In this episode we answer emails from Ed, Joe and Jack. We discuss a commodities fund, BCI, some more cowbell, and Fidelity's share lending program.
And THEN we our go through our weekly and monthly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Additional Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
BCI vs. PDBC vs. COM vs. DBMFX: testfol.io/analysis?s=3NIFkA7mNB9
Small Cap Value vs. S&P 500 In 21st Century: testfol.io/analysis?s=gkqbgk7mzka
Comparison Between Small Cap Value And Overall Market With Histogram: Backtest Portfolio Asset Class Allocation
Breathless Unedited AI-Bot Summary:
Looking for that perfect balance between return potential and downside protection? This episode delivers practical insights for DIY investors navigating today's complex markets.
We dive deep into commodity ETFs as listener Ed asks about PDBC versus BCI for his portfolio. The comparison reveals surprising differences in expense ratios, management approaches, and tracking errors that could significantly impact your returns over time. Frank shares why he's personally shifted away from dedicated commodity funds toward managed futures for inflation protection.
The conversation then turns to small cap value investing, but with a crucial twist that many investors miss. Rather than focusing solely on whether small cap value will outperform the broader market, Frank emphasizes its diversification benefits during market downturns. The 2022 market crash provides a perfect case study: while growth stocks plummeted 30-50%, value stocks ranged from -10% to +10%, creating powerful rebalancing opportunities that can enhance long-term performance.
We also examine Fidelity's Fully Paid Lending Program, which allows investors to earn additional income by lending their securities. While the potential return seems modest (around 0.625% annually), we consider the counterparty risks and regulatory protections you might sacrifice.
The episode concludes with our weekly portfolio reviews revealing fascinating performance patterns in 2024. Gold continues to shine with a remarkable 26.81% year-to-date gain while the broader market struggles. This performance disparity highlights why thoughtful asset allocation matters more than ever for investors seeking to build truly resilient portfolios.
Whether you're managing a multi-million dollar portfolio or just starting your investment journey, these insights will help you navigate market volatility with greater confidence and clarity.
What's your approach to balancing growth and value in your equity allocation? Have you considered how different assets might interact during the next market downturn?
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Voices (00:01):
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
Mostly Uncle Frank (00:10):
If a man does not keep pace with his
companions, perhaps it isbecause he hears a different
drummer, a different drummer.
Mostly Mary (00:19):
And now, coming to you from dead center on your
dial, welcome to Risk ParityRadio, where we explore
alternatives and assetallocations for the
do-it-yourself investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you have just stumbled inhere, you will find that this
podcast is kind of like a divebar of personal finance and
do-it-yourself investing.
Voices (00:52):
Expect the unexpected.
Mostly Uncle Frank (00:55):
There are basically two kinds of people
that like to hang out in thislittle dive bar.
Voices (01:00):
You see, in this world there's two kinds of people.
My friend, you see, in thisworld, there's two kinds of
people, my friend.
Mostly Uncle Frank (01:04):
The smaller group are those who actually
think the host is funny,regardless of the content of the
podcast.
Voices (01:12):
Funny how, how am.
Mostly Uncle Frank (01:12):
I funny.
These include friends andfamily and a number of people
named Abby.
Voices (01:22):
Abby, someone Abby who Abby normal, abby someone Abby
who?
Mostly Uncle Frank (01:27):
Abby normal, abby normal.
The larger group includes anumber of highly successful
do-it-yourself investors, manyof whom have accumulated
multi-million dollar portfoliosover a period of years.
Voices (01:43):
The best, jerry, the best over a period of years.
Mostly Uncle Frank (01:45):
The best, Jerry, the best.
And they are here to shareinformation and to gather
information to help themcontinue managing their
portfolios as they go forward,particularly as they get to
their distribution ordecumulation phases of their
financial life.
What we do is if we need thatextra push over the cliff.
Voices (02:07):
You know what we do Put it up to 11.
11, exactly.
Mostly Uncle Frank (02:11):
But whomever you are, you are welcome here.
I have a feeling we're not inKansas anymore.
But now onward, episode 422.
Today on Risk Parity Radio it'stime for our weekly portfolio
reviews of the eight sampleportfolios you can find at
wwwriskparityradiocom on theportfolios page.
Voices (02:35):
Boring.
But before we get to that, I'mintrigued by this how you say
Emails.
Mostly Uncle Frank (02:45):
And First off.
First off, we have an emailfrom Ed.
Voices (02:51):
Hello.
I'm Mr Ed.
Mostly Mary (02:54):
And Ed writes Hello Frank and Mary.
I hope all is well and, asalways, many thanks for the work
you do for us DIYers.
Always many thanks for the workyou do for us DIYers.
I'm looking over my risk parityETF investments that I picked
four years ago and kicking thetires to make sure they still
(03:16):
meet my criteria for low expenseratio, asset size, abundant
trade volume, etc.
