Dalio/Robbins All-Seasons Portfolio [Europe]

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FabrizioC
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Joined: Sun Jan 13, 2019 4:45 am

Dalio/Robbins All-Seasons Portfolio [Europe]

Post by FabrizioC »

[Moved into a new thread from: Improving the Dalio/Robbins All-Seasons Portfolio --admin LadyGeek]

Hi all,
this is my first post... great forum and great discussion, thanks!

I am trying to understand better the all-weather approach and figure out how to implement it from a European perspective.

My points here are the following:

- as far as I have understood, the risk-parity concept applied to all-weather portfolio means that the investor has to allocate equal amounts of risk to the four different macroeconomic scenarios (higher/lower growth, higher/lower inflation than expected). Thus, to find the "right" weigth of each asset class, the investor should calculate the correlations between each asset class and each of the two main identified macro-variables (inflation and growth). This way, it should be clearer what would be the effect of changing the relative weights of the asset classes, or choosing a more or less leveraged bond ETF, or investing in the European market (with presumably slightly different macroeconomic relations compared to the US markets), in terms of "equal" or "unequal" exposure to the four possible scenarios;

- considering that my perspective is from Europe, if I want to invest in the US, UK (or other global) markets, I need to take into account the exchange rates. In particular, I need to evaluate how the exchange rate can affect the exposure to inflation and growth macro variables. I am trying to figure out if I should consider the exchange rate embedded in the prices, and then just simply apply the described risk-parity approach, or if I should consider an additional macro variable (the exchange rate) together with inflation and growth, in order to reach an effective all-weather diversification... I think this is a complex macro-economic issue, but any suggestion is welcome!!

Thanks, ciao
amrap
Posts: 22
Joined: Mon Jan 07, 2019 12:42 pm

Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by amrap »

Hi @FabrizioC,

I'm also trying to implement this portfolio in Europe, maybe we can join forces on the research and hopefully some boglehead with more expertise can confirm our assumptions.
  • As you can see, the All-Seasons performs better in Europe than in the US when compared with the rest of the portfolios, which I've discussed with Tayler9000 here: viewtopic.php?p=4311975#p4311975
As it's explained in the above link, that portfolio is composed by:

30% German total stock market
40% Long Term Bunds
15% Intermediate Bunds
7.5% Commodities
7.5% Gold
  • You're right about the currency risk, and the conclusion from my research so far is that at least the bonds part should be in EUR (long-term returns in bonds are lower, so the risk of losing them due to USD/EUR changes is higher). I'm thinking about having a total currency risk around 25%, which will include Gold (7.5%), Emerging Markets (10%) and non-hedged US Equities (7.5%).
  • I've researched all the bogleheads inspired forums in Spain and unfortunately found nothing. Maybe you can research these forums in your local language and see if someone has implemented this before in the Eurozone
Topic Author
FabrizioC
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by FabrizioC »

Hi, thanks a lot for the links, and ok for joining the efforts.
I am already "studying" on Portfolio Charts (a very good site, indeed a great work!!), I still need to spend some time mixing data and checking results.

What I would like to do in a more structured way is twofold: collect some data to calculate correlations among stock indexes, bonds indexes, gold/commodities and inflation/GDP (in particular for european markets) and resume the macro-economics books I have studied on at the university to refresh some concepts about exchange rates vs. inflation and GDP...

Your point about bonds is interesting. I take it and get back to you asap.

Ciao
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alpine_boglehead
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by alpine_boglehead »

Welcome to the forum. Even though you both seem to already have some good ideas, take a look at the wik, there's also an article on EU investing.
amrap wrote: Sun Jan 13, 2019 11:04 am As you can see, the All-Seasons performs better in Europe than in the US when compared with the rest of the portfolios
With investing, you need to be careful with languages tenses. The All-Seasons performed better in backtests. No one knows the future.
amrap wrote: Sun Jan 13, 2019 11:04 am
30% German total stock market
40% Long Term Bunds
15% Intermediate Bunds
7.5% Commodities
7.5% Gold
This portfolio seems to be a bit undiversified. Except for commodities and gold, all the assets are based in Germany.

If you're trying to create a "all-weather" portfolio (which you obviously do for diversification purposes), you should look into geographic diversification as well, i.e. "all-weather" plus "all-world". Even though the global economy is very interconnected today, there have still been times when it was cloudy in Europe and sunny in the US (e.g. more or less in the last decade) :D

Consider basing your portfolio on a global one, e.g. like Vanguard FTSE All-World for stocks and Global Bonds Eur Hedged. As you'll be spending your investments in Euros, so maybe tilt your bond portion to German bunds. Or you could use CDs (Festgeld), this currently has better yields than bonds/bunds. For stocks, you might want to avoid tilting too much to Germany. Many bogleheads advocate US-only investing for US investors, but that's because the US is one of the leading countries regarding stock market size and returns. For non-US investors, in my opinion global diversification is the way to go.

Assuming that you're German, a big part of your non-financial fate is already tied to Germany (job, residential real estate). If things go downhill in our corner of the globe, you'll be all-in for it. I'm from Austria - would you recommend that I base my entire portfolio in Austria, just because I live there?

You might also want to research other boglehead discussions on gold and commodities. Both are non-yielding assets, but have costs associated, i.e. have negative yields. Portfolio diversification is a good thing, investments which are pretty much guaranteed to have negative real returns in the long run are not so much of a good thing. Gold and commodities producers have a positive expected returns, but portfolio-wise probably behave more like stocks than gold or commodities.

