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Testing a SPY-EEMV-VT-TLT-PBBBX Allocation Strategy

Steve LeCompte | | Posted in: Strategic Allocation

Guide Asset Allocation and Portfolios Rebalancing and diversification

Key Insight

The annually rebalanced SPY-EEMV-VT-TLT-PBBBX allocation (25/10/15/25/25) was not preferable to 50-50 SACEVS Best Value/SACEMS EW Top 2 on a gross basis, with both showing reasonably attractive Sharpe ratios (Dec 2011–Jun 2021; no frictions; short sample).

In reaction to "Testing the EFA-SPY-TLT-PBBBX EW Strategy", a subscriber asked about the performance of a strategy that each year rebalances to 25% SPDR S&P 500 (SPY), 10% iShares MSCI Emerging Markets Min Vol Factor (EEMV),  15% Vanguard Total World Stock Index Fund (VT), 25% iShares Barclays 20+ Year Treasury Bond (TLT) and 25% PIA BBB Bond Fund (PBBBX). Annual rebalancing avoids short-term capital gains for taxable accounts. We again compare performance of this alternative to that of a portfolio that each month allocates 50% to Simple Asset Class ETF Value Strategy (SACEVS) Best Value and 50% to Simple Asset Class ETF Momentum Strategy (SACEMS) equal-weighted (EW) Top 2. We begin the test at the end of 2011, limited by EEMV data and the annual rebalancing rule. We ignore rebalancing frictions for both strategies. Using monthly dividend-adjusted prices for SPY, EEMV, VT, TLT and PBBBX starting December 2011 and monthly gross returns for 50-50 SACEVS Best Value and SACEMS EW Top 2 starting January 2012, all through June 2021, we find that:

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