I've also included in my reviewPaul Merriman's best-in-class
ETF work, which you mentioned inseveral episodes, eg 419, 411,
and 404.
My question is regardingcommodities, where I hold 5% of
my portfolio in PDBC.
(03:38):
I found that the Aberdeen AllCommodities Strategy ticker BCI
fits my criteria and I'd greatlyappreciate your opinion on it,
as compared to PDBC, which Iknow you hold in the sample
portfolios.
I didn't see BCI anywhere inthe RSS feed and Paul Merriman
doesn't touch on commodities atall.
(03:58):
Here's a summary for you andlisteners with insomnia I'm
putting you to sleep.
BCI 8 years old.
Pdbc 10 years old.
Bci passively managed PDBCactively managed.
Bci 0.26% expense ratio.
Pdbc 0.59% expense ratio.
(04:20):
Show BCI 1.4 billion in assets,pdbc 4.3 billion.
Bci average volume 600,000,PDBC 5 million.
They both hold oil and gas,futures agriculture, base metals
and treasuries with differentallocations to each.
Bci follows the BloombergCommodity Index with a 0.08
(04:42):
tracking error.
Pdbc follows the Deutsche BankDiversified Commodity Index
whatever that is, lol with a 7.4tracking error.
Many thanks and have a blessedday, ed.
Mostly Uncle Frank (04:56):
Market drops five points, I'm glad my
money's tied up in hay Well.
First off, thank you for beinga donor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors on this
podcast.
We do have a charity we support.
It's called the Father McKennaCenter.
It supports hungry and homelesspeople in Washington DC.
(05:16):
Full disclosure.
I am on the board of the charityand am the current treasurer.
But if you give to the charity,you get to go to the front of
the email line, as Ed has donehere, and it's a pretty long
line these days.
It still goes back to February.
Surely you can't be serious.
I am serious and don't call meShirley.
So you can do that in two ways.
(05:37):
Either you can give directly tothe Father McKenna Center at
their donation page, and I'llput that in the show notes, or
you can go to our support pageat wwwriskparadiocom and join
our patrons on Patreon.
Either way you get to go to thefront of the line.
But please do mention that inyour email when you send it to
(05:57):
me so I can have my crack teammove you to the front of the
line.
Voices (06:02):
We have top men working on it right now.
Who Top men?
Mostly Uncle Frank (06:12):
Now getting to your email BCI versus PDBC.
I did take a look at this.
They do look pretty comparableoverall.
As you've mentioned, theyfollow different indexes.
I think PDBC has outperformedBCI in the term of its lifetime,
which actually isn't that longfor either one of these things.
(06:32):
I did also check BCI to seewhether it issued a K-1 or not,
and that is the irritatingbugaboo about some of these
kinds of funds although it'sless common these days is that
many of them are structured aspartnerships and issue a K-1
form for tax purposes, which isreally annoying to deal with.
But I'm happy to report thatBCI does no such thing and is
(06:55):
designed, like PDBC, to avoidhaving to issue a K-1 and can
just simply report it on theregular 1099.
So yeah, this is certainly aviable option in this category.
The other things you shouldconsider is COM C-O-M, which we
talked about in episode 99, ifyou want to go back there.
(07:17):
That is a long-only commoditiesfund which seems to help it a
little bit.
And then I have segued out ofcommodities entirely, just so
you know, in our personalportfolio and just put that into
the managed futures category,because managed futures does
cover at least some of thecommodities.
It doesn't have as broad aselection of commodities as most
(07:40):
of these commodities funds anddoes not have as much exposure
to the agricultural section Tina, you fat lard, come get some
dinner.
But it does kind of do the samejob, especially when you're
talking about performing well onan inflationary environment,
(08:01):
which is really the job thatcommodities perform typically in
one of these kind of portfolios.
Voices (08:07):
You had only one job.
Mostly Uncle Frank (08:10):
So I consulted the new pope and you
have my blessing.
Voices (08:23):
While you two have been plotting and loving with each
other, I have become king of thepopes.
Mostly Uncle Frank (08:30):
For what that's worth.
Voices (08:32):
That and a nickel.
Get your hot cup a jack squat.
Mostly Uncle Frank (08:38):
And thank you for being a donor to the
Father McKenna Center and thankyou for your email.
Voices (08:45):
What are we doing here?
You promised you'd visit thePenguin the day you got out.
Yeah, so I lied to him.
You can't lie to a nun.
We've got to go in and visitthe Penguin.
Mostly Uncle Frank (09:00):
Second off.
Second off we have an emailfrom Joe, and Joe writes.
Mostly Mary (09:21):
Hello Frank and Mary.
First off, thank you forsharing your wisdom and humor
Cue Young Frankenstein.
Voices (09:28):
You are talking about the nonsensical ravings of a
lunatic mind.
Mostly Mary (09:34):
Question about the cowbell small cap value, that is
Guess what?
Voices (09:39):
I got a fever, and the only prescription is more
cowbell, and the onlyprescription is more.
