The Ivy Portfolio

[Cowtown2011]

Has anyone read The Ivy Portfolio by Meb Faber?

I’m intrigued by the information in the book and the Ivy portfolio asset allocation. In broad strokes the suggested asset allocation is:

Domestic Equity   20%
Foreign Equity      20%
Bonds                20%
Real estate          20% (REIT’s)
Commodities        20% (could include hedge funds, Private Equity, etc.)

Returns from 1985 to 2008:

Ivy Portfolio;                  Annualized returns   11.97%, volatility 8.9%, sharpe (5%) 0.79, Best year 34.25% , Worse year -1.71%
60%equity/40% Bonds;  Annualized returns   11.42%, volatility 11.4%, sharpe (5%) 0.56, Best year 35.5% , Worse year -6.96%

Below is the performance of the Ivy portfolio using timing from 1973 to 2008 (different periods)

Ivy Portfolio:            Annualized returns   9.79%, volatility 9.71%, sharpe (5%) 0.39, Best year 26.58% , Worse year -29.76%
Ivy with Timing:       Annualized returns   11.33%, volatility 6.87%, sharpe (5%) 0.79, Best year 26.20% , Worse year 1.46%

Anyone have thoughts on his timing approach? (summarized: basically you use the 200 day SMA as your queue for buying and selling the assets in the portfolio) It’s a play on momentum which has proven to increase returns and lower volatility.

Overall, it like the approach although the tax considerations are a bit of a hurdle. I’m trying to decide whether to implement just his AA and not follow the timing approach.  Currently, I’m 90% non-taxable accounts and 10% taxable, so tax slippage should be very minor.

Anyone here implement the Ivy portfolio with tactical asset allocation (timing)?

[hodedofome]

Go take a look at the dual momentum thread. It's very similar to the Ivy Portfolio - take a diverse group of uncorrelated assets and buy the ones that are going up and sell the ones that are going down. If you are just doing the AA I would not buy and hold the commodity portion, although it may be uncorrelated to the other asset classes the returns are not going to be very good over the long term.

I have my own variant of the Ivy Portfolio / dual momentum. Everyone should use a strategy that they believe in and will stick with. The good strategy is the one you can follow, not necessarily the one with the best past returns.


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[steveo]

I like it due to the diversified asset allocation however I personally wouldn't do it myself. I don't want any real estate as I own my own house. I would like to have some commodities however I don't believe that I have enough assets to justify holding commodities. If I get really rich I would though definitely consider a portfolio like that.

[somers515]

I'm considering adding commodities as a small percentage of my portfolio.  Do any mustachians have a fund they recommend?  Vanguard doesn't offer a true commodities fund.  I was looking at ishares but I'm finding it hard to see the expense ratios.

[arebelspy]

Yes, it's a fairly popular one.

Portfolio Charts is so good, it's become my go-to on these mainstream portfolios.

Here's more detail on the Ivy Portfolio:
https://portfoliocharts.com/portfolio/ivy-portfolio/

[Tyler]

I'm considering adding commodities as a small percentage of my portfolio.  Do any mustachians have a fund they recommend?  Vanguard doesn't offer a true commodities fund.  I was looking at ishares but I'm finding it hard to see the expense ratios.

The two commodities funds I'm aware of are COMT and PCRIX.  Some level of active management is typical in the commodities space, so the fees are also a bit higher than your normal stock index (0.48% and 0.79%, respectively).  It's also worthwhile to research the tax implications, as IIRC they may not be taxed the same way as your typical stock fund, either. 

[kenaces]

I am using Ivery5 in very rough % with some value tilting. Big junk of my commodities slice is gold/silver coins I got many years back since most commodity ETFs are on the expensive side.  You can also consider using TIPS for some of your "real assets"

The DIY Financial advisor by Grey has some interesting material on Ivey5 type portfolio and moving trend timing for downside protection.  I am a long time buy/hold/rebalance guy so I personal haven't made up my mind on this trend following strategies.

[gggggg]

I run something similar to David Swensen's Yale endowment portfolio, with my own tweaks (less REIT and less intl, more total market). I like it thus far.