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New to MFO & building a Defensive Equity Portfolio...

edited September 2019 in Fund Discussions
Trying to parse through a lot of new data and ratios and have quickly learned that I my mathematical grasp of some of the ratios and how useful they are in different scenarios is far below many of you that post here. I am looking to build a portfolio of defensive equity funds that are primarily large cap domestic but adding in a 20% or so weight to international strategies and I'm trying to decide which ratios might be most useful in analyzing potential investments. right now I am leaning towards the following listed in order of importance:

1) Martin Ratio
2) Downside Deviation - chose this over bear market deviation as it seems easier to compare funds of different categories
3) Ulcer Index
4) Sortino

I realize that Martin and Sortino are best used to compare funds that fall into similar categories so I'm not sure how appropriate they are in comparing the domestic to the international strategies. Any help or insights you can give to a newbie would be greatly appreciated.


  • @GREGT: Welcome to MFO, here are four model defensive equity portfolios from Fidelity.
  • Thanks Ted. I'll take a look at those. I generally try to stay more sector neutral but realize that often it's hard to avoid a higher concentration to utilities, staples and healthcare.
  • For screening (ER under 1%, top quartile for 1,3,5 years):

    Conservative Equity Allocation Funds

    Moderate Equity Allocation Funds:

    Aggressive Equity Allocation Funds:

    You might like to back test some of these choices using Portfolio Visualizer
  • If you want to study and eat and digest and get your head around all the "sadistics," be my guest. I put a lot of weight on past performance, current valuations, PEG, my own ethical filter--- which is well-nigh impossible to implement, and the reputation of the Fund Manager. I try to steer clear of what's "hot" and what's currently most popular. After that, I want to have at least a bit beyond the USA border. Large, small caps. And now, at 65 years of age, I'm heavier in bonds than I am in stocks. Bond funds have been on a big run-up. Valuations are stretched. The time to get in is... already. But don't dismiss some great "balanced" funds, holding both stocks and bonds. Most pay quarterly. My favorite is closed to new investors: PRWCX. Check out T Rowe Price Balanced fund: RPBAX. Check out MAPOX, up in Minnesota.

    You're looking for a defensive portfolio. I don't know your age, you didn't tell us. "Defensive" will look different, depending on age. If you just want to minimize volatility, check out VMVFX. Vanguard is famous for low fees. Client service leaves something to be desired. So I hear. I don't own Vanguard. The bond funds I own are PRSNX RPSIX and PTIAX. If "defensive" to you--- in terms of bonds--- means high-quality bonds, go with a gov't bond fund with mostly Treasuries. But the old reliable and stalwart DODIX should not be overlooked.
  • edited August 2019
    Thanks @Crash. Sticking with an all equity portfolio for now I am only 43 and I really enjoy playing with the "sadistics". I've had VMVFX on my radar for a while and those min-vol funds do interest me. There are just a lot of different approaches to the min-vol factors. Some that resonate with me and some that don't.
  • The FMI funds seem to be defensively positioned -- successfully at that -- as part of their DNA.
  • If you want defensive equities, my first thought would run to the "min-vol" ETFs, among them:

    USMV - U.S. equity
    EFAV - Europe/Japan (i.e. EAFE)
    EEMV - Emerging markets

    I believe they "do their job" in tamping down volatility vs. their respective "normal" ETFs (i.e. S&P, EFA, IEMG). My one caveat, and its a suspicion, nothing more: USMV and its component stocks may be "over-owned" at this point. Here/now, I'd probably favor divd-paying/value stocks over USMV. HDV & VYM are 2 examples. IDV & VYMI would be possibilities for EAFE-region stocks.

    Generally, UNDER-weighting emerging in favor of Developed Markets would be deemed "defensive" --- but I expect EM to generally outperform over the long-term. There is a cost to being defensive. And it is likely to be lower returns, long-term.

    A 4th option, one that I do use in my deferred accounts is Vanguard's Global Min-Vol fund (VMNVX). -- Its volatility and returns compare pretty favorably to the above-cited PRWCX, which is what convinced me to pull the trigger on VMNVX.

    Good luck!
  • @GREGT

    If you come to think that a fund which automatically sells and value-buys within the SP500 world every month might be sort-of defensive (not like low-vol funds and ETFs, though), you will want to take a look at DSENX/DSEEX and the etn they are based on, CAPE. There is much deep diving on them within this forum.
  • I like @Edmund’s suggestion of VMNVX because its performance is far superior to the recently touted ACWV by M* here:

    If I were building a portfolio from scratch as the OP seems to be doing, mine would have a healthy slice of global funds, whether it was to be defensive or not. Going into the stock market is kinda “offense minded,” anyway, isn’t it?
  • edited August 2019
    Two more to consider equity-wise: PRBLX and TWEIX did well in '08 -- only down about 20% or so. (PRBLX is the major holding in my Roth IRA.)

    VMVFX is a fine fund, too - I've owned it since inception in one of my taxable accts for its global mix and midcap skew, as I could care less about 'minimum volatility' stuff.

    I also hold PRWCX and have no intention of selling it unless needed or something changes at TRP.:)
  • Thank you @rforno, @BenWP, @davidrmoran, @sfnative & @Edmond I will take a look at all those options. Much appreciated.
  • A couple of more to add to your list for research.... PRDGX and FAMEX... Both have a dividend growth bent to them .. FAMEX has a nice long trackj record and a mid cap focus which I find interesting. It doesnt get discussed very much here. Take a look. I also like PRBLX. Of course all equity funds are going to drop if the market sells off including these.
  • One thing to be wary of with low vol funds is to look at their over concentration in certain sectors like utilities and real estate.
  • edited August 2019
    Well, yes. That is because different sectors exhibit different levels of volatility. The objective of a min-vol product is...(gasp) reduced volatility, not "maximum total return" (which often exhibits higher than average volatility). It therefore follows that a min-vol product would underweight more-volatile stocks and overweight less-volatile stocks. Certain sectors are "pro-cyclical" and more prone to more pronounced moves up and down. Other sectors are more "defensive" based on their fundamental business models. is a great tool, for people thinking about structuring their portfolio. Relative to this thread, one could choose SPY (the market) as the benchmark, then choose sundry SPDR sector ETFs in alternative portfolios... Punching in XLU (utilities) and Technology (XLK) for example... XLU exhibits a beta of 0.43 vs the S&P. OTOH, XLK exhibits a beta of 1.35. If a min-vol product is NOT overweighting utes and underweighting tech, then its not a min-vol product... I see nothing to "be wary of". Utilities once (in a simpler time) were viewed as "Widow & orphan" stocks -- people seeking relative safety and predictable income.

    These min-vol products generally use "algos" to constantly assess betas on their securities are changing. If stocks in the portfolio start to experience increasing levels of volatility, they get replaced. Min-vol products are not for Bogleheads!

    Min-vol products often will assess how the collection of stocks assembled in the portfolio behave in concert. So, far example, I noticed very recently, one of the min-vol products (USVM) recently included a gold-mining stock as ONE of its top holdings. Now gold-mining stocks are VOLATILE by themselves, but they tend to make a great hedge --"zigging" when most normal stocks are "zagging" -- thus, in small doses, they help to tamp-down the portfolio volatility. I thought when I saw that "brilliant"!
    MikeW said:

    One thing to be wary of with low vol funds is to look at their over concentration in certain sectors like utilities and real estate.

  • With all this uncertainty, XLU (utilities) is having a great year.
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