Currency considerations are important for bonds (thus home-country bonds or hedged bonds), but not so much for stocks. The short-term stock market fluctuations and (hopefully) long-term returns have usually been much larger than currency movements.

Anyway, EU investors have more room for discussion than our US fellow investors, i.e. 3-fund-portfolio, set and forget :D. And, even though diversification is important (be it across asset classes or geographically), they are only one aspect of successful investing, as explained in the Bogleheads Investment Philosophy

One final thought - many forum discussions (and Portfolio Visualizer) take place from the point of view of investors who don't pay taxes when rebalancing between asset classes.
Topic Author
FabrizioC
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by FabrizioC »

Thanks a lot for your indications.

Regarding PortfolioCharts, there is a section dedicated to German portfolios, here the link:
https://portfoliocharts.com/german-portfolios/

Some thoughts about results, in particular regarding the All-Weather portfolio:

- if you are based in Germany, you'd like to have a balanced exposure to the macro-economic variables of the German market, i.e. German interest rates, German GDP, German inflation (so you would chose German stocks and bond, expressed in EUR). Gold and Commodities are presumably expressed in USD (as such you would have an exposure to EUR/USD exchange rate)

- if you are not based in Germany (e.g. in Spain or in Italy), but want to diversify your investments in the German market, you should consider German stocks and bonds, but also take into account your domestic inflation, e.g. the Spanish or the Italian inflation, for real returns. As such, the evidences from PortfolioCharts should be slightly modified, under a Spanish or Italian point of view. Inflation all over European EUR based countries is almost aligned, being the monetary policy almost centralized, but there can be some deviations (you can check it with the OECD inflation historical DB)

- If you want to divesify at a global level, let's say in the German and in the US market (or also in the Asian market, just to have the world in your pocket, at least a small slice...) maybe you would like to have your portfolio split in two or three parts, each one with a balanced exposure to the macro-economic variables of each specific market, and not build a asset-mixed portfolio with exposure (for example) to US L/T bond, German S/T treasuries and stocks in Hong Kong. It is almost probable, in the latter case, that you would be exposing yourself to something that even a Nobel Price winner could not be able to precisely explain... :D

That's said, I go back to study the Bogleheads chronicles on this topic.
Best!

Ciao
amrap
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by amrap »

Hi,

Based on the Azanon's ideas on improving the all-seasons portfolio, I've researched a set of potential ISINs that are available through a major EU bank without minimum amounts (can we write specific brands?), and drafted a possible allocation. As it can't be exactly as Azanon's due to less variety of cheap funds in Europe, I've returned to the original allocation (55%/30%/7.5%/7.5%) and increased the tilt with those small caps and EM stocks.

I'd like to share it and discuss some concerns.
Notes:
* For the Amundi funds, I've included Vanguard's equivalents for reference, but Amundi funds are free of custody fee in this bank
* Even if the funds are commercialized in EUR, I've included the currency in which the assets are marketed to evaluate currency exposure.
_ _ _
Bonds 55%
30% EUR Bonds (1-10 years): Amundi Index JP Morgan EMU Govies | EUR | LU1050470373 | 0.35% | Vanguard IE0007472115
25% Inflation-Linked Bonds, I doubt between these because of the expense ratio difference. Do you think is worth it going global EUR Hedged or is it better to keep it in real EUR bonds?:
  • AXA WF Euro Inflation Bonds | EUR | LU1002647904 | 0.54%
  • Groupama Index Inflation Monde | EUR Hedged | FR0010696583 | 0.35%
Stocks 30%:
10% Europe Large Stocks: Amundi Index MSCI Europe | EUR | LU0389811885 | 0.30% | Vanguard IE0007987690
15% World Small-cap Stocks: Vanguard GB Small-Cap | USD | IE00B42W3S00 | 0.40%
5% Emerging Markets Stock: Amundi Index MSCI Emerging Markets | USD | LU0996177134 | 0.45% | Vanguard IE0031786142

Gold 7.5%:
ETFS Physical Gold (VZLD) | USD | DE000A0N62G0 | 0.39%

Commodities 7.5%: I doubt about hedging this one:
  • ETFS All Commodities ETC (AIGCP) | USD | GB00B15KY989 | 0.49%
  • ETFS EUR Daily Hedged All Commodities (00XK)| EUR Hedged | GB00B15KY989 | 0.49%
_ _ _

It would have an expense ratio of 0.37% and a currency exposure of:
  • 20% from the stock allocation
  • 7.5% from the gold allocation. If the fund is traded in EUR, does this count as currency risk?
  • 7.5% or 0% from the commodities allocation, depending on above doubt (USD vs EUR hedged)
What do you think?
SunStorm
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by SunStorm »

Hello amrap,

Thank you for sharing your thoughts. I've been trying to construct the exact same thing but I'm having trouble figuring out if what you proposed is a good substitute for Azanon's ideas. Have you been able to further verify your setup since this last post?

Thanks in advance!