Mostly Mary (09:45):
cowbell Portfolio charts very strongly pushes
small cap value in any analysisdue to its dramatic 1970s 80s
run.
Can you walk through thebenefits of small cap value in a
risk parity portfolio?
An ideal breakout of equitiesin a 50% equity, 50% alternative
asset portfolio?
Interesting article from BigEarn on the topic.
(10:06):
Appreciate what you do and hopeto follow in your footsteps one
day.
Voices (10:10):
I'm telling you, fellas, you're going to want that
cowbell.
Mostly Uncle Frank (10:15):
Well, we talked about this Big Earn
article back in episode 401.
Voices (10:20):
I don't think it means what you think it means.
Mostly Uncle Frank (10:22):
And so, rather than rehashing that over
again, I would direct you to goback and listen to that.
It did come out around the sametime you sent me this email, so
I'm not surprised there's someoverlap there.
But, as I mentioned in episode401, I think the debate there
actually misses the whole point,because the debate going on
there was between Big Earn andPaul Merriman about whether
(10:46):
small-cap value will outperformin the future.
In fact, it has outperformed inthe 21st century.
The 21st century.
Voices (10:55):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (10:59):
You don't need to go back to the 70s or
80s to see that small-cap valuehas outperformed the S&P 500
since the beginning of thiscentury.
I did not know that.
I did not know that, but thatis addressed back in episode 401
.
What's important for us in thiscontext is the diversification
(11:21):
qualities of value stocks, inparticular, in a risk parity
style portfolio, and how theyperform against growth stocks in
different environments and, inparticular, in negative
environments for the stockmarket, because I'm not assuming
, actually, that small cap valueis going to outperform the rest
(11:42):
of the market in the future.
I'm assuming that it's going tohave a similar performance,
even though, as I mentioned,it's outperformed the S&P 500 in
this century, just not in thepast 10 or 15 years.
But what we really care about iswhat happened most recently in
2022, when you saw the growthpart of the stock market decline
(12:03):
by over 30% and up to 50% withsome of these tech stocks,
whereas on the value side of thestock market, you saw anything
from performances of about minus10% to plus 10%, and that is a
huge difference in terms ofcorrelations and in terms of
your ability to rebalance.
(12:25):
But that is typical of whathappens with the stock market
that, when it is performingbadly, value tends to outperform
growth and therefore gives youa buffer, or cushion if you will
, and reduces the overallvolatility of the portfolio and
then gives you a rebalancingopportunity.
Because, obviously, if you wereholding the value stocks in 2022
(12:48):
, when the growth part of thestock market really crashed hard
, you got to sell some of thevalue, buy the growth and then
watch the thing take off againin 2023 and 2024.
And that's really the kind ofaction you're looking for.
So we don't care whether smallcap value is in fact going to
(13:08):
outperform the rest of themarket.
What we care about is theinterplay between growth and
value in the stock market.
Primarily, it would be moreaccurate to say that it is most
probable that small cap valuewill outperform large cap value
over time and in the future,because large cap value is the
most stable, easiest to priceand lowest volatility and lowest
(13:33):
return area of the overallstock market over long periods
of time, unless you add somekind of quality factor to it or
your name is Warren Buffett.
Voices (13:43):
I eat exactly what I like to eat.
If I liked it on my sixthbirthday, at my sixth birthday
party, when we had hot dogs andhamburgers and Coke and ice
cream with chocolate, I stilllike it and I don't care about
anything.
Subsequently, I discovered itall by the time I was six.
Mostly Uncle Frank (14:01):
So the basic playbook for the kinds of
portfolios we're talking abouthere and what you see in the
golden butterfly and the goldenratio portfolios in particular,
it's most obvious is thatdivision of the stock portion of
the portfolio between growthand value, and then how you
subdivide that on the growthside or the value side is more
(14:24):
to taste of what you're reallywanting or getting and how
complicated you want it to be.
The sample portfolios reallylook for the simplest
formulation of this concept andto give you a little
illustration of this, I did runa little portfolio visualizer
analysis that goes back to 1972of the US stock market, large
(14:46):
cap growth and small cap value,and go look at that and look at
the histogram for it, where ithas the little bars that go year
by year showing the relativeperformances and what you'll see
in that.
In a lot of the bad years forthe total stock market or large
cap growth, you see small capvalue having a much better year
or even a positive year, and sothat's really what you're
(15:09):
looking for out of value stocksand small cap value in
particular when you're talkingabout including them in a
diversified risk parity styleportfolio.
Voices (15:18):
I gotta have more cowbell.
I gotta have more cowbell.
Mostly Uncle Frank (15:21):
Because it's those uncorrelated performances
that get you to higher safewithdrawal rates, at least out
of the stock component of yourallocation.
And I think you're going to seethe same thing when bill
bangin's new book comes out thisyear, where he constructs
better portfolios for drawingdown on, and a lot of the better
things that he puts in theseportfolios are value stocks and
(15:44):
small cap value stocks.
