Wonk,Wonk wrote:I think it has to do with rebalancing.Gosso wrote: Wonk, something seems wonky with your 2013 numbers. I track a 3x33% of the 1x, 2x, and 3x PPs using Google Finance. Here are the 2013 results:
1x = -3.8%
2x = -8.3%
3x = -11.3%
All of the portfolios were rebalanced in mid-May, and include interest and dividends. Maybe your portfolio rebalanced at a better time than mine? I doubt SHY would make that much of a difference...
The 2x PP triggered a rebalance after 2010 & 2011, but not after 2012. At the beginning of 2013, the stock portion was just under 30% of the portfolio so it was overweight. With the strong year in stocks, it pulled the other assets up. By the end of 2013, stocks represented 44% of the porfolio and triggered another rebalance. Rebalancing was end of year only, so that might have an influence on the numbers as well.
Just to be clear on the rebalancing issue - There are basically three schools of thought as to how often and when to rebalance a portfolio:
One, rebalance at the end of every year back to the original starting percentages regardless of how well/poorly each component has done and how much of the overall portfolio each component makes up before the rebalance.
Two, rebalance when any one component gets outside of a certain "band" (in this case more than 35% or less than 15%) and immediately do it whenever this violation of the rebalancing bands occur, even if it means several rebalancings per year if necessary.
Three, rebalance only at the end of the year if and only if any one of the components is above/below the rebalancing band limits (again, 15/35 in this case) as of the 31st of December of that year; otherwise, do not rebalance at all and simply wait one more year (until the 31st of December of next year) to see--using the test above--whether rebalancing is warranted, and so on.
I am presuming (perhaps incorrectly) that the UGL/UBT/SSO/SHY portfolio is rebalanced as per #3 above?