Backtesting Portfolio Strategies
Several readers inquired recently about backtested results of various portfolio strategies tracked on Scott’s Investments. Several of the portfolios on this site are tracked real-time and I have also posted dozens of backtests on the site (use the search bar on the right-hand side of the site), but I have posted some updated results below.
The most important caveat regarding the tests below is that the time-frame is incredibly short by historical standards. Good results should not be taken as a guarantee of future results, and lower than expected results should not necessarily be interpreted as a strategy failure. All tests were conducted using ETFReplay.com
The first set of tests use the parameters of the ETFReplay.com Portfolio and was conducted on a short time frame (2009-2013) due to shorter trading histories for many of the 15 ETFs used in the strategy. To simplify the tests I did not incorporate the “top 5″ filter where an ETF has to drop out of the top 5 before being sold. The tests use the “6/3/3″ strategy, and the cash filter requires the ETFs be ranked above SHY in order to be held. The benchmark used is Vanguard Balanced Index Fund (VBINX):
| 2009-2013 | Total Return | Volatility | CAGR | Sharpe | Max Drawdown |
| Top 4, No cash filter, Updated Monthly | 87.60% | 12% | 15.30% | 1.15 | -8.60% |
| Top 4, cash filter, Updated Monthly | 83.90% | 11.80% | 14.80% | 1.13 | -8.60% |
| VBINX | 71.80% | 12% | 13.10% | 0.97 | -17.50% |
The Ivy Portfolio is a popular strategy and the best historical results can be found in Mebane Faber’s The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. The results below were generated using a slightly different set of ETFs due to their longer trading histories:
| 2005-2013 | Total Return | Volatility | CAGR | Sharpe | Max Drawdown |
| Ivy Portfolio | 66.10% | 9.80% | 6.20% | 0.37 | -14.70% |
| VBINX | 64.90% | 12.70% | 6.10% | 0.3 | -36% |
| Ivy Portfolio Symbols Used in Test | |||||
| SPY | |||||
| AGG | |||||
| EFA | |||||
| GSCI Index | |||||
| VNQ |
Finally, the last set of tests analyzes the All-Weather and Permanent Portfolio. The All-Weather portfolio is not equal weighted, while the Permanent Portfolio equal weights the four positions. For the static weightings used in the All-Weather test please view the portfolio spreadsheet. The All-Weather risk parity allocation changes based on the trailing 20 day volatility and allocations were updated monthly. For the current weightings view the spreadsheet on Scott’s Investments:
| 2005-2013 | Total Return | Volatility | CAGR | Sharpe | Max Drawdown |
| All-Weather, Annual Rebalance | 85.30% | 6.00% | 7.60% | 0.8 | -19.83% |
| All-Weather, Risk-Parity using 20 day volatility, monthly rebalance | 83.10% | 4.60% | 7.50% | 1.04 | -18.30% |
| Permanent Portfolio, Annual Rebalance | 99.30% | 7.50% | 8.60% | 0.77 | -14.03% |
| All-Weather Symbols | Perm. | ||||
| GLD | GLD | ||||
| GSCI Index | SHY | ||||
| IEF | SPY | ||||
| PREMX | TLT | ||||
| TLT | |||||
| VIPSX | |||||
| VTI | |||||
| VWEHX |
If you enjoy these tools and content, please consider making a donation on the home page of Scott’s Investments using the Paypal link in the upper-right corner!
Follow Scott’s Investments on Twitter: http://twitter.com/#!/scottsinvest
Source: http://www.scottsinvestments.com/2013/06/04/backtesting-portfolio-strategies/
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