Best,
Steffen
jpiabrantes
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by jpiabrantes »

Hi everyone,

This is my tentative to reconstruct the All-Weather portfolio in Europe (I tried to have only accumulating ETFs in Euros) :

30% Stocks:
iShares Core MSCI World UCITS ETF (ISIN: IE00B4L5Y983), TER: 0.2%

40% Long term bonds:
Lyxor EuroMTS 10-15Y Investment Grade (DR) UCITS ETF, TER: 0.17%

15% Short term bonds:
Lyxor EuroMTS 5-7Y Investment Grade (DR) UCITS ETF, TER: 0.165%

7.5% Gold:
Gold iShares Gold Trust IAU VGPMX, TER: 0.25%

7.5% Commodities:
Amundi ETF FTSE EPRA NAREIT Global UCITS ETF DR, TER: 0.24%

Would love to have your feedback!
DJN
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by DJN »

Hi,
thanks for the post.
Just a few comments:
- are the Lyxor synthetic versions? Generally the Lyxor are based from Luxembourg and the tax position may not be advantageous for all EU locations. Synthetic versions are supposed to be more tax effective but carry a higher third party risk. (Small point is that Lyxor is part owned by SocGen, potential for conflict of interest is probably small?)
- the alternative is to hold Irish domiciled etfs (although I am not clear on the withholding tax advantage applies on bonds).
- Amundi ETF FTSE EPRA NAREIT Global UCITS ETF DR is a global REIT etf and not a commodity etf
- Similar comments on Amundi regarding where they are domiciled?
- Gold iShares Gold Trust IAU VGPMX is not UCITS as far as I can see? US domicile?
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
jpiabrantes
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by jpiabrantes »

Hi DJN,

Thank you very much for your quick reply. It seems that I had many mistakes!
- are the Lyxor synthetic versions? Generally, the Lyxor are based from Luxembourg and the tax position may not be advantageous for all EU locations. Synthetic versions are supposed to be more tax effective but carry a higher third party risk. (Small point is that Lyxor is part owned by SocGen, potential for conflict of interest is probably small?)
They say that the replication method is Physical (Full replication). They are also UCITS so they should be tax advantageous for all EU locations, right?

Sources:
- https://www.lyxoretf.co.uk/en/instit/pr ... 489385/eur .
- https://www.justetf.com/en/etf-profile. ... 1287023268
- Amundi ETF FTSE EPRA NAREIT Global UCITS ETF DR is a global REIT etf and not a commodity etf
I thought REIT had similar correlations with commodities - I have now read online that this is debatable. Would you advise something like iShares Diversified Commodity Swap UCITS ETF (TER: 0.19%) as a replacement? This one is a synthetic ETF. I could only find synthetic ETFs for commodities.
- Gold iShares Gold Trust IAU VGPMX is not UCITS as far as I can see? US domicile?
You're right. Maybe replace that with iShares Physical Gold ETC (TER 0.25%)?

updated:
30% Stocks:
iShares Core MSCI World UCITS ETF (ISIN: IE00B4L5Y983), TER: 0.2%

40% Long term bonds:
Lyxor EuroMTS 15+Y Investment Grade (DR) UCITS ETF C-EUR, TER: 0.17%

15% Short term bonds:
Lyxor EuroMTS 7-10Y Investment Grade (DR) C-EUR, TER: 0.17%

7.5% Gold:
iShares Physical Gold ETC, TER 0.25%

7.5% Commodities:
iShares Diversified Commodity Swap UCITS ETF (Acc TER: 0.19%)
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Schlabba
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by Schlabba »

FabrizioC wrote: Sun Jan 13, 2019 5:18 am [Moved into a new thread from: Improving the Dalio/Robbins All-Seasons Portfolio --admin LadyGeek]

Hi all,
this is my first post... great forum and great discussion, thanks!

I am trying to understand better the all-weather approach and figure out how to implement it from a European perspective.

My points here are the following:

- as far as I have understood, the risk-parity concept applied to all-weather portfolio means that the investor has to allocate equal amounts of risk to the four different macroeconomic scenarios (higher/lower growth, higher/lower inflation than expected). Thus, to find the "right" weigth of each asset class, the investor should calculate the correlations between each asset class and each of the two main identified macro-variables (inflation and growth). This way, it should be clearer what would be the effect of changing the relative weights of the asset classes, or choosing a more or less leveraged bond ETF, or investing in the European market (with presumably slightly different macroeconomic relations compared to the US markets), in terms of "equal" or "unequal" exposure to the four possible scenarios;

- considering that my perspective is from Europe, if I want to invest in the US, UK (or other global) markets, I need to take into account the exchange rates. In particular, I need to evaluate how the exchange rate can affect the exposure to inflation and growth macro variables. I am trying to figure out if I should consider the exchange rate embedded in the prices, and then just simply apply the described risk-parity approach, or if I should consider an additional macro variable (the exchange rate) together with inflation and growth, in order to reach an effective all-weather diversification... I think this is a complex macro-economic issue, but any suggestion is welcome!!

Thanks, ciao
Can I ask you why you chose the Ray Dalio instead of the Taylor Larimore portfolio?
Topic Author
FabrizioC
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by FabrizioC »

Basically, due to risk valuation. Three fund portfolio seems riskier than all-season portfolio, in terms of historical drawdowns and ulcer index (please refer to portfoliocharts website fior comparison). Ciao.
pedromdias
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by pedromdias »

jpiabrantes wrote: Thu Jun 20, 2019 10:04 am
40% Long term bonds:
Lyxor EuroMTS 15+Y Investment Grade (DR) UCITS ETF C-EUR, TER: 0.17%

15% Short term bonds:
Lyxor EuroMTS 7-10Y Investment Grade (DR) C-EUR, TER: 0.17%
Hi jpiabrantes,

I am trying to replicate a similar portfolio to the one that you are doing. However, I noticed that these two funds relating to the bond component of the portfolio are kind of small (130m$ and 330m$)... Have you already started investing in these? If so, are you experiencing some costs associated with the small size and low liquidity of the funds (large bid/ask spreads)?

Thank you in advance!
jpiabrantes
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by jpiabrantes »

Hi pedromdias,

I ended up investing on the even smaller Lyxor Ultra Long Duration Euro Govt FTSE MTS 25+Y (TER: 0.1%, fund size 77m) and on the much bigger iShares Treasury bond 7-10 (however this one distributes the profits :( ).