Voices (15:46):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (15:51):
And we can look forward to that in August,
although lots of the bits andpieces of it are already out
scattered around the internet.
Hopefully that helps and thankyou for your email.
Voices (16:01):
Babies.
Before we're done here, y'allbe wearing gold-plated diapers.
What does that mean?
Mostly Uncle Frank (16:08):
Last off Last off, we have an email from
Jack.
Voices (16:24):
Wendy.
Mostly Uncle Frank (16:26):
I'm home and Jack writes.
Mostly Mary (16:30):
Hi Frank and Mary.
Fidelity recently beganoffering me their fully paid
lending program.
I'm intrigued but suspicious.
My portfolio is similar to thegolden butterfly almost 100% in
IRAs, 90% traditional, 10% Roth.
I have about $600,000 in GLDMwhich they would like to enroll
(16:50):
in the fully paid lendingprogram, which could
hypothetically earn 0.625%interest, or about $276 per
month.
Voices (16:58):
I love gold.
Mostly Mary (17:02):
Now this ain't nothing, but it's not tempting
enough that I've been ignoringtheir offer for months.
But I keep thinking maybe it'snot as scammy as it seems.
I finally started looking intoit and read through the
four-page fully paid lendingprogram document attached.
They basically want to lend myshares to short sellers and
there doesn't seem to be adownside for me.
I can still sell shares when Ineed a redistribution or
(17:25):
rebalance.
According to the document, theprimary risk is counterparty
default.
With fidelity as thecounterparty, I'd also lose
coverage from the SecuritiesInvestor Protection Act of 1970.
I don't trust that.
There aren't drawbacks notincluded in the document and I'm
very suspicious whenever givenan offer that requires me to
fork over money.
The risk seems very low, but Idon't trust my judgment in this
(17:49):
case as this is my retirementaccount and I need it to live
for the rest of my life.
Voices (17:55):
What's up?
Gunn the money in your account.
It didn't do too well, it'sgone.
What do you mean?
I have a hundred dollars, notanymore.
You don't poof.
Well, what can I do to get backmy?
I'm sorry, sir, but this lineis for bank members only.
Mostly Mary (18:07):
I just opened an account.
Voices (18:08):
Do you have any money invested with this bank?
No, you just lost it all.
Then please stand aside forpeople who actually have money
with us Next, please, hey.
Hello, mrs Farnickle, how areyou today Making a deposit?
Are we Great?
We can just put that into yourretirement account and make it
go to work for you, and it'sgone.
Mostly Mary (18:27):
It's unlikely Fidelity will go under, but I'm
sure there are otherconsiderations I'm not aware of.
I'd love to hear your thoughtson this program.
Thanks, Jack here's.
Voices (18:38):
Johnny.
Mostly Uncle Frank (18:39):
Well, jack, these types of things have been
around for quite a long time,although I think this is the
first time that Fidelity hasreally rolled it out en masse.
I've used a similar program atInteractive Brokers for many
years, basically loaning somestock and getting paid a little
bit of income or interest on it.
Honestly, the interest orincome on it is so paltry that
(19:02):
it really doesn't make a bigdifference in the grand scheme
of things, but on the other hand, it doesn't seem to be causing
any problems that I've seen.
Potentially it could cause somedelays in closing trades or
confirming trades, but I don'tthink that's going to be an
issue.
If you're not trading very much, so you can go ahead and do it
(19:23):
if you want, but I wouldn'texpect to get much out of it.
Put it that way, maybe you tryit out for a couple of months
and if you don't like it, thenyou ditch it.
It's not an irreversibledecision and it won't affect the
overall performance of yourportfolio.
Voices (19:38):
What?
Sorry?
Yeah, that's gone.
Please step aside for peoplewho actually have money with the
bank Next, please, Dad.
Hey, I'm trying to teach my sonthe importance of savings.
You already lost his money.
Oh, Mr Marsh, don't worry, wecan just transfer money from
your account into a portfoliowith your son and it's gone.
This line is for people whohave money with the bank only.
Please step aside.
Mostly Uncle Frank (20:00):
I do note that your $600,000 allocation to
GLDM is probably worth morethan like $700,000, given you
sent this to me in February 27th, but that's been the kind of
year it's been, at least forgold.
Voices (20:14):
And that's the way.
Uh-huh, uh-huh, I like it.
Kc on the sunshine band.
Mostly Uncle Frank (20:20):
Anyway, hopefully that helps and thank
you for your email.
Now we're going to do somethingextremely fun, and the
extremely fun thing we get to donow is our weekly portfolio
reviews of the eight sampleportfolios you can find at
wwwriskprioritycom on theportfolios page.
Just looking at how the marketsare doing this year so far the
(20:44):
S&P 500, represented by VOO, isdown 3.41% for the year.
Nasdaq 100, represented by thefund QQQ, is down 4.41% for the
year.
Small cap value, represented bythe fund VIOV, is down 12.55%
for the year.
