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David Snowball's November Commentary Is Now Available
Sorry, but I left after about 25 minutes. At that point, the focus of the talk still wasn't clear. I think, based on the teaser, that he was going to endorse investing in the EMs but that hadn't yet been mentioned. My departure was mostly occasioned by matters of style.
The one argument he made appeared to be that asset allocation is irrelevant, only expenses matter. He attempted to substantiate that with a reference to a series of "guru" portfolios that he constructed and modeled over (I believe) a quarter century. Before expenses, differences in returns were negligible (I believe he said 2%) and after imposing a uniform 1.25% expense ratio on the portfolios, the differences collapsed to nothing.
I hedge with "I believe" because this wasn't an argument being carefully laid out, it appeared to be a sort of fly-by of a talk he'd given in Las Vegas. Because I'm not a member of AAII, I don't have the ability to download conference presentations. Sorry.
I found the method suspect (why 1.25% on Buffett's rec to buy the S&P500 index or on the Permanent Portfolio, which charges 0.88?) and the conclusions unpersuasive (since they didn't, for example, take into account risk which influences an investor's willingness to hold on to portfolio). A real-world test of this claim is available by looking at the long-term performance of a family's target date funds, which differ only by asset allocation. In the case, for example, of the Wells Fargo funds, the most long-dated fund has returned 7.5% APR for 25 years and the most short-dated one has return 4.6%. On an initial investment of $10,000, that's the difference between a $30,000 portfolio and a $60,000 portfolio.
The longest-dated fund has also had a 50% max drawdown against 10% for the shortest-dated one.
I have no opinion about the Cambria ETFs themselves, since I haven't had occasion to study them closely though I believe Charles has. In broad terms, there are twelve with a 13th in registration. Eight of the 12 have trailed their Lipper peers on a total return basis since inception, four have led them. Six have trailed by more than a percentage point a year, one has led by more than a percentage point a year. Eight of 11 rated funds have MFO ratings in one of the bottom two tiers, one has a rating in the top tier and one is too new to be rated. Expenses range from 0.34 (GAA) - 1.23% (CCOR).
Thank you for the explanation. I am familiar with what you are referring to as he has some books/papers on the subject that are a free (usually) downloads from his site.
“I again would argue that investors need to review their allocations and comfort zones with those allocations, especially as to their ability to replenish their assets in the event of a permanent capital loss. Things that were five or ten years ago are often no longer what they seem ...
“First, don’t be afraid to hold more cash than you usually would. Secondly, if you are going to be invested in equities, try and make sure that they and your other assets are as uncorrelated to the general markets as possible. Look for things that are unloved ... And try to protect yourself from asset managers who are talking their own book.”
I may have altered Ed’s emphasis a bit here through my edit. But he strikes me, as usual, as being very prescient. Than again, after a record setting 10-year romp, how many are listening?
I remain a Meb fan. He's helped shape the ETF landscape these past 10 years. His seminal paper on trend following, entitled A Quantitative Approach to Tactical Asset Allocation, remains the most downloaded paper on SSRN. His straight-forward books, including The Ivy Portfolio. His podcast, which now exceeds 100 episodes, with some spectacular guests are great. We started following him on MFO with Existential Pleasures of Engineering Beta, when he launched his first Cambria ETFs. He invests in his own strategies. But to one of David's points, the firm now has 11 ETFs and several so far have struggled to beat their category peers, which puts him in some good company. I believe he also considers himself as much a part of the 4th estate as he does a money manager. Maybe that, if there is a conflict there, is part of what David picked-up on in a setting like AAII.
Comments
Sorry, but I left after about 25 minutes. At that point, the focus of the talk still wasn't clear. I think, based on the teaser, that he was going to endorse investing in the EMs but that hadn't yet been mentioned. My departure was mostly occasioned by matters of style.
The one argument he made appeared to be that asset allocation is irrelevant, only expenses matter. He attempted to substantiate that with a reference to a series of "guru" portfolios that he constructed and modeled over (I believe) a quarter century. Before expenses, differences in returns were negligible (I believe he said 2%) and after imposing a uniform 1.25% expense ratio on the portfolios, the differences collapsed to nothing.
I hedge with "I believe" because this wasn't an argument being carefully laid out, it appeared to be a sort of fly-by of a talk he'd given in Las Vegas. Because I'm not a member of AAII, I don't have the ability to download conference presentations. Sorry.
I found the method suspect (why 1.25% on Buffett's rec to buy the S&P500 index or on the Permanent Portfolio, which charges 0.88?) and the conclusions unpersuasive (since they didn't, for example, take into account risk which influences an investor's willingness to hold on to portfolio). A real-world test of this claim is available by looking at the long-term performance of a family's target date funds, which differ only by asset allocation. In the case, for example, of the Wells Fargo funds, the most long-dated fund has returned 7.5% APR for 25 years and the most short-dated one has return 4.6%. On an initial investment of $10,000, that's the difference between a $30,000 portfolio and a $60,000 portfolio.
The longest-dated fund has also had a 50% max drawdown against 10% for the shortest-dated one.
I have no opinion about the Cambria ETFs themselves, since I haven't had occasion to study them closely though I believe Charles has. In broad terms, there are twelve with a 13th in registration. Eight of the 12 have trailed their Lipper peers on a total return basis since inception, four have led them. Six have trailed by more than a percentage point a year, one has led by more than a percentage point a year. Eight of 11 rated funds have MFO ratings in one of the bottom two tiers, one has a rating in the top tier and one is too new to be rated. Expenses range from 0.34 (GAA) - 1.23% (CCOR).
David
Thank you for the explanation. I am familiar with what you are referring to as he has some books/papers on the subject that are a free (usually) downloads from his site.
“First, don’t be afraid to hold more cash than you usually would. Secondly, if you are going to be invested in equities, try and make sure that they and your other assets are as uncorrelated to the general markets as possible. Look for things that are unloved ... And try to protect yourself from asset managers who are talking their own book.”
I may have altered Ed’s emphasis a bit here through my edit. But he strikes me, as usual, as being very prescient. Than again, after a record setting 10-year romp, how many are listening?
I remain a David fan too!