I don't expect to trade very often on Lyxor so I figured that having a smaller TER would be better than having a larger fund size.

If you're ok with US bonds and distributing profits you also have this one available in EUR in the XETRA market:
iShares $ Treasury Bond 20+yr UCITS
luluver
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by luluver »

Hi, there,

During the past period I also worked on an implementation of the Dalio/Robbins portfolio with available funds in the Euro zone. I have worked out three variants, one for Germany, one for the entire Euro zone and one for the United States. Currency risks have been hedged as much as possible. The commodities fund is the only exception. This can be bought in euros, but the price is linked to the dollar.

Since I myself live in the Netherlands, I have looked for funds that are the most advantageous from a fiscal/dividend leakage point of view in the Netherlands. For other countries in the Euro zone it is probably better to select other funds there.

A few more remarks:
- Both in the German variant and the Euro zone variant, the long-term bond fund is small in size. As far as I am concerned, that is a risk.
- The German variant uses the DAX index instead of an index for the entire German stock market. I haven't been able to find the latter yet. This is a deviation from the intended set-up.
- It is difficult to find good data, but the volatility of the long-term bond fund in the United States variant seems to be considerably higher than the volatility of this fund in the other variants. I wonder if this undermines the assumptions under the portfolio in the other variants.
- A disadvantage of the Actiam funds is that they charge a small entry and exit fee.

United States
Share Type Name Ticker Turnover TER ISIN
30% Stocks ACTIAM Responsible Index Equity Fund North America NB 429mln 0.10% NL0011309323
40% LT Bonds iShares $ Treasury Bond 20+yr UCITS ETF DTLE 966mln 0.10% IE00BD8PGZ49
15% IT Bonds iShares $ Treasury Bond 7-10yr UCITS ETF IBB1 4045mln 0.10% IE00BGPP6697
7.50% Lyxor Commodities Thomson Reuters/CoreCommodity CRB TR UCITS ETF CRB FP 490mln 0.35% LU1829218749
7.50% Gold WisdomTree Physical Gold - EUR Daily Hedged GBSE 152mln 0.39% DE000A1RX996
Overall cost 0.14%

Germany
Share Type Name Ticker Turnover TER ISIN
30% Stocks Vanguard DAX UCITS ETF (EUR) Distribution VDXX 17mln 0.10% IE00BG143G97
40% LT Bonds iShares eb.rexx® Government Germany 10.5+yr UCITS ETF (DE) EXX6 63mln 0.16% DE000A0D8Q31
15% IT Bonds iShares eb.rexx® Government Germany 5.5-10.5yr UCITS ETF (DE) EXHD 234mln 0.16% DE0006289499
7.50% Lyxor Commodities Thomson Reuters/CoreCommodity CRB TR UCITS ETF CRB FP 490mln 0.35% LU1829218749
7.50% Gold WisdomTree Physical Gold - EUR Daily Hedged GBSE 152mln 0.39% DE000A1RX996
Overall cost 0.17%

Euro zone
Share Type Name Ticker Turnover TER ISIN
30% Stocks ACTIAM Responsible Index Equity Fund Europe NB 96mln 0.15% NL0011309315
40% LT Bonds iShares € Govt Bond 20yr Target Duration UCITS ETF E20Y 79mln 0.15% IE00BSKRJX20
15% IT Bonds iShares € Govt Bond 3-7yr UCITS ETF CBE7 510mln 0.20% IE00B3VTML14
7.50% Lyxor Commodities Thomson Reuters/CoreCommodity CRB TR UCITS ETF CRB FP 490mln 0.35% LU1829218749
7.50% Gold WisdomTree Physical Gold - EUR Daily Hedged GBSE 152mln 0.39% DE000A1RX996
Overall cost 0.19%

Feedback and suggestions are very welcome.
senecaaa
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by senecaaa »

Awesome!

I would personally not hedge gold, I think it only makes sense to hedge bonds.

This is a great Gold ETF for Europeans: 4GLD. They will transfer physical gold to you via your broker on request.

For the German/European version, you could consider buying a bund ladder. It will be cheaper, but a bit more work every 2 years.
luluver
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by luluver »

senecaaa wrote: Fri Jan 03, 2020 8:02 am Awesome!

I would personally not hedge gold, I think it only makes sense to hedge bonds.

This is a great Gold ETF for Europeans: 4GLD. They will transfer physical gold to you via your broker on request.

For the German/European version, you could consider buying a bund ladder. It will be cheaper, but a bit more work every 2 years.
Thanks senecaaa! This unhedged 4GLD ETF indeed looks promising, but I'm curious why you don't think hedging gold is necessary.

Besides that I notice that there is a lot of discussion about whether gold and commodities are a good inflation hedge, but that's probably a subject for another thread.
senecaaa
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by senecaaa »

luluver wrote: Fri Jan 03, 2020 4:30 pm
Thanks senecaaa! This unhedged 4GLD ETF indeed looks promising, but I'm curious why you don't think hedging gold is necessary.
I can't find where I read it, but I remember that the volatility of gold is not always decreased by hedging it. Sometimes it does, sometimes it increases volatility.