Still the worst of the lot, butdoing a little better than it
was.
Moving to the worst of the lot,but doing a little better than
it was Moving to the best of thelot.
(21:06):
Gold, represented by the fundGLDM, continues to shine and is
up 26.81% for the year so far.
Voices (21:14):
You're insane gold member.
Mostly Uncle Frank (21:17):
Long-term treasury bonds, represented by
fund VGLT, are up 1.44% for theyear right now.
Reits, represented by the fundREET, are up 1.44% for the year
right now.
Reits represented by the fundREET are up 2.7% for the year.
Commodities, represented by thefund PDBC, are down 1.77% for
the year.
Preferred shares, representedby the fund PFFV, are down 0.15%
(21:38):
for the year so far, andmanaged futures are a little
better, but they're still bad.
Not really that bad.
Our representative fund, DBMF,is down 2.57% for the year so
far.
Moving to these portfolios,first one's a reference
portfolio called the All Seasons.
It's only 30% in stocks and atotal stock market fund.
Vti.
(21:59):
It's got 55% in intermediateand long-term treasury bonds and
the remaining 15% in gold andcommodities.
It's down 0.2% for the month ofMay.
So far.
It's up 1.9% for the year and10.62% since inception in July
2020.
Now moving to thesebread-and-butter kind of
portfolios.
First one's golden butterfly.
(22:20):
This one is 40% in stocksdivided into a total stock
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort and 20% in gold GLDM.
It is up 0.63% for the month ofMay so far.
It's up 2.89% year to date andup 37.8% since inception in July
(22:42):
2020.
Next one's Golden golden ratio.
This one is 42% in stocks,divided into a large cap growth
fund and a small cap value fund,26% in long-term treasury bonds
, 16% in gold, 10% in managedfutures and 6% in cash in a
money market fund.
It's up 0.75% for the month ofMay so far.
(23:03):
It's up 0.88% year to date andup 31.09% since inception in
July 2020.
Next one's the risk parityultimate kind of the kitchen
sink here.
I will not go all through all14 of these funds.
Although the Bitcoin and Etherhave been doing pretty well
recently, they're a tinypercentage of this portfolio.
So this one is up 0.52% for themonth of May.
(23:26):
So far.
It's up 0.85% year-to-date andup 20.78% since inception in
July 2020.
Now turning to theseexperimental portfolios, which
all involve levered funds.
Don't try this at home.
Voices (23:41):
Well, you have a gambling problem.
Mostly Uncle Frank (23:44):
First one's the accelerated permanent
portfolio.
This one is 27.5% in a leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFVApreferred shares fund and 22.5%
in gold GLDM, although it'slooking more like 28% in gold
right now.
Although it's looking more like28% in gold right now, it is
down 1.11% for the month of Mayso far.
(24:07):
It's up 0.5% year-to-date andup 1.53% since inception in July
2020.
The next one is the mostlevered, least diversified and
worst performer of all theseportfolios.
It's the aggressive 50-50.
It's essentially half stocksand half bonds.
So it's 33% in a leveragedstock fund UPRO, 33% in a
(24:29):
leveraged bond fund TMF, and theremaining third divided into a
preferred shares fund, PFFV, andan intermediate treasury bond
fund, vgit.
It's down 1.52% for the monthof May.
So far.
It's down 7.33% year-to-dateand down 18.39% since inception
in July 2020.
(24:49):
Next one's the levered goldenratio.
This one is 35% in a compositelevered fund called NTSX.
That's the S&P 500 and treasurybonds combined.
It's got 20% in gold GLDM, 15%in a international small cap
value fund, avdv, 10% in managedfutures and KMLM, 10% in a
(25:15):
levered bond fund, tmf, and theremaining 10% divided into UDAO
and UTSL, which are leveredfunds.
Following the DowAnti-Utilities Index, it is up
0.36% month to date.
It's up 2.83% year to date anddown 1.72% since inception in
July 2021.
(25:35):
And the last one is our newestone, the Optra portfolio.
One portfolio to rule them all,my boss wants to get to my love
.
It is 16% in a levered stockfund, upro, 24% in a worldwide
(25:58):
value fund called AVGV, 24% inGOVZ, a treasury strips fund,
and the remaining 36% dividedinto gold and managed futures.
It's up 0.83% for the month ofMay.
It's up 0.88% year-to-date andup 3.56% since inception in July
(26:18):
2024.
So not even a year old yet.
And that concludes our weeklyportfolio reviews.
Hope you're having a happyMother's Day.
Voices (26:32):
If you celebrate Mother's Day, Times have changed
and times are strange.
Here I come, but I ain't thesame Mama, I'm coming home, but
now I see our signal isbeginning to fade.
Mostly Uncle Frank (26:52):
If you have comments or questions for me,
please send them tofrankatriskparodyradarcom.
That email isfrankatriskparodyradarcom.
Or you can go to the website,wwwriskparodyradarcom.
