Truly Diversified Portfolio® and Strategic Value Growth
Monthly Performance and Risk Summary
Eleven Two Fund Management is a Registered Investment Advisor (RIA) specializing in reducing the risk, increasing the steadiness of returns, and preserving the value of its client’s portfolios primarily by using true diversification. Below is the illustration of our signature diversification and value investing strategies (TDP® & SVG) utilized by Eleven Two Fund Management.
Here are a few of the verses already mentioned on the ETFM website that I
believe are relevant to how we invest today. Please review them to decide
your own take/interpretation.
Ecclesiastes 3:1 - There is an appointed time for everything. And there
is a time for every event under heaven—
Ecclesiastes 11:2 - Divide your portion to seven, or even to eight, for
you do not know what misfortune may occur on the earth.
Matthew 25:16 - Then he who had received the five talents went and traded
with them, and made another five talents.
Performance and Risk Measures
Current Beta5 of the Truly Diversified Portfolio® relative to the S&P 500 is approximately .51
August 1, 2008 the 12 Month CD Rate = 3.40%
|
As of 07/31/20081 |
2002 |
2003 |
2004 |
2005 | 2006 | 2007 | 2008 |
Compound Annual Return 12/31/2001- 12/31/20073 |
Annualized Standard Deviation4 2002-2007 |
| TDP®2 | 1.14% | 25.77% | 9.75% | 12.86% | 16.91% | 6.29% | -3.51% | 11.84% | 8.60% |
| GGI | N/A | N/A | N/A | N/A | 11.22% | 11.35% | -3.30% | N/A | N/A |
| SVG2 | N/A | N/A | N/A | 20.48% | 18.13% | 9.25% | -6.81% | N/A | N/A |
| GI | N/A | N/A | N/A | N/A | N/A | N/A | .35% | ||
| US Bonds | 10.3% | 4.1% | 4.34% | 2.43% | 4.33% | 6.97% | 1% | 5.38% | 2.80% |
| US Stocks | -21.6% | 29.44% | 11.95% | 6.12% | 15.72% | 5.14% | -11.76% | 6.59% | 16.87% |
| Gold | 25.72% | 20.93% | 4.81% | 17.76% | 23.2% | 31.92% | 10.10% | 20.42% | 14.59% |
| Foreign Stocks | -15.9% | 39.17% | 20.07% | 14.02% | 26.86% | 11.63% | -13.4% | 14.63% | 17.95% |
| US Home Prices (thru 05/31) | 15% | 13.43% | 18.7% | 15.93% | .13% | -9.82% | -8.92% | 8.38% | 11.23% |
| Commodities | 23.87% | 22.66% | 7.64% | 17.55% | 2.67% | 11.08% | 10.89% | 13.98% | 8.51% |
1 Past performance does not guarantee future results.
2 Performance (%) for the TDP®, GGI, GI, and SVG net of investment management fee. ETFM's investment management fees range from .9% to 1.5%, depending on the amount invested. Unmarried widows and full time ministry receive discounts.
3 Compound annual rate of return for period.
4 Standard deviation is a measure of dispersion around the average compound annual rate of return. The higher the standard deviation, the more volatility an asset class carries.
5 The higher the beta of a portfolio's return relative to the S&P 500's return (the more volatile the portfolio), the greater the risk associated with the portfolio. A beta of 1 would mean that the TDP® moves exactly with the S&P 500. A beta of <1 (e.g., .5) would mean the TDP® fluctuates less than the S&P 500. A beta of >1 (e.g., 1.25) would mean that the TDP® fluctuates more than the S&P 500 as a whole (or is riskier than the market).
What return would an investor require to induce him or her to invest in the TDP®, under current market conditions?
Last calculated 01/2008
4.25% [using the S&P 500's 100 year average compound annual rate of return of 5.25%]
As you can see, the TDP® has been a wise choice for our clients over the years, by exceeding the required return (4.83%), with an actual average compound annual return of over 11% (see performance table above)!
To answer the above question we used the "Required Return" expressed as the Capital Asset Pricing Model (CAPM) Equation. We use the most recent data for calculations.
Kc = Rf + beta x (Km - Rf)
Where:
Kc
is the risk-adjusted discount rate (also known as the Cost of Capital);
Rf is the rate of a "risk-free" investment, i.e. t-bills;
click here to see current t-bill rate used in the equation.
Km is the return rate of the S&P 500.
