Asset Allocation Return Report: 40/60 Portfolio Model
Posted on: July 22, 2011
MZ Capital 40/60 Portfolio Model
This report shows the construct and performance of a 40/60 model portfolio.
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 better than Vanguard funds here.
| Table 1: Asset Class Funds | ||
| Asset Class | Percentage | Funds |
| US Equity | 10% | DFFVX – US Targeted Value Fund |
| International Equity | 10% | DISVX – International Small Cap Value Fund |
| Emerging Markets | 10% | DFEVX – Emerging Market Value Fund |
| REIT | 10% | DFREX – Real Estate Securities Fund |
| TIPS | 20% | DIPSX – Inflation-Protected Securities Fund |
| Treasuries | 20% | DFIHX – Short-Term Treasuries Fund |
| Muni Bonds | 20% | DFSMX – Short-Term Muni-Bond 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 |
| 6/1/2011 | 15.07% | -12.37% | 4.31% | 6.01% | 0.57 | +3.58% |
| Table 3: Performance Stats Since Inception 1/1/2007 | ||||||
| Report Date | Annual ret | vs. S&P 500 | Turnover | Volatility | Beta | Alpha |
| 6/1/2011 | 5.14% | +4.32% | 6.38% | 11.27% | 0.52 | +4.15% |
Terminology
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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2 Responses to "Asset Allocation Return Report: 40/60 Portfolio Model"
July 31, 2011 at 4:24 pm
The answer is yes. The portfolio is a simplified version of what i actually implement for my clients. I can’t show my hands completely.
The Investment Scientist 
July 31, 2011 at 4:10 pm
Love the blog in general. However I have a question. Wouldn’t including the international and corporate bond finds make the above allocation more diversified, especially given the potential of downgrade in the US gov rating and possibility of higher interest rates?