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike, subscribe and be some
stars.
A follow, a review that wouldbe great.
Mostly Mary (27:15):
Okay.
Mostly Uncle Frank (27:17):
Thank you once again for tuning in.
This is Frank Vasquez with RiskParity Radio signing off.
Voices (27:25):
I've seen your face a thousand times Every day.
We've been apart.
I don't care about the sunshineyeah, cause, mama, mama, I'm
(27:57):
coming home, I'm coming home,I'm coming home, I'm coming home
(28:17):
.
Mostly Mary (28:29):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
, tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
Mostly Uncle Frank (00:10):
If a man does not keep pace with his
companions, perhaps it isbecause he hears a different
drummer, a different drummer.
Mostly Mary (00:19):
And now, coming to you from dead center on your
dial, welcome to Risk ParityRadio, where we explore
alternatives and assetallocations for the
do-it-yourself investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you have just stumbled inhere, you will find that this
podcast is kind of like a divebar of personal finance and
do-it-yourself investing.
Voices (00:52):
Expect the unexpected.
Mostly Uncle Frank (00:55):
There are basically two kinds of people
that like to hang out in thislittle dive bar.
Voices (01:00):
You see, in this world there's two kinds of people.
My friend, you see, in thisworld, there's two kinds of
people, my friend.
Mostly Uncle Frank (01:04):
The smaller group are those who actually
think the host is funny,regardless of the content of the
podcast.
Voices (01:12):
Funny how, how am.
Mostly Uncle Frank (01:12):
I funny.
These include friends andfamily and a number of people
named Abby.
Voices (01:22):
Abby, someone Abby who Abby normal, abby someone Abby
who?
Mostly Uncle Frank (01:27):
Abby normal, abby normal.
The larger group includes anumber of highly successful
do-it-yourself investors, manyof whom have accumulated
multi-million dollar portfoliosover a period of years.
Voices (01:43):
The best, jerry, the best over a period of years.
Mostly Uncle Frank (01:45):
The best, Jerry, the best.
And they are here to shareinformation and to gather
information to help themcontinue managing their
portfolios as they go forward,particularly as they get to
their distribution ordecumulation phases of their
financial life.
What we do is if we need thatextra push over the cliff.
Voices (02:07):
You know what we do Put it up to 11.
11, exactly.
Mostly Uncle Frank (02:11):
But whomever you are, you are welcome here.
I have a feeling we're not inKansas anymore.
But now onward, episode 422.
Today on Risk Parity Radio it'stime for our weekly portfolio
reviews of the eight sampleportfolios you can find at
wwwriskparityradiocom on theportfolios page.
Voices (02:35):
Boring.
But before we get to that, I'mintrigued by this how you say
Emails.
Mostly Uncle Frank (02:45):
And First off.
First off, we have an emailfrom Ed.
Voices (02:51):
Hello.
I'm Mr Ed.
Mostly Mary (02:54):
And Ed writes Hello Frank and Mary.
I hope all is well and, asalways, many thanks for the work
you do for us DIYers.
Always many thanks for the workyou do for us DIYers.
I'm looking over my risk parityETF investments that I picked
four years ago and kicking thetires to make sure they still
(03:16):
meet my criteria for low expenseratio, asset size, abundant
trade volume, etc.
I've also included in my reviewPaul Merriman's best-in-class
ETF work, which you mentioned inseveral episodes, eg 419, 411,
and 404.
My question is regardingcommodities, where I hold 5% of
my portfolio in PDBC.
(03:38):
I found that the Aberdeen AllCommodities Strategy ticker BCI
fits my criteria and I'd greatlyappreciate your opinion on it,
as compared to PDBC, which Iknow you hold in the sample
portfolios.
I didn't see BCI anywhere inthe RSS feed and Paul Merriman
doesn't touch on commodities atall.
(03:58):
Here's a summary for you andlisteners with insomnia I'm
putting you to sleep.
BCI 8 years old.
Pdbc 10 years old.
Bci passively managed PDBCactively managed.
Bci 0.26% expense ratio.
Pdbc 0.59% expense ratio.
(04:20):
Show BCI 1.4 billion in assets,pdbc 4.3 billion.
Bci average volume 600,000,PDBC 5 million.
They both hold oil and gas,futures agriculture, base metals
and treasuries with differentallocations to each.
Bci follows the BloombergCommodity Index with a 0.08
(04:42):
tracking error.
Pdbc follows the Deutsche BankDiversified Commodity Index
whatever that is, lol with a 7.4tracking error.
Many thanks and have a blessedday, ed.
Mostly Uncle Frank (04:56):
Market drops five points, I'm glad my
money's tied up in hay Well.
First off, thank you for beinga donor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors on this
podcast.
We do have a charity we support.
It's called the Father McKennaCenter.
It supports hungry and homelesspeople in Washington DC.
(05:16):
Full disclosure.
I am on the board of the charityand am the current treasurer.