You can think of Kc as the expected return rate you would require before you would be interested a particular investment. The idea is that investors require higher levels of expected returns to compensate them for higher expected risk; the CAPM formula is a simple equation to express that idea.
Many people agree that consistent growth and better preservation of capital are two awesome advantages but they cannot seem to really believe without the data (like doubting Thomas). So I have decided to start comparing the actual performance of a TDP® and SVG as managed by Eleven Two Fund Management. Below are the indexes used to calculate the performance of each asset class above in the graph.
1. US Stock - The Russell 3000® Index offers investors access to the
broad U.S. equity universe representing approximately 98% of the U.S.
market. The Russell 3000 is constructed to provide a comprehensive,
unbiased, and stable barometer of the broad market and is completely
reconstituted annually to ensure new and growing equities are reflected.
2. Gold – the one ounce spot price of gold.
3. Commodities - The Dow Jones - AIG Commodity Index (DJ-AIGCI)® is designed to be a highly liquid and diversified benchmark for commodities as an asset class. The DJ-AIGCI is composed of futures contracts on 20 physical commodities (aluminum, cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean hogs, live cattle, natural gas, nickel, silver, soy beans, soybean oil, sugar, unleaded gasoline, wheat, and zinc).As much as 33% of this index is made up of energy related commodities.
4. Foreign Stock: The MSCI EAFE Index was developed by Morgan Stanley
Capital International Inc. as an equity benchmark for international stock
performance. The Index includes stocks from Europe, Australasia, and the Far
East.
5. US Bond - Measured by the Lehman Brothers Aggregate Bond Index; A
Benchmark index made up of the Lehman Brothers Government/Corporate Bond
Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index,
including securities that are of investment-grade quality or better, have at
least one year to maturity, and have an outstanding. Par value of at least
$100 million.
6. US Home Prices - The S&P/Case-Shiller® Home Price Indices measures
the residential housing market, tracking changes in the value of the
residential real estate market in 20 metropolitan region across the United
States. These indices use the repeat sales pricing technique to measure
housing markets. First developed by Karl Case and Robert Shiller, this
methodology collects data on single-family home re-sales, capturing re-sold
sale prices to form sale pairs. This index family consists of 20 regional
indices and two composite indices as aggregates of the regions.
In addition, the S&P/Case-Shiller® U.S. National Home Price Index is a
broader composite of single-family home price indices for the nine U.S.
Census divisions and is calculated quarterly. .
7. TDP®
(Truly Diversified Portfolio®)
- This is a portfolio
diversified into seven or even eight asset classes. I use the TDP®
to manage
the money my clients have been entrusted with, so that their wealth will
grow more consistently with less volatility than the stock market (or any
other one asset class by itself). Call 1-800-917-5016 or locally in Atlanta
770-642-9373 if you would like to determine how this type of portfolio can
benefit you or if you would like to see real statements where a TDP®
is being
utilized.
8. SVG (Strategic Value Growth) – This is a portfolio that applies
value investing to the stocks of countries all over the world. This
investment strategy does not hold much in the way of fixed income because
growth is the primary objective. Diversification into undervalued
commodities and precious metals is also used when ETFM believes it is apt.
While this strategy is not as balanced as the TDP®
it still maintains
diversification into numerous sectors, countries, or asset classes.
9. GGI (Global Growth and Income) - This investment strategy seeks to provide total return and income while maintaining prospects for capital appreciation. This is the most conservative growth approach that ETFM uses to help its clients achieve their goals. This approach is for clients who want to earn more than they could in money markets and CDs but don't want to lose money either. The GGI tactic will invest mainly in common stocks, debt instruments, and foreign currencies from countries all over the world. A small amount of precious metals investing is also used as an inflation hedge and to maintain purchasing power.
10. GI (Global Income) - This portfolio and investment strategy seeks to generate income with capital appreciation and preservation as a secondary goal. The Global Income strategy invests in foreign currency, US dollar denominated, and non-US dollar denominated fixed income securities. The maturities, ratings, and types (government, corporate, etc.) of the bonds will vary according to current economic conditions. With this strategy the investor is seeking to outperform the returns of CDs and money markets without taking that much more risk. This strategy also provides the investor with diversification and stability by being able to perform well when the US dollar is not and being largely outside the US banking industry.
Contact Eleven Two Fund Management
Tel 770.971.2888 Fax 770.804.2076 TF 800.917.5016
thomas@diversifyyourassets.com
3162 Johnson Ferry Road #260-27
Marietta, GA 30062
