Model Portfolios
Zaks Investment Advisory Service provides individual
recommendations based on the client's total holdings, his or her risk
profile and investment horizon. For purely informative purposes, however,
we are publishing the results of several of our model portfolios. These
portfolios demonstrate, in our opinion, the advantages of enhanced indexing.
All model portfolios are static in nature: their composition is fixed, and
they are not rebalanced going forward, so the initial weights and proportion
alter slightly with time. This may not be appropriate in a real life
situation but clearly demonstrates the concept behind these portfolios.
As one would expect in the generally rising markets of the past several
years, the riskier portfolios have higher historical rates of return than
the less risky ones, but all of our portfolios have a higher Sharpe ratio
than the "market benchmark," indicating their risk efficiency.
Model Portfolios vs. Baseline S&P 500 Portfolio
Four-Year Annualized Rates of Return
July 4, 2007 through July 2, 2008
This chart shows 12 recent months of four-year annualized
returns on four portfolios: three model portfolios and the baseline portfolio.
The returns are recalculated on a daily basis. The rightmost date is the
most current for which the rates of return were calculated. For all other
dates the values show four-year returns on portfolios created four years
prior to that date: (i.e. on
January 2, 2008, the Basic (BP) portfolio had a four-year annualized return of 9.62%; the Moderately Aggressive/International (MA) portfolio had a four-year annualized return of 13.45%; the Moderately Conservative (MC) portfolio had a four-year annualized return of 7.87%; and the Baseline S&P 500 (BL) portfolio had a four-year annualized return of 8.76%).
We believe that this dynamic chart gives a much better view of the relative
performance of the portfolios than a static snapshot of current performance would.
Growth of $10,000 as of July 2, 2008
This chart shows how $10,000 invested in each of the portfolios
grew during the last 4 years.
1 - click here to learn how the Standard Deviation was calculated;
2 - click here to learn how the Sharpe Ratio was calculated.
As one can see, the two- to five-year average rates of return
on our Basic portfolio are higher than the rate of return on the Baseline
S&P 500 portfolio. Only the Basic portfolio lagged behind the Baseline
over the last 12 months. The standard deviation of monthly returns of the
Basic portfolio is slightly higher than that of the Baseline portfolio, but
it is interesting to compare their historic Sharpe ratios. The historic
Sharpe ratio measures the increase in rates of return corresponding to the
increase in variability (risk) of a portfolio. The higher the Sharpe ratio,
the more return the portfolio provides with increased variability, therefore
making it more efficient. We can see that the Basic Portfolio's Sharpe ratio
is higher than that of the Baseline portfolio.
It comes as no surprise that the Moderately Conservative
portfolio has both lower variability and lower rates of return. What is
interesting is that again, the Sharpe ratio of this portfolio is relatively
high. This means that a relatively small portion of the rate of return was
sacrificed to achieve lower variability.
The Moderately Aggressive/International portfolio has both
higher rates of return and variability. Again, it seems to be quite efficient:
its Sharpe ratio is higher than the Baseline's.
We would like to reiterate that the results of the Model
Portfolios are published for information purposes only. Past performance
is no guarantee of future results. Please contact
us for the design of your personal portfolio.
Disclaimer