But if you give to the charity,you get to go to the front of
the email line, as Ed has donehere, and it's a pretty long
line these days.
It still goes back to February.
Surely you can't be serious.
I am serious and don't call meShirley.
So you can do that in two ways.
(05:37):
Either you can give directly tothe Father McKenna Center at
their donation page, and I'llput that in the show notes, or
you can go to our support pageat wwwriskparadiocom and join
our patrons on Patreon.
Either way you get to go to thefront of the line.
But please do mention that inyour email when you send it to
(05:57):
me so I can have my crack teammove you to the front of the
line.
Voices (06:02):
We have top men working on it right now.
Who Top men?
Mostly Uncle Frank (06:12):
Now getting to your email BCI versus PDBC.
I did take a look at this.
They do look pretty comparableoverall.
As you've mentioned, theyfollow different indexes.
I think PDBC has outperformedBCI in the term of its lifetime,
which actually isn't that longfor either one of these things.
(06:32):
I did also check BCI to seewhether it issued a K-1 or not,
and that is the irritatingbugaboo about some of these
kinds of funds although it'sless common these days is that
many of them are structured aspartnerships and issue a K-1
form for tax purposes, which isreally annoying to deal with.
But I'm happy to report thatBCI does no such thing and is
(06:55):
designed, like PDBC, to avoidhaving to issue a K-1 and can
just simply report it on theregular 1099.
So yeah, this is certainly aviable option in this category.
The other things you shouldconsider is COM C-O-M, which we
talked about in episode 99, ifyou want to go back there.
(07:17):
That is a long-only commoditiesfund which seems to help it a
little bit.
And then I have segued out ofcommodities entirely, just so
you know, in our personalportfolio and just put that into
the managed futures category,because managed futures does
cover at least some of thecommodities.
It doesn't have as broad aselection of commodities as most
(07:40):
of these commodities funds anddoes not have as much exposure
to the agricultural section Tina, you fat lard, come get some
dinner.
But it does kind of do the samejob, especially when you're
talking about performing well onan inflationary environment,
(08:01):
which is really the job thatcommodities perform typically in
one of these kind of portfolios.
Voices (08:07):
You had only one job.
Mostly Uncle Frank (08:10):
So I consulted the new pope and you
have my blessing.
Voices (08:23):
While you two have been plotting and loving with each
other, I have become king of thepopes.
Mostly Uncle Frank (08:30):
For what that's worth.
Voices (08:32):
That and a nickel.
Get your hot cup a jack squat.
Mostly Uncle Frank (08:38):
And thank you for being a donor to the
Father McKenna Center and thankyou for your email.
Voices (08:45):
What are we doing here?
You promised you'd visit thePenguin the day you got out.
Yeah, so I lied to him.
You can't lie to a nun.
We've got to go in and visitthe Penguin.
Mostly Uncle Frank (09:00):
Second off.
Second off we have an emailfrom Joe, and Joe writes.
Mostly Mary (09:21):
Hello Frank and Mary.
First off, thank you forsharing your wisdom and humor
Cue Young Frankenstein.
Voices (09:28):
You are talking about the nonsensical ravings of a
lunatic mind.
Mostly Mary (09:34):
Question about the cowbell small cap value, that is
Guess what?
Voices (09:39):
I got a fever, and the only prescription is more
cowbell, and the onlyprescription is more.
Mostly Mary (09:45):
cowbell Portfolio charts very strongly pushes
small cap value in any analysisdue to its dramatic 1970s 80s
run.
Can you walk through thebenefits of small cap value in a
risk parity portfolio?
An ideal breakout of equitiesin a 50% equity, 50% alternative
asset portfolio?
Interesting article from BigEarn on the topic.
(10:06):
Appreciate what you do and hopeto follow in your footsteps one
day.
Voices (10:10):
I'm telling you, fellas, you're going to want that
cowbell.
Mostly Uncle Frank (10:15):
Well, we talked about this Big Earn
article back in episode 401.
Voices (10:20):
I don't think it means what you think it means.
Mostly Uncle Frank (10:22):
And so, rather than rehashing that over
again, I would direct you to goback and listen to that.
It did come out around the sametime you sent me this email, so
I'm not surprised there's someoverlap there.
But, as I mentioned in episode401, I think the debate there
actually misses the whole point,because the debate going on
there was between Big Earn andPaul Merriman about whether
(10:46):
small-cap value will outperformin the future.
In fact, it has outperformed inthe 21st century.
The 21st century.
Voices (10:55):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (10:59):
You don't need to go back to the 70s or
80s to see that small-cap valuehas outperformed the S&P 500
since the beginning of thiscentury.
I did not know that.
I did not know that, but thatis addressed back in episode 401
.
What's important for us in thiscontext is the diversification
(11:21):
qualities of value stocks, inparticular, in a risk parity
style portfolio, and how theyperform against growth stocks in
different environments and, inparticular, in negative
environments for the stockmarket, because I'm not assuming
, actually, that small cap valueis going to outperform the rest
(11:42):
of the market in the future.
