Mebane Faber, the creator of the IVY timing portfolio, has recently released an official update of the model with returns through the end of 2012. He also did a series of posts on his blog that chops up the update into more digestible pieces. For an intro to this topic please see my first post on the portfolio here. In this post I provide the official summary performance update plus highlight a few important points about the portfolio. As I’ve stated before this is my default recommended portfolio for retirees primarily because it increases retirement withdrawal rates with less risk and provides an automatic process to portfolio management. If you’re an active investor I think this should be your portfolio benchmark.
The updated performance figures for the IVY timing model from 1973 through 2012 are listed below. Click on the image to enlarge.
Impressive returns over a buy and hold portfolio with much less risk. However, a common recent complaint about the IVY timing model is the under performance during the bull market that started in 2009. And that is indeed the case when you look at the returns from 2009 to 2012. It is critical to remember that these type of portfolios work over a business cycle, a bull plus a bear market. Best case in a bull market they will match performance of a buy and hold portfolio. But in a bear market they truly shine as the returns above show. And down markets are what really matter for retirees who are withdrawing money every year from their portfolios. Over the entire cycle starting in 2006 the performance of the portfolio is as follows.
That’s almost 4 times the risk adjusted performance (based on sharpe ratio) over the buy and hold portfolio. With a max drawdown of less than 10% which makes the odds of sticking with this strategy much greater than a buy and hold portfolio where investors were dumping equities right at the bottom of the market.
There are many more items in the update provided by Mebane. He added several more portfolio options as well that are worth discussing. I’ll be doing a series of posts on some of the updates and will also update the safe withdrawal rates for the various portfolios.
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.