Market timing portfolio 5 year performance (2007-2011)

In this post I want to take a look at the 5 year performance of the IVY market timing portfolio that I’ve discussed on the blog several times before (here and here or search the blog for ‘timing‘). For investors that are not inclined to pick investments for themselves, and in particular for retirees of that ilk, this is the investment strategy that I advocate; it is simple to implement, preserves an investor’s capital, and has beaten a buy and hold portfolio over the long run. For a retiree in particular, it allows a higher withdrawal rate during retirement. I also use it as one of my primary performance benchmarks. The last 5 years help illustrate several aspects of this investment approach that are worth noting. Lets dive right in.

For background on the IVY market timing portfolio go to the source himself, Mebane Faber and his website World Beta. I highly recommend the book as well. The IVY portfolio is an equal weighted diversified 5 asset portfolio modeled after endowment portfolios such as those of Harvard and Yale. The timing of entry and exits into those assets is based on a 200 day simple moving average. Now for the performance data. The table below shows the 5 year performance of the IVY timing portfolio, the S&P5000, and a 60/40 stock bond portfolio – represented by the Vanguard fund VBAIX.

Over the five year period from 2007 to 2011 the IVY portfolio handily beat the performance of both the S&P500 and a 60/40 stock/bond portfolio by a wide margin just as it had in previous periods. It also did so with lower volatility and much lower drawdowns. See this link from dhsort for a detailed comparison of the IVY portfolio vs the SPY. A performance chart of the IVY timing portfolio vs the SPY is shown below.

An investor using the IVY timing portfolio would have weathered the financial crisis quite well and not lost money in any of the 5 years. Now, that is saying a lot. But notice how the out performance of the IVY timing portfolio was achieved. The out performance was achieved in a large way by avoiding the large losses of 2008. And its performance in the last 3 years was actually lower than the SPY or the balanced fund. This is very characteristic of this investment method and once of its most powerful features. It is very difficult to over come large losses in an investment portfolios. Hence the famous adage, the first rule of investing is don’t lose money, the second is remember the first rule. But I think many investors would ignore this. How many investors would stick to the IVY timing portfolio during 3 years of under performance? Investors have a bad habit of chasing performance. On the other hand, investors who stuck to their investment plan and followed the IVY timing portfolio were rewarded and will most likely continue to be rewarded in the future.

In summary, the IVY timing portfolio handily beat buy and hold portfolios over the period from 2007 to 20011, just like it has in previous periods. And it did so by primarily limiting large downside losses. While I believe that investors can do better by choosing their own investments, the IVY timing portfolio presents a tough benchmark for an investor to overcome.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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2 Responses to Market timing portfolio 5 year performance (2007-2011)

  1. J Carroll says:

    Paul, looking through some of the linked articles, it looks like the Cambria Global Tactical ETF (GTAA) implements the Ivy timing strategy. Is this correct? Thanks.

    • libertatemamo says:

      J, yes, GTAA is Mebane’s fund he started not too long ago. In the fund he implements a more complex version of the IVY timing portfolio, uses derivatives, etc…. But, I’m not convinced this more complex approach is better than the simple IVY. The 2011 performance of the fund was way worse than the simple IVY and the fees are quite high. Unless one gets better performance after fees than the IVY then why even bother. I’ll give him the benefit of the doubt and not judge GTAA on one year’s performance but the jury is out and I would need five years of history before touching it. The IVY timimg is so simple and cheap to implement the hurdle rate for a more complex version of it is quite high.


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