Also, you have to think about why Gold is part of this portfolio. Gold on its own is maybe better hedged but as part of this portfolio, we might want it volatile.
luluver wrote: Fri Jan 03, 2020 4:30 pm
Besides that I notice that there is a lot of discussion about whether gold and commodities are a good inflation hedge, but that's probably a subject for another thread.
Yeah, I'd just trust Ray Dalio there :-).
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by Anon9001 »

FabrizioC wrote: Sun Jan 13, 2019 5:18 am [Moved into a new thread from: Improving the Dalio/Robbins All-Seasons Portfolio --admin LadyGeek]

Hi all,
this is my first post... great forum and great discussion, thanks!

I am trying to understand better the all-weather approach and figure out how to implement it from a European perspective.

My points here are the following:

- as far as I have understood, the risk-parity concept applied to all-weather portfolio means that the investor has to allocate equal amounts of risk to the four different macroeconomic scenarios (higher/lower growth, higher/lower inflation than expected). Thus, to find the "right" weigth of each asset class, the investor should calculate the correlations between each asset class and each of the two main identified macro-variables (inflation and growth). This way, it should be clearer what would be the effect of changing the relative weights of the asset classes, or choosing a more or less leveraged bond ETF, or investing in the European market (with presumably slightly different macroeconomic relations compared to the US markets), in terms of "equal" or "unequal" exposure to the four possible scenarios;

- considering that my perspective is from Europe, if I want to invest in the US, UK (or other global) markets, I need to take into account the exchange rates. In particular, I need to evaluate how the exchange rate can affect the exposure to inflation and growth macro variables. I am trying to figure out if I should consider the exchange rate embedded in the prices, and then just simply apply the described risk-parity approach, or if I should consider an additional macro variable (the exchange rate) together with inflation and growth, in order to reach an effective all-weather diversification... I think this is a complex macro-economic issue, but any suggestion is welcome!!

Thanks, ciao
All Seasons portfolio is heavy on bonds. It will go down heavily if interest rates rise. I prefer the Golden Butterfly to it.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
80sguy
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by 80sguy »

Hi guys, what am I missing here?.

According to Robbins (https://yahoofinance.tumblr.com/post/10 ... -portfolio) from 1984 to 2013 the All seasons portfolio had and average return per year of 9.72% and Robbins is super exited about that!!!... and yes, it was a nice return but the SP500 had an average return of 9.84% on the same period, get my point?.
The only thing that I like so far from the All seasons portfolio is that is less volatile than SP500, but still I don't think that is the great "guru-level" portfolio strategy that Robbins tries to sell.

BR
If you are looking for specific ETFs take a look in my website: http://tableuros.com/
senecaaa
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by senecaaa »

80sguy wrote: Sat Jan 11, 2020 4:44 am Hi guys, what am I missing here?.

According to Robbins (https://yahoofinance.tumblr.com/post/10 ... -portfolio) from 1984 to 2013 the All seasons portfolio had and average return per year of 9.72% and Robbins is super exited about that!!!... and yes, it was a nice return but the SP500 had an average return of 9.84% on the same period, get my point?.
The only thing that I like so far from the All seasons portfolio is that is less volatile than SP500, but still I don't think that is the great "guru-level" portfolio strategy that Robbins tries to sell.

BR
Average return is not everything. For one it is sensitive to the day you start investing. The All Seasons portfolio most likely had much better returns than the S&P500 if you entered the market just before a crash. Yes, if you wait long enough 100% stocks will win, but will you ride out a 50% drop in your portfolio?
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Schlabba
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by Schlabba »

80sguy wrote: Sat Jan 11, 2020 4:44 am Hi guys, what am I missing here?.

According to Robbins (https://yahoofinance.tumblr.com/post/10 ... -portfolio) from 1984 to 2013 the All seasons portfolio had and average return per year of 9.72% and Robbins is super exited about that!!!... and yes, it was a nice return but the SP500 had an average return of 9.84% on the same period, get my point?.
The only thing that I like so far from the All seasons portfolio is that is less volatile than SP500, but still I don't think that is the great "guru-level" portfolio strategy that Robbins tries to sell.

BR
The theory is that there are 4 situations which have an impact on asset pricing. Growth/shrink and inflation/deflation combinations. If you design a portfolio to handle all situations it logically follows you won't be outperforming in every of the 4 situations, but instead you would retain value no matter what situation we will be in.

You should also see this portfolio in the context of how it was intended. This was intended as a simply way to manage money after he's no longer around to stay on top of things.

In Ray Dalio's book Principles (page 70), it says
I didn't want the wealth I had created to protect my family to be wiped out after I was gone. That meant I had to create a mix of assets that could be good in all economic environments.
before explaining the All Weather Portfolio.
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by 80sguy »

senecaaa wrote: Sat Jan 11, 2020 5:01 am
80sguy wrote: Sat Jan 11, 2020 4:44 am Hi guys, what am I missing here?.

According to Robbins (https://yahoofinance.tumblr.com/post/10 ... -portfolio) from 1984 to 2013 the All seasons portfolio had and average return per year of 9.72% and Robbins is super exited about that!!!... and yes, it was a nice return but the SP500 had an average return of 9.84% on the same period, get my point?.
The only thing that I like so far from the All seasons portfolio is that is less volatile than SP500, but still I don't think that is the great "guru-level" portfolio strategy that Robbins tries to sell.

BR
Average return is not everything. For one it is sensitive to the day you start investing. The All Seasons portfolio most likely had much better returns than the S&P500 if you entered the market just before a crash. Yes, if you wait long enough 100% stocks will win, but will you ride out a 50% drop in your portfolio?
True, but as you said on the long run diversified stock wins. I think this might be a good strategy after you reach certain age or your about to retire, if you are below 40s ... mnej.
Anyway, I'm not trying to debate a lot about this strategy, I don't think was the point of the original post. Is just that I'm not familiar with this All Seasons's and I don't find it as spectacular as Robbins says so maybe I was missing something.
And I usually don't trust all this guru-writers that earns more money selling books than applying their own advise.

