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Discussion Starter · #1 ·
I came across this article and quite interested in understanding the proposed asset allocation strategy.

Unfortunately I can't link on this forum since I am a newly registered user. But please find the published PDF by searching on Google "bridgewater all weather story". It should be one of the top search results.

What I don't quite understand is the role of EM Credit in the matrix. Could someone give me an example where EM Credit would be useful in hedging?
 

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The more general approach, same theme, is Browne's Permanent Portfolio. That was the original idea, holding 25% each of stocks, treasury bonds, gold, cash. A quick & dirty implementation that's very doable is:

25% XIC (or half ZSP too)
25% XGB
25% MNT or CEF.A
25% savings account or XSB

I've been running the numbers and doing some analysis and I agree, it's a great idea overall (permanent portfolio). The all season one you mention is a variant of it, and I think it's inferior to the original permanent portfolio.

I also did some analysis of this permanent portfolio, will post more below. It's a good idea, and I plan to do it.
 

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Here's some data I have for a permanent portfolio, Jan 2006 to today (10+ years) using 25% XIC, 25% XGB, 25% MNT, 25% XSB. Some of the numbers are imperfect because data wasn't available for the full range.

Performance for the full 10+ years: 5.8%
For reference, TSX (XIU) performance: 4.0%
Annual returns:
2006: 11.5%
2007: 6.6%
2008: 2.9%
2009: 11.7%
2010: 12.3%
2011: 4.4%
2012: 3.8%
2013: -2.9%
2014: 7.5%
2015: 0.8%
2016: 3.0%

Notice that the worst year was only -2.9% versus TSX falling -32% in its worst year. Also notice that the overall return is significantly better than a TSX-only portfolio.

Higher returns with less risk & less volatility. It's a winner... and very simple to implement too. I'm transforming my RRSP into this.
 

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Discussion Starter · #5 ·
I am still wondering why EM Credit

While I appreciate your replies, my question was the rationale behind allocating to EM Credit for Rising Growth and Rising Inflation. I am really just trying to understand the use of the EM Credit here.
 

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I think you're talking about this article then
http://www.bwater.com/Uploads/FileManager/research/All-Weather/All-Weather-Story.pdf

I don't see any rationale at all for their emerging (EM) market credit allocation. They don't explain it in this article and this is not a standard investment. My guess is that they're somewhat riding the wave of the emerging market hype, which was popular starting in 2002. When the US dollar plummeted starting in 2002, suddenly emerging market investments became extremely popular.

So perhaps their theory is that when inflation is high and the US dollar is weak, emerging markets will do well, and therefore EM bonds benefit from bond safety + currency appreciation.

But you're not missing anything. It's not clear why they believe this.
 

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Discussion Starter · #7 ·
How about Growth Rising?

Thanks for the reply. That makes sense for the Rising Inflation. How about Rising Growth? How does EM Credit benefit you when the economy is growing?
 

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Here's some data I have for a permanent portfolio, Jan 2006 to today (10+ years) using 25% XIC, 25% XGB, 25% MNT, 25% XSB. Some of the numbers are imperfect because data wasn't available for the full range.

Performance for the full 10+ years: 5.8%
For reference, TSX (XIU) performance: 4.0%
Annual returns:
2006: 11.5%
2007: 6.6%
2008: 2.9%
2009: 11.7%
2010: 12.3%
2011: 4.4%
2012: 3.8%
2013: -2.9%
2014: 7.5%
2015: 0.8%
2016: 3.0%

Notice that the worst year was only -2.9% versus TSX falling -32% in its worst year. Also notice that the overall return is significantly better than a TSX-only portfolio.

Higher returns with less risk & less volatility. It's a winner... and very simple to implement too. I'm transforming my RRSP into this.
I would highly recommend you read Global Asset Allocation by Meb Faber. It's pretty cheap as an e-book and he regularly has promotions on his website where you can get it for free or even cheaper.

He compares various 'famous' portfolios with different asset allocations including Browne's permanent portfolio. From what I recall, the permanent portfolio is actually the worst performing of the bunch but the ultimate conclusion is that they all beat the index over long periods and many end up actually having similar exposure once you simplify the asset classes.
 

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Here's some data I have for a permanent portfolio, Jan 2006 to today (10+ years) using 25% XIC, 25% XGB, 25% MNT, 25% XSB. Some of the numbers are imperfect because data wasn't available for the full range.

Performance for the full 10+ years: 5.8%
For reference, TSX (XIU) performance: 4.0%
Why compare what is essentially a balanced portfolio containing mix of fixed income and equity with XIU (an all equity etf)?? The comparison should be with a balanced fund or etf.

10 yrs is not really a long enough period to use to make a decision. But sometimes longer term data may be harder to find.

I don't think there is any magic allocation that will work for all times. Those are just for those who do not have time or inclination to adjust portfolios for changing times.
 

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"I don't think there is any magic allocation that will work for all times."

Yup - depending upon the timeframe you pick, to measure that allocation performance, you could look like a hero or a goat.

You need to compare apples to apples as much as possible. I'm not a huge fan of Browne's Permanent Portfolio but that's because my approach is different. Doesn't make it right or wrong, just is :)
 

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Discussion Starter · #11 ·
Thank you for replies

These are some definitely helpful things you guys are letting me know here. I will go and read them all.

My question was though, regarding EM Credit's role in Rising Growth. I am not really trying to find the "best asset allocation" but more to study and put myself in Bridgewater's shoes and figure out what made them decide to use that for the Rising Growth times.
 
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