As suggested by one reader, I removed the individual stocks from the Swensen-Six Portfolio and added VIG, a dividend oriented ETF. Below is the Quantext Portfolio Planner (QPP) analysis, correlation matrix, and "Delta Factor" projections when using five years of historical data. One big advantage of using VIG instead of several individual stocks is one of simplicity. Instead of needing to come up with eight individual stocks, not an easy task, we select one higher yielding ETF. Right now, VIG is yielding around 2.0%, not a particularly high value when VTV is yielding around 2.6% and our real estate holdings are much higher. Nevertheless, let's continue with the Swensen-Six plus VIG.
QPP Analysis: Using VIG to replace the eight individual stocks, the projected return drops from 7.8% to 6.4%. The projected volatility or standard deviation also dips from 13.8% down to 11.2%. This keeps the Return/Risk ratio around 0.56 or 0.57 for both portfolios. When substituting VIG for individual stocks the Diversification Metric moves from 33% up to 47%. This is a nice positive reaction as one simplifies the portfolio. There is little change in the Portfolio Autocorrelation, our least important metric.
Overall, the big gain, as I see it is one of simplifying the portfolio. Any reader can put together a portfolio of these seven ETFs. The following portfolio concentrates on VIG. This provides some room for playing around with the asset allocation plan in hopes one can improve the return while increasing the Return/Risk ratio.
Correlation Matrix: As expected, VIG is highly corelated with VIG and the other equity holdings. It might be asking too much of TLT to continue to be have in a manner that generates negative correlation. It seems unlikely that TLT will continue to run against the market like it has over the past five years as we hope not to experience another bear market as we endured in 2008 and early 2009.
Delta Factor Projections: Once more, the Delta Factor projections are not all that positive when looking out over the next six to twelve months. VEA, an international holding, has the highest probability of doing well and the projection is that it will do only slightly better than the total U.S. Equities market as represented by VTSMX.
Please keep in mind that the Delta Factor projections below focus on an ending date of September 28, 2012, while the Delta Factor projections in the Swensen-Six Plus Portfolio ended on March 31, 2009. That is why the projections are so different. We are no longer at that market bottom.