Cheers
If you are looking for specific ETFs take a look in my website: http://tableuros.com/
InvestInPasta
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by InvestInPasta »

IMHO the big problem building any kind of Euro portfolio is the yield of Euro Govies.

Have a look at the Yield to Maturity of the 25+ years Gov. Bonds

Image

An amazing 0.92% gross. From which you have also to subtract the cost of the ETF and the tax. :shock:

And 'shorter' Gov. Bonds (e.g. 7-10 years) have negative YTM

I know that most Bogleheads don't mind valuations and they buy at any price, but Euro Gov. Bonds prices seem to be an absolute nonsense.
When I study English I am lazier than my portfolio. Feel free to fix my English and investing mistakes.
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by amrap »

SunStorm wrote: Sat Apr 20, 2019 5:09 am Hello amrap,

Thank you for sharing your thoughts. I've been trying to construct the exact same thing but I'm having trouble figuring out if what you proposed is a good substitute for Azanon's ideas. Have you been able to further verify your setup since this last post?

Thanks in advance!

Best,
Steffen
Hi Steffen,

I had to give up the idea of replicating Azanon's improvements with index funds because of a lack of availability in my country. However, I've been able to do that easily with ETFs only (widely available in the EU - UCITS compliant). The problem with ETFs in my case is that are not tax-efficient for rebalancing, but that can vary from country to country.

My above suggestion was the first approximation and probably not a perfect substitute for Azanon's ideas.
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by amrap »

InvestInPasta wrote: Sat Jan 18, 2020 8:49 pm IMHO the big problem building any kind of Euro portfolio is the yield of Euro Govies.

Have a look at the Yield to Maturity of the 25+ years Gov. Bonds

Image

An amazing 0.92% gross. From which you have also to subtract the cost of the ETF and the tax. :shock:

And 'shorter' Gov. Bonds (e.g. 7-10 years) have negative YTM

I know that most Bogleheads don't mind valuations and they buy at any price, but Euro Gov. Bonds prices seem to be an absolute nonsense.
Hi,

I won't question that the extremely low and even negative yields distort normal economic behaviour, but please note that the nominal bonds allocation in the all-weather portfolio are not there for the underlying yield but to do well in two of the possible scenarios (growth falling, inflation falling), i.e. is the price of the bonds in the market what matters.

Regarding that specific ETF, it's probably not the best product to implement the Long Term Bonds allocation of the portfolio (15-30 years, distributing, 0.2% TER). I would look for an ETF containing only 25+ and accumulating.
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by Anon9001 »

InvestInPasta wrote: Sat Jan 18, 2020 8:49 pm IMHO the big problem building any kind of Euro portfolio is the yield of Euro Govies.

Have a look at the Yield to Maturity of the 25+ years Gov. Bonds

Image

An amazing 0.92% gross. From which you have also to subtract the cost of the ETF and the tax. :shock:

And 'shorter' Gov. Bonds (e.g. 7-10 years) have negative YTM

I know that most Bogleheads don't mind valuations and they buy at any price, but Euro Gov. Bonds prices seem to be an absolute nonsense.
They are not "absolute nonsense" if you consider the possibility of deflation which I view as very high risk for EU and it seems market is agreeing with me as they give you 0.92% yield for 21 Year Bond. It seems like a slower version of Japan is playing out there. I would modify the portfolio to have higher equities percentage if you are confident that EU will not end up like Japan.
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by amrap »

Regarding the low interest rates and deflation risks, I've done a review and open a discussion in the US focused thread based on what the RPAR ETF is doing (different allocations if interest rates are above/below 1%). I think the conclusions are applicable to Europe.
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by amrap »

Regarding the different versions of the portfolio for the Euro and other currencies, I've opted for all ETFs and implemented the following unhedged structure:
  • An European portfolio (biggest allocation in my case), composed by stocks, MT/LT bonds, and inflation-linked EUR bonds, plus the proportional allocation to bullet 4 below.
  • A US portfolio composed by stocks, MT/LT bonds, TIPS, plus the proportional allocation to bullet 4 below.
  • Commodities and Gold, in USD unhedged ETFs, proportional to cover the three portfolios above.
I've chosen the unhedged versions of every ETF because I think that improves the diversification of the whole strategy. I'd like to know your views on the currency issue and balancing all portfolios with the same 2 ETFs in USD unhedged (gold and commodities). Thanks!
Paolof
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by Paolof »

Dear friends of Bogleheads,
I'm a fan of Ray Dalio's all-season portfolio.
I'd like to share my personal portfolio:
- 30% Xtrackers II Eurozone Government Bond 25+: low growth / low inflation;
- 30% UBS - Bloomberg Barclays Euro Inflation Linked 10+: low growth / high inflation;
- 20% Spdr Msci Acwi Imi: high growth / low inflation;
- 20% Commodity producer: high/inflation
10% Vaneck Natural Resources: high growth 
10% ComStage NYSE Arca Gold BUGS: low growth.
For the bond part, I used ETFs with the longest duration available, in order to have such volatility as to offset stocks and commodities.
For the equities, I chose the ACWI IMI index, which covers the whole world, including small companies.
For the commodities, I divided 50% into natural resources stocks and 50% into gold stocks.
I prefer companies engaged in the production of commodities and gold, to avoid the problems of contango and backwardation of ETFs in commodities. In addition, gold ETCs are not ETFs, but simple bonds. The physical delivery of gold is never guaranteed!
The "ComStage NYSE Arca Gold BUGS" offers the closest exposure to gold because it only contains gold stocks that do not cover the price fluctuations of the yellow metal.
In the end I got a portfolio for 40% invested in equities and 60% in government bonds, with exposure to all the economic circles described by Ray Dalio.
The weights of the asset classes were determined approximately on the basis of historical volatility.
Last edited by Paolof on Sat Aug 01, 2020 10:43 am, edited 1 time in total.
NunoSousa
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by NunoSousa »

FabrizioC wrote: Sun Jan 13, 2019 5:18 am [Moved into a new thread from: Improving the Dalio/Robbins All-Seasons Portfolio --admin LadyGeek]

Hi all,
this is my first post... great forum and great discussion, thanks!

