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, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Applying this definition to our asset in some examples:
  • Looking at the total return, or increase in value of 31.7% in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (68.2%)
  • Compared with SPY (47.7%) in the period of the last 3 years, the total return of 24.9% is lower, thus worse.

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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (11%) in the period of the last 5 years, the annual performance (CAGR) of 5.7% of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
  • During the last 3 years, the annual performance (CAGR) is 7.7%, which is smaller, thus worse than the value of 13.9% from the benchmark.

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Applying this definition to our asset in some examples:
  • The historical 30 days volatility over 5 years of Dr. Bernstein's Smart Money Portfolio is 7.4%, which is lower, thus better compared to the benchmark SPY (13.2%) in the same period.
  • Compared with SPY (12.4%) in the period of the last 3 years, the 30 days standard deviation 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.'

Applying this definition to our asset in some examples:
  • Looking at the downside volatility of 8.1% in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (14.6%)
  • During the last 3 years, the downside risk is 7.9%, which is lower, thus better than the value of 14% from the benchmark.

Sharpe:

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Which means for our asset as example:
  • The Sharpe Ratio over 5 years of Dr. Bernstein's Smart Money Portfolio is 0.43, which is smaller, thus worse compared to the benchmark SPY (0.64) in the same period.
  • Looking at risk / return profile (Sharpe) in of 0.76 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.92).

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:
  • Looking at the ratio of annual return and downside deviation of 0.39 in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.58)
  • Compared with SPY (0.81) in the period of the last 3 years, the downside risk / excess return profile of 0.66 is lower, thus worse.

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (3.95 ) in the period of the last 5 years, the Downside risk index of 3 of Dr. Bernstein's Smart Money Portfolio is lower, thus worse.
  • During the last 3 years, the Ulcer Index is 2.42 , which is lower, thus worse than the value of 4 from the benchmark.

MaxDD:

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Applying this definition to our asset in some examples:
  • The maximum drop from peak to valley over 5 years of Dr. Bernstein's Smart Money Portfolio is -11.1 days, which is higher, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • Looking at maximum DrawDown in of -11.1 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-19.3 days).

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.'

Using this definition on our asset we see for example:
  • Looking at the maximum days below previous high of 288 days in the last 5 years of Dr. Bernstein's Smart Money Portfolio, we see it is relatively greater, thus worse in comparison to the benchmark SPY (187 days)
  • During the last 3 years, the maximum time in days below previous high water mark is 148 days, which is greater, thus worse than the value of 131 days from the benchmark.

AveDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. 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.'

Using this definition on our asset we see for example:
  • The average days below previous high over 5 years of Dr. Bernstein's Smart Money Portfolio is 63 days, which is larger, thus worse compared to the benchmark SPY (39 days) in the same period.
  • Looking at average time in days below previous high water mark in of 39 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (33 days).

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.