.  Doesn’t get much simpler than that.

Anyways, I thought I would update an old post on the performance of some lazy portfolios.  You can do your own tests over on Asset Play with more granular asset classes, but I am presenting these below mainly to just be instructive. (Who runs this site btw?)

Completely unrelated but nice interview with Paul Samuleson.  Part 1 and Part 2.


US Stocks (S&P500)

Bonds (10 Year US Govt)

Foreign Stocks (MSCI EAFE)


Commodities (GSCI)


60% US Stocks

40% Bonds

Andrew Tobias Three Fund Lazy Portfolio (Also similar to Bill Shultheis & Scott Burns’s 3 Fund portfolios)
33% US Stocks
33% Foreign Stocks
33% US Bonds

Swensen model, from his book Unconventional Success
30% US Stocks
20% REITs
20% Foreign Stocks (He recommends emerging, but for simplicity we just used foreign developed)
30% Bonds (He recommends short term US and TIPS, but since TIPS only existed post 1997 we lumped them in with bonds)

El-Erian model, from his book When Markets Collide

(This is simplified from his longer allocation. )

15% Commodities

20% US Stocks
15% REITs
30% Foreign Stocks
20% Bonds

Ivy Portfolio (from our book – note this is the B&H allocation not the tactical)

20% US Stocks
20% Foreign Stocks
20% Bonds
20% Commodities
20% REITs

Some nice rules of thumb:

Most asset classes have a Sharpe of around .20 (over time).

A diversified portfolio gets you to around .3 to .4.

Active risk management can improve that to around .7 to .8.

Data from Global Financial Data.


and a few more asset classes:


People Suck at Investing Part II, the ETF Version

Least surprising data of the day.  Although this has nothing to do with the vehicle (ETFs, the same thing happends with mutual funds), and everything to do with investor behavior.


Great suggestion for what to buy Dad for Father’s Day!


Moving Averages:  Holy Grail or Fairy Tale, Part 1


Some new blogs added to the blogroll, including today’s addition:  Investment Linebacker


10 Rules for Investing


I haven’t seen a mean variance optimization with human capital.  Yet.


Speaking of mean variance, this author argues terminal wealth is more useful.  Link to the paper here: “A Geometric Mean Maximization: An Overlooked Portfolio Approach?


Birds hate me.  This bird is apparently dive bombing every passerby in San Fran’s financial district.  Video here from CNN.

Photo from Reuters:



And, one more Tuesday diversion, “Her Morning Elegance” :

Fund Manager Profiles

I was making a list of books that profile fund managers – are there any that I am missing?

Books below are reader links:

  • Money Masters, The New Money Masters, and Money Masters of Our Time – Train
  • The Global Investor Book of Investing Rules – Jenks
  • Julian Robertson – Strachman
  • Hedgehogging – Barton Biggs
  • When Supertraders Meet Kryptonite -Art Collins
  • New Market Mavericks-Cutmore
  • Investing With Young Guns-Morton
  • The Best:Conversations With Top Traders-Marder
  • Investment All Stars-Stern
  • Confessions of a Street Addict-Cramer
  • Education of a Speculator-Niederhoffer
  • The Mind of Wall Street-Levy
  • John Neff on Investing-Neff
  • The Lion of Wall Street-Dreyfus
  • Trading the Worlds Markets-Gough
  • Value Investing with the Masters-Kazanjian
  • Wizards of Wall Street-Kazanjian
  • The Bond King-Middleton
  • Pit Bull – Martin Schwartz
  • John Neff on Investing – Neff and Mintz
  • Running Money by Andy Kessler
  • Barnard Baruch – The Adventures of a Wall St Legend
  • Charlie D – The Story of the Legendary Bond Trader – William Falloon
  • Education of a Speculator – Vic Niederhoffer
  • What I Learned Losing a Million Dollars – Jim Paul & Brendan Moynihan

Active Fixed Income Investing

People Suck at Investing

Over the past 20 years investors in stock mutual funds have underperformed the S&P500 by 6.5% a year.  (8.35% vs. 1.37%.)  That return doesn’t even keep up with inflation.

They did even worse in bonds, underperforming the Barclay’s Aggregate by 6.7% a year.  (7.43% vs. 0.77%.)

From the annual Dalbar study:

“The dramatic events that continue to plague our financial markets have provoked panic, which exacerbates the ongoing carnage,” said Lou Harvey, president of DALBAR. “For 15 years, QAIB has shown that investor returns lag what performance reports and prospectuses would lead one to believe is achievable. While those returns are, in fact, theoretically achievable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments,” he said.

Among the studies findings:

  • For the 20 years ended December 31, 2008, equity, fixed income and asset allocation fund investors had average annual returns of 1.87%, 0.77% and 1.67%, respectively. The inflation rate averaged 2.89% over that same time period.
  • Equity fund investors lost 41.6% last year, compared with 37.7% for the S&P 500 Index.
  • Bond fund investors lost 11.7% last year, versus a gain of 5.2% for the Barclays Aggregate Bond Index. This disparity is largely due to the underperformance of managed bond funds caused by mortgage-backed securities.
  • With an annual loss of 30% last year, asset allocation fund investors fared better than equity fund investors.

Curve Steepeners & Flatteners

I actually have a Peter Bernstein book on my nightstand (The Power of Gold).  RIP to one of the best financial writers ever.


One of my favorite blogs (if not #1) gets a redesign.  Congrats Abnormal Returns!


There is a lot of talk lately about trading the yield curve, steepeners, flatteners etc (and here and here).  Forest from the trees, I would much rather be on the flattening side than the opposite.  It seems like a simple mean reverting series. 

I wrote about how much risk was mispriced back in June 07, and now it seems to have reversed to the opposite (obviously more in Jan but still high).  Some historical yield curve charts below – all relative to T-Bill (and yes I know there are a gazillion variations of yield curves).

Data from Global Financial Data.

Note: I am having WordPress issues so apologies for the charts.

Larger BAA here.

Larger AAA here.

Larger 10yr here
















Mean Reversion

Below I update the post from May on mean reversion.

I’m not really sure what sort of benchmark to compare this system to, other than buy and hold of the asset class over the period, or maybe all monthly observations which is around .7% across the board.  This system may prove to be a nice complement to the GTAA timing model. The stats show the date the system triggered, then the resulting “wait a month then invest for two months performance”.

S&P500 triggered on, performance:

6/30/08: -7.6%

9/30/08: -6.2%

10/30/08: -7.6%

1/30/09: 19.17%

2/30/09: 15.69%

Average return is -0.41%

10 Yr Bonds triggered on, performance:

1/31/09: -0.59%

MSCI EAFE triggered on, performance:

1/31/08:  4.5%

6/30/08:  -17.87%

9/30/08: 0.34%

10/30/08:  -4.37%

1/30/09: 20.18%

2/30/09: 36.65%

Average return is 3.24%.

NAREIT triggered on, performance:

6/30/08:  1.67%

10/30/08:  -3.24%

11/30/08:  -32.77%

1/30/09: 33.61%

2/30/09: 30.71%

Average return is 6%

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