I am trying to understand better the all-weather approach and figure out how to implement it from a European perspective.

My points here are the following:

- as far as I have understood, the risk-parity concept applied to all-weather portfolio means that the investor has to allocate equal amounts of risk to the four different macroeconomic scenarios (higher/lower growth, higher/lower inflation than expected). Thus, to find the "right" weigth of each asset class, the investor should calculate the correlations between each asset class and each of the two main identified macro-variables (inflation and growth). This way, it should be clearer what would be the effect of changing the relative weights of the asset classes, or choosing a more or less leveraged bond ETF, or investing in the European market (with presumably slightly different macroeconomic relations compared to the US markets), in terms of "equal" or "unequal" exposure to the four possible scenarios;

- considering that my perspective is from Europe, if I want to invest in the US, UK (or other global) markets, I need to take into account the exchange rates. In particular, I need to evaluate how the exchange rate can affect the exposure to inflation and growth macro variables. I am trying to figure out if I should consider the exchange rate embedded in the prices, and then just simply apply the described risk-parity approach, or if I should consider an additional macro variable (the exchange rate) together with inflation and growth, in order to reach an effective all-weather diversification... I think this is a complex macro-economic issue, but any suggestion is welcome!!

Thanks, ciao
Hi,

I'm interested too, in building an European Version of the All Seasons Portfolio. I want to build it with accumulating ETFs.
The Original asset allocation is:
30% Stocks
40% Long Term Bonds
15% Intermediate Bonds
7.5% Gold
7.5% Commodities.

Personally I don't like the Commodities. They are too volatile and they draw you down even more on drawdown periods. So, the "improvement" I made here was to allocate 15% in gold.
So far, this is what I'm thinking to implement:

30% -> iShares Core MSCI World UCITS ETF USD (Acc) ISIN IE00B4L5Y983
40% -> Lyxor Euro Government Bonds 25+Y (DR) UCITS ETF (Acc) ISIN LU1686832194
15% -> Xtrackers Global Sovereign UCITS ETF 1C Euro Hedged ISIN LU0378818131
15% -> iShares Physical Gold ETC ISIN IE00B4ND3602

You might notice that on Intermediate Bonds I choosed a Global Sovereign Bond ETF Euro Hedged. With this, the portfolio it's more diversified and has a maturity period of aprox. 8 years, which it's the same period of intermediate bonds.

Any comments on this, guys ?

Thanks.
Valuethinker
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by Valuethinker »

NunoSousa wrote: Sun Jun 21, 2020 6:07 am
FabrizioC wrote: Sun Jan 13, 2019 5:18 am [Moved into a new thread from: Improving the Dalio/Robbins All-Seasons Portfolio --admin LadyGeek]

Hi all,
this is my first post... great forum and great discussion, thanks!

I am trying to understand better the all-weather approach and figure out how to implement it from a European perspective.

My points here are the following:

- as far as I have understood, the risk-parity concept applied to all-weather portfolio means that the investor has to allocate equal amounts of risk to the four different macroeconomic scenarios (higher/lower growth, higher/lower inflation than expected). Thus, to find the "right" weigth of each asset class, the investor should calculate the correlations between each asset class and each of the two main identified macro-variables (inflation and growth). This way, it should be clearer what would be the effect of changing the relative weights of the asset classes, or choosing a more or less leveraged bond ETF, or investing in the European market (with presumably slightly different macroeconomic relations compared to the US markets), in terms of "equal" or "unequal" exposure to the four possible scenarios;

- considering that my perspective is from Europe, if I want to invest in the US, UK (or other global) markets, I need to take into account the exchange rates. In particular, I need to evaluate how the exchange rate can affect the exposure to inflation and growth macro variables. I am trying to figure out if I should consider the exchange rate embedded in the prices, and then just simply apply the described risk-parity approach, or if I should consider an additional macro variable (the exchange rate) together with inflation and growth, in order to reach an effective all-weather diversification... I think this is a complex macro-economic issue, but any suggestion is welcome!!

Thanks, ciao
Hi,

I'm interested too, in building an European Version of the All Seasons Portfolio. I want to build it with accumulating ETFs.
The Original asset allocation is:
30% Stocks
40% Long Term Bonds
15% Intermediate Bonds
7.5% Gold
7.5% Commodities.

Personally I don't like the Commodities. They are too volatile and they draw you down even more on drawdown periods. So, the "improvement" I made here was to allocate 15% in gold.
So far, this is what I'm thinking to implement:

30% -> iShares Core MSCI World UCITS ETF USD (Acc) ISIN IE00B4L5Y983
40% -> Lyxor Euro Government Bonds 25+Y (DR) UCITS ETF (Acc) ISIN LU1686832194
15% -> Xtrackers Global Sovereign UCITS ETF 1C Euro Hedged ISIN LU0378818131
15% -> iShares Physical Gold ETC ISIN IE00B4ND3602

You might notice that on Intermediate Bonds I choosed a Global Sovereign Bond ETF Euro Hedged. With this, the portfolio it's more diversified and has a maturity period of aprox. 8 years, which it's the same period of intermediate bonds.

