The Investment Scientist

Asset Allocation Performance Report: 70/30 Portfolio Model

Posted on: April 1, 2011

icarra chart

MZ Capital 70/30 model vs S&P 500

(Performance stats last updated on 8/16/2011) I have maintained 4 model portfolios since the beginning of 2007 to show that successful investing can be extremely simple: one only needs to do 1)prudent allocation, 2)disciplined rebalancing. One does not need Harry Dent’s prescience nor Jim Cramer’s encyclopedic knowledge to be successful in investing.

This report shows the construct and performance of the 70/30 model portfolio, the most aggressive of the four. The chart on the right shows the portfolio value of $100 invested on the first day of 2007, relative to the S&P 500.

Asset Classes and Fund Selection

There are six asset classes in this portfolio model. The asset allocation is implemented using DFA funds, as shown in the table 1. I explained why DFA funds are superior here.

Table 1: Asset Class Funds
Asset Class Percentage Funds
US Equity 30% DFFVX – US Targeted Value Fund
International Equity 15% DISVX – International Small Cap Value Fund
Emerging Markets 10% DFEVX – Emerging Market Value Fund
REIT 15% DFREX – Real Estate Securities Fund
TIPS 15% DIPSX – Inflation-Protected Securities Fund
Treasuries 15% DFIHX – Short-Term Treasuries Fund

Note that the equity allocation is tilted toward small cap value, while bond allocation stays clear of credit and duration risks.

Performance Stats

The tables below summarize performance stats for the trailing year and since inception on 1/1/2007.

Table 2: Performance Stats for Trailing Year
Report Date 1-year ret vs. S&P 500 Turnover Volatility Beta Alpha
4/1/2011 15.78% +1.70% 4.03% 15.67% 0.89 +2.79%
8/15/2011 13.32% +0.12% 4.03% 12.80% 0.82 +1.66%
Table 3: Performance Stats Since Inception 1/1/2007
Report Date Annual ret vs. S&P 500 Turnover Volatility Beta Alpha
4/1/2011 3.51% +3.2% 6.43% 20.13% 0.92 +2.99%
8/15/2011 1.89% +3.41% 5.90% 19.31% 0.91 +3.23%


Turnover is the annualized percentage of portfolio sold during the period. Turnover has a direct bearing on capital gains tax. The lower the turnover, the more tax efficient the portfolio is. Note how low the turnover of this model portfolio is!

Beta measures the market risk of the portfolio with the S&P 500 index as the proxy for the market. The portfolio has about 90% of the market risk.

Alpha measures the access return of the portfolio given its beta.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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