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The Performance of the “All-Weather” Sector Portfolio Using Fidelity Funds

February 14, 2013

In the last post, we introduced the “All-Weather” Sector Portfolio which was developed using data from Fidelity Asset Allocation Research. I created a heuristic approach to integrate a variety of factors (length of  stage, sector performance ranking by stage) in order to create the final portfolio allocation. It is obviously very interesting to examine the performance of this static/strategic portfolio allocation over time. For testing comparisons, I used the Fidelity Sector mutual funds total return series and also the S&P500 total return cash index. The time period for testing was chosen to include all active
sector members to ensure a fair comparison.  Three time series were created: 1) “All-Weather” Sector 2) Equal Weight Sector 3) S&P500 Total Return Index. Rebalancing was conducted on a monthly basis.The graph and table below depict the results:

Performance of the All Weather Sector Portfolio2
all weather sector perf table2

The results are promising– both higher returns and risk-adjusted returns than both an equal weight benchmark and the S&P500.  The All-Weather Sector also has the lowest risk of the three portfolios. Transaction costs and turnover are likely to be negligible in this case–especially if one were to stay within the minimum holding period for the funds. The broad diversification across sectors and limited “tilting” of sector weights makes this version of the All-Weather Sector Portfolio a desirable core equity holding for investors. The All-Weather Sector Portfolio is arguably a superior theoretical index construction than equal or market cap weightings, with  low tracking error,  tax-efficiency,  and good results to back up the concept.  In subsequent posts I will show some alternative formulations and weighting schemes that have superior performance.

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6 Comments leave one →
  1. eredd permalink
    February 14, 2013 2:58 am

    Do you find it odd the all weather portfolio has increased volatility?

    • eredd permalink
      February 19, 2013 10:25 pm

      Nevermind, mis-read the last table.

  2. qusma permalink
    February 14, 2013 12:45 pm

    Would be interesting to see a detailed performance attribution on the EW/All Weather vs the S&P500…when and where are the returns coming from?

  3. david varadi permalink*
    February 19, 2013 9:58 pm

    hi Qusma, I used Fidelity Sector Funds and the S&P500 cash index–both total return. I will be posting some examples with sector spyder etfs and their allocations so that readers can more easily replicate. as for a detailed performance attribution–that is something I will add to a long list of things to do :)
    best
    david

  4. February 24, 2013 9:46 am

    Just for grins, it would be great to see how the “All Weather” stacks up to PRPFX which is pretty close to Harry Browne’s Permanent Portfolio. I bet you would see less of a drawdown in 2008 and better performance.

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