Hey, I’ve got another Symphony for you today.

Its one of my personal favorites, an implementation of the Ray Dalio classic, The All Weather Portfolio. The portfolio management master-class has spawned an entire family of strategies over on the Discord!

Community Showcase

I’ll leave you a link to the strategy i’ll be covering right here at the top. At the bottom, I’ll leave you with one of the variants I find notable, but doesn’t have the same kind of testing that V1.1 does. Thanks and appreciation to Community Member PrudentUpstairs#3991 for providing me with their live run data!

Originally posted to the Discord by user SolarianKnight#4711, its a simple but effective implementation of the classic All Weather Portfolio with some liberties taken for personal risk tolerances of the creator. There are currently about 6 different versions of this strategy created by the Discord Community. Each one has tweaks and changes in thought process to the one that came before, whether those changes are improvements or not is up to the test of time. This version is my personal favorite. It has run quite well in live testing so far, while holding up to checks for overfitness and selection bias.

Lets dig in shall we?

At the top level, we have a “black swan catcher” as the first decision to be made. This block earned its name by being specifically built to help the strategy navigate Black Swan Events. If the market is crashing and the long-term RSI of $VIXY has spiked up, escape into $SHY. Sensible choice, move in to stable, low risk assets when uncertainty is the highest!

If the market isn't crashing and life is continuing as usual, we go to the All Weather portion of the strategy. Broken down in to the 3 categories dictated by Dalio, we've got a 30% allocation to equities, 55% to bonds, and 15% to commodities. Within each of the categories, there are signals to detect what kind of market we're in. Whether it's a bull market, bear market, rising or falling interest rates, this strategy has a way to detect and adjust holdings for all 4.

Equities

Within the equities section, we check the bond market to determine the safety of equities. If the overall bond market is rising faster than 1-3 month T-Bills, ($BND vs $BIL), select from a basket of leveraged index ETFs set up to select the lowest performing 4 out of 5 possible ETF's.

If the bond market is signaling we're not in a risk-on scenario, meaning short-term treasuries are rising faster (or just falling slower!) than long-term bonds, we go to a check of the returns of long-term bonds.

If returns on TLT are negative over the last 3 weeks, we go defensive. In this case, defensive is a 40/60 split of $USDU (a cash equivalent ETF) and one of two RSI selection baskets.

If the short term treasury market has been trending higher than the long term bond market in the last week, the basket will contain SQQQ and SDS, so you can try and get some green while the market is red.

If the short term treasury market is neutral or down compared to long term bonds, the basket is made up of sector ETF's that are traditionally defensive. Think Energy, Financials, and Consumer Staples.

If the returns on TLT are positive over the last 3 weeks, we go cautiously bullish with an even split of SSO and QLD, 2x leveraged assets for the S&P500 and Nasdaq respectively.

Bonds

The bonds section is nowhere near as complex as the assets section. Ironic considering its almost twice the total allocation of the equities portion!

We start off with the same "Risk-On" check as the equities section, $BND vs $BIL, and use that to determine if we are in a "normal" market or not. If we are, enter a 60/40 split of intermediate and long-term treasury ETF's.

If not, we move to a TLT check to determine if rates are rising or falling. When they're falling and TLT is positive, 3x leveraged long US bonds. If rates are rising and TLT is negative, 50/50 split of USDU and the relative weakest of TMV (-3x leveraged 20 year bonds) TYO(-3x leveraged 7-10 year bonds) and USDU.

Commodities

Commodities are the most straightforward section of the 3. It's a 50/50 split, one half is between PDBC, a IRS form K-1 Free ETF that represents a diversified commodities' strategy by Invesco. The other is another basket of ETFs, sorted by their short-term cumulative return, and picking the three off the top.

So, there we have it!

Thats my overview of V1.1 of the Adaptive All Weather Portfolio! Hopefully you found this analysis insightful, like I said this is one of my personal favorites and I’m very happy to finally be sharing this one with you. There are some links below to the strategies discussed, as well as the discussion thread for the Adaptive All Weather family of strategies.

Link To Family Discussion

Link To V1.1 Strategy
Link To V1.6 Strategy

A fun announcement!

Going forward on Sundays at 12 EST, starting on March 4th we’re going to be hosting calls on the Discord Server. The calls will be focusing on our coding and tool-building efforts, at least for the time being. If you’ve got any interest in learning the more in-depth aspects of Algorithmic Investing, make sure to join us!

That’ll do it for this edition. Thanks for reading!