Description of Dr. Bernstein's Smart Money Portfolio

Dr. William Bernstein is a physician and neurologist as well as a financial adviser to high net worth individuals. His smart money portfolio comprises the following fund allocation:

 

40% Vanguard Short Term Investment Grade VFSTX (SCJ, SHY)

15% Vanguard Total Stock Market VTSMX (NYSEARCA:VTI)

10% Vanguard Small Cap Value VISVX (NYSEARCA:VBR)

10% Vanguard Value Index VIVAX (NYSEARCA:VTV)

5% Vanguard Emerging Markets Stock VEIEX (NYSEARCA:VWO)

5% Vanguard European Stock VEURX (NYSEARCA:VEU)

5% Vanguard Pacific Stock VPACX (NYSEARCA:VPL)

5% Vanguard REIT Index VGSIX (RWX, VNQ)

5% Vanguard Small Cap Value NAESX or VTMSX (VB)

 

To summarize:

40% in U.S. equities

10% in international equities

5% in emerging market equities

5% in REITs

40% in fixed income

Statistics of Dr. Bernstein's Smart Money Portfolio (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (66.2%) in the period of the last 5 years, the total return, or performance of 29% of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
  • Looking at total return, or increase in value in of 24.3% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (47.5%).

CAGR:

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Using this definition on our asset we see for example:
  • The annual performance (CAGR) over 5 years of Dr. Bernstein's Smart Money Portfolio is 5.2%, which is lower, thus worse compared to the benchmark SPY (10.7%) in the same period.
  • Compared with SPY (13.9%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 7.6% is lower, thus worse.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (13.3%) in the period of the last 5 years, the historical 30 days volatility of 7.4% of Dr. Bernstein's Smart Money Portfolio is lower, thus better.
  • Compared with SPY (12.5%) in the period of the last 3 years, the volatility of 6.9% is lower, thus better.

DownVol:

'Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Which means for our asset as example:
  • Looking at the downside risk of 8.2% in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (14.6%)
  • During the last 3 years, the downside volatility is 8%, which is smaller, thus better than the value of 14.2% from the benchmark.

Sharpe:

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Applying this definition to our asset in some examples:
  • The ratio of return and volatility (Sharpe) over 5 years of Dr. Bernstein's Smart Money Portfolio is 0.37, which is lower, thus worse compared to the benchmark SPY (0.62) in the same period.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.73, which is lower, thus worse than the value of 0.91 from the benchmark.

Sortino:

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Which means for our asset as example:
  • Compared with the benchmark SPY (0.56) in the period of the last 5 years, the excess return divided by the downside deviation of 0.33 of Dr. Bernstein's Smart Money Portfolio is smaller, thus worse.
  • During the last 3 years, the ratio of annual return and downside deviation is 0.63, which is lower, thus worse than the value of 0.8 from the benchmark.

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Using this definition on our asset we see for example:
  • The Ulcer Index over 5 years of Dr. Bernstein's Smart Money Portfolio is 3 , which is smaller, thus worse compared to the benchmark SPY (3.96 ) in the same period.
  • Looking at Downside risk index in of 2.42 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (4.01 ).

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Which means for our asset as example:
  • The maximum drop from peak to valley over 5 years of Dr. Bernstein's Smart Money Portfolio is -11.1 days, which is larger, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • During the last 3 years, the maximum drop from peak to valley is -11.1 days, which is greater, thus better than the value of -19.3 days from the benchmark.

MaxDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs) in days.'

Applying this definition to our asset in some examples:
  • Looking at the maximum days under water of 288 days in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively larger, thus worse in comparison to the benchmark SPY (187 days)
  • During the last 3 years, the maximum days below previous high is 148 days, which is greater, thus worse than the value of 139 days from the benchmark.

AveDuration:

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Which means for our asset as example:
  • The average days under water over 5 years of Dr. Bernstein's Smart Money Portfolio is 64 days, which is higher, thus worse compared to the benchmark SPY (41 days) in the same period.
  • During the last 3 years, the average days under water is 41 days, which is higher, thus worse than the value of 36 days from the benchmark.

Performance of Dr. Bernstein's Smart Money Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Dr. Bernstein's Smart Money Portfolio
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Allocations

Returns of Dr. Bernstein's Smart Money Portfolio (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Dr. Bernstein's Smart Money Portfolio are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.