It Has Gotten Worse

In the previous posting we called attention to the call for 40% fixed, 60% equity in July.  What does a 60/40 allocation look like as of Jan 1?

It now projects 20% more downside risk than upside potential if only passive indexes are used.  Even selecting a combination of active ETF’s has 10% more downside risk than upside potential.

What if we go to 50% fixed?

Now the UP Ratio is 14 times more upside potential than downside risk with a 15% allocation to Vanguard Growth Technology, 8.9% allocation to the Hong Kong ETF, 7.8% to the MidCap Growth iShare ETF and 4.7% allocation to the iShares Asia X Japan ETF.  This is not a well diversified portfolio, but it is close to mine.  I overweight China Technology and the Spyder, which over weights Technology.  I use the model as a guide and my brain as the decision maker.  I am currently at 50% Equity and I plan to move to 40% fixed in the very near future.

This is how I recommend professionals use this model.  Amateurs should not use it.




About Frank Sortino

Frank Sortino is finance professor emeritus from San Francisco State University and Director of the Pension Research Institute which he founded in 1981. For 10 years he wrote a quarterly analysis of mutual funds for Pensions and Investments Magazine and he has written two books on the subject of Post Modern Portfolio Theory. He has been a featured speaker at many conferences in the U.S., Europe, South Africa, and the Pacific Basin. Dr. Sortino received his Ph.D in Finance from the University of Oregon and has carried out research projects with many institutions like Shell Oil, Netherlands and The City and County of San Francisco Retirement System.
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