I'm assuming that it's going tohave a similar performance,
even though, as I mentioned,it's outperformed the S&P 500 in
this century, just not in thepast 10 or 15 years.
But what we really care about iswhat happened most recently in
2022, when you saw the growthpart of the stock market decline
(12:03):
by over 30% and up to 50% withsome of these tech stocks,
whereas on the value side of thestock market, you saw anything
from performances of about minus10% to plus 10%, and that is a
huge difference in terms ofcorrelations and in terms of
your ability to rebalance.
(12:25):
But that is typical of whathappens with the stock market
that, when it is performingbadly, value tends to outperform
growth and therefore gives youa buffer, or cushion if you will
, and reduces the overallvolatility of the portfolio and
then gives you a rebalancingopportunity.
Because, obviously, if you wereholding the value stocks in 2022
(12:48):
, when the growth part of thestock market really crashed hard
, you got to sell some of thevalue, buy the growth and then
watch the thing take off againin 2023 and 2024.
And that's really the kind ofaction you're looking for.
So we don't care whether smallcap value is in fact going to
(13:08):
outperform the rest of themarket.
What we care about is theinterplay between growth and
value in the stock market.
Primarily, it would be moreaccurate to say that it is most
probable that small cap valuewill outperform large cap value
over time and in the future,because large cap value is the
most stable, easiest to priceand lowest volatility and lowest
(13:33):
return area of the overallstock market over long periods
of time, unless you add somekind of quality factor to it or
your name is Warren Buffett.
Voices (13:43):
I eat exactly what I like to eat.
If I liked it on my sixthbirthday, at my sixth birthday
party, when we had hot dogs andhamburgers and Coke and ice
cream with chocolate, I stilllike it and I don't care about
anything.
Subsequently, I discovered itall by the time I was six.
Mostly Uncle Frank (14:01):
So the basic playbook for the kinds of
portfolios we're talking abouthere and what you see in the
golden butterfly and the goldenratio portfolios in particular,
it's most obvious is thatdivision of the stock portion of
the portfolio between growthand value, and then how you
subdivide that on the growthside or the value side is more
(14:24):
to taste of what you're reallywanting or getting and how
complicated you want it to be.
The sample portfolios reallylook for the simplest
formulation of this concept andto give you a little
illustration of this, I did runa little portfolio visualizer
analysis that goes back to 1972of the US stock market, large
(14:46):
cap growth and small cap value,and go look at that and look at
the histogram for it, where ithas the little bars that go year
by year showing the relativeperformances and what you'll see
in that.
In a lot of the bad years forthe total stock market or large
cap growth, you see small capvalue having a much better year
or even a positive year, and sothat's really what you're
(15:09):
looking for out of value stocksand small cap value in
particular when you're talkingabout including them in a
diversified risk parity styleportfolio.
Voices (15:18):
I gotta have more cowbell.
I gotta have more cowbell.
Mostly Uncle Frank (15:21):
Because it's those uncorrelated performances
that get you to higher safewithdrawal rates, at least out
of the stock component of yourallocation.
And I think you're going to seethe same thing when bill
bangin's new book comes out thisyear, where he constructs
better portfolios for drawingdown on, and a lot of the better
things that he puts in theseportfolios are value stocks and
(15:44):
small cap value stocks.
Voices (15:46):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (15:51):
And we can look forward to that in August,
although lots of the bits andpieces of it are already out
scattered around the internet.
Hopefully that helps and thankyou for your email.
Voices (16:01):
Babies.
Before we're done here, y'allbe wearing gold-plated diapers.
What does that mean?
Mostly Uncle Frank (16:08):
Last off Last off, we have an email from
Jack.
Voices (16:24):
Wendy.
Mostly Uncle Frank (16:26):
I'm home and Jack writes.
Mostly Mary (16:30):
Hi Frank and Mary.
Fidelity recently beganoffering me their fully paid
lending program.
I'm intrigued but suspicious.
My portfolio is similar to thegolden butterfly almost 100% in
IRAs, 90% traditional, 10% Roth.
I have about $600,000 in GLDMwhich they would like to enroll
(16:50):
in the fully paid lendingprogram, which could
hypothetically earn 0.625%interest, or about $276 per
month.
Voices (16:58):
I love gold.
Mostly Mary (17:02):
Now this ain't nothing, but it's not tempting
enough that I've been ignoringtheir offer for months.
But I keep thinking maybe it'snot as scammy as it seems.
I finally started looking intoit and read through the
four-page fully paid lendingprogram document attached.
They basically want to lend myshares to short sellers and
there doesn't seem to be adownside for me.
I can still sell shares when Ineed a redistribution or
(17:25):
rebalance.
According to the document, theprimary risk is counterparty
default.
With fidelity as thecounterparty, I'd also lose
coverage from the SecuritiesInvestor Protection Act of 1970