Any comments on this, guys ?

Thanks.
See my comments on Eurozone govt bonds. C 20% of that portfolio will be in Italian govt bonds.

15% gold? So 15% of your portfolio might have a long run real return of 0% or less?

If you want to protect assets, say at retirement, it's not foolish to have 70% in bonds and "safe" assets (albeit gold will be so volatile that it is anything but safe). If you are trying to grow your assets in real terms, 30% in equities is too little.

(caveat. Of course we could have a stock market crash. Say if Covid-19 cases were still rising in the USA ... oh, sorry. So for preserving wealth, that's not a bad portfolio, however you will lose to inflation (Eurozone nominal rates are below current inflation)).
coferin
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by coferin »

Reviving this topic since I'm also an european interested in implementing an All-Seasons portfolio. I've recently read Dalio said you'd be pretty crazy to hold bonds right now ([Source: https://markets.businessinsider.com/new ... %20period.).
Why would he say something like that if he gave his blessing on this portfolio for every season? Does it mean that after all this pf doesn't work in a low interest rates scenario?
amrap
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by amrap »

NunoSousa wrote: Sun Jun 21, 2020 6:07 am
FabrizioC wrote: Sun Jan 13, 2019 5:18 am [Moved into a new thread from: Improving the Dalio/Robbins All-Seasons Portfolio --admin LadyGeek]

Hi all,
this is my first post... great forum and great discussion, thanks!

I am trying to understand better the all-weather approach and figure out how to implement it from a European perspective.

My points here are the following:

- as far as I have understood, the risk-parity concept applied to all-weather portfolio means that the investor has to allocate equal amounts of risk to the four different macroeconomic scenarios (higher/lower growth, higher/lower inflation than expected). Thus, to find the "right" weigth of each asset class, the investor should calculate the correlations between each asset class and each of the two main identified macro-variables (inflation and growth). This way, it should be clearer what would be the effect of changing the relative weights of the asset classes, or choosing a more or less leveraged bond ETF, or investing in the European market (with presumably slightly different macroeconomic relations compared to the US markets), in terms of "equal" or "unequal" exposure to the four possible scenarios;

- considering that my perspective is from Europe, if I want to invest in the US, UK (or other global) markets, I need to take into account the exchange rates. In particular, I need to evaluate how the exchange rate can affect the exposure to inflation and growth macro variables. I am trying to figure out if I should consider the exchange rate embedded in the prices, and then just simply apply the described risk-parity approach, or if I should consider an additional macro variable (the exchange rate) together with inflation and growth, in order to reach an effective all-weather diversification... I think this is a complex macro-economic issue, but any suggestion is welcome!!

Thanks, ciao
Hi,

I'm interested too, in building an European Version of the All Seasons Portfolio. I want to build it with accumulating ETFs.
The Original asset allocation is:
30% Stocks
40% Long Term Bonds
15% Intermediate Bonds
7.5% Gold
7.5% Commodities.

Personally I don't like the Commodities. They are too volatile and they draw you down even more on drawdown periods. So, the "improvement" I made here was to allocate 15% in gold.
So far, this is what I'm thinking to implement:

30% -> iShares Core MSCI World UCITS ETF USD (Acc) ISIN IE00B4L5Y983
40% -> Lyxor Euro Government Bonds 25+Y (DR) UCITS ETF (Acc) ISIN LU1686832194
15% -> Xtrackers Global Sovereign UCITS ETF 1C Euro Hedged ISIN LU0378818131
15% -> iShares Physical Gold ETC ISIN IE00B4ND3602

You might notice that on Intermediate Bonds I choosed a Global Sovereign Bond ETF Euro Hedged. With this, the portfolio it's more diversified and has a maturity period of aprox. 8 years, which it's the same period of intermediate bonds.

Any comments on this, guys ?

Thanks.
Hi Nuno,

I'd recommend you read through the main thread (the one for the US portfolio, which version is much better than the one you used as a reference, for example by avoiding mid-term bonds since you probably won't be able to leverage efficiently) and especially the resources in the RPAR ETF https://rparetf.com/rpar. With this info, you should be able to construct an all-weather portfolio with ETFs and have two versions depending on the interest rate (more on that in the RPAR ETF material).

As overall advice, stick to the portfolio's allocation and avoid letting your personal preferences in the way. Commodities are there for a reason, and that reason already considers the behavior you don't like, but it's about all the assets working together.

Regards,
Dabach
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Re: Dalio/Robbins All-Seasons Portfolio [Europe]

Post by Dabach »

Due to their lower volatility, bonds tend to be over-allocated in the All-Seasons Portfolio. The approach also suggests a valuation-neutral approach but extra caution is necessary in the current monetary environment. For example, IL bonds would be an asset of choice for a situation of lower growth and higher inflation but the yields of all bonds are currently unattractive: The iShares Global Inflation Linked Govt Bond UCITS ETF returns less than 1%. While the sensitivity of commodities to inflation can usually offset the effect on bonds, other factors may not have the impact expected based on historical asset correlations. Bonds will perform best during times of disinflationary recession, stocks will perform best during periods of growth, but during some crisis stocks and bonds can move in the same direction. Risk parity strategies (in particular passive ones) do not show any immunity when this occurs.
More on Risk Parity under www.guidefinances.com/2021/06/04/risk-parity
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