Happy New Year! I am pleased to present the results of two portfolios!
- The Early Retirement Masterclass (ERM) portfolio is a portfolio of local dividend stocks designed to generate income and allow investors to break out of the rat race.
- The All-Weather Portfolio (AWP) is a new kid on the block that imagines how a portfolio can be designed to cope with different parts of the market cycle.
Here’s how they performed in 2023.
1) Early Retirement Masterclass
For intermediate investors, the ERM portfolio is a low-beta, high-dividend portfolio with significantly less risk than the markets. It is a composite portfolio comprising 32 batches worth of students over the past five years and a notional investment of nearly half a million dollars.
The following results are taken from screenshots on Stocks Café.
The portfolio has taken two consecutive beatings in 2022 and 2023 yet continues to produce positive results. This supports a patient buy-and-hold strategy that favours patience and resilience.
As about half of ERM comprises REITs and Business Trusts, 2022 and 2023 are years of underperformance as interest rates rose under the Fed decisions. The benchmark index is weighted heavily in favour of banks, so ERM wa
So, ERM could not catch up with the STI while interest rates were being raised. Nevertheless, it should be noted that students enjoy all these returns at a much lower market risk, given a lower beta of 0.63 and enjoy a current yield of 6.75%.
Still, the portfolio earned positive returns in 2023 as a last-minute REIT rally occurred when the Fed stopped being hawkish in December 2023.
There are reasons to feel good about ERM for now. The portfolio does not require that interest rates drop to do well, as many REITs have been oversold in 2023. A flat interest rate will allow portfolios to recover their value, and we could well be looking at a double-digit upside in 2024.
We had to observe the chart below, but the resurgence of ERM against the benchmark STI ETF has just started, and we could see some dramatic reversals in 2024.
The significant risk for Singapore is whether we will see an influx of Chinese tourists, which our tourism sector tends to rely on. While there is some good news on visa-free travel, the concern is that Singapore has become too expensive for many middle-income travellers from China.
Another wild card is several elections that will be called worldwide – would we see a return of a Trump presidency?
The worst performance stock in ERM is Eagle Hospitality Trust, but the best performer was Propnex.
I’ll reveal more about the ERM portfolio at my live webinar, join me here.
2) All-Weather Portfolio
The All-Weather Portfolio is a different beast from ERM.
Where ERM focuses on stock ownership and emphasizes a detailed review of fundamentals via analyst reports, AWP creates a portfolio of ETFs and executes orders based on momentum measures generated by a Python program. AWP does not generate a meaningful dividend yield but has a drawdown of a third of what ERM has.
A lot of work has gone into engineering a portfolio that can meaningfully beat the 60/40 portfolio, and since the portfolio was built in August 2023, it has gone on to beat the benchmark if only very slightly.
Let’s look at the AWP results:
AWP has generated an internal rate of return of 10.23% from August 7 – December 21 2023
The benchmark has an XIRR of 9.8%.
As the portfolio has only been launched for four months and has had much more turnover, it is hard to outperform the 60/40 portfolio, which has done well in 2023.
Once we examine the root causes of the outperformance, Something interesting pops up.
- The algorithm flags Bitcoin or GBTC as a buy earlier than many cryptocurrency bulls. So, we are seeing an 80% gain from this ETF.
- The algorithm also called an early pivot into 20-year government bonds, weeks before the Fed turned dovish officially, and it could generate over 10% returns in 20-year treasury bonds.
For the All-Weather portfolio, its outperformance is never guaranteed because it is designed to optimize risk-adjusted returns, not raw ones. However, it will allow learners to understand how to leverage computer programs to advise on trades and create portfolios that enable them to sleep well at night and provide about 8% returns every year with a low standard deviation of about 4%.
This portfolio is still very new, so I look forward to providing a more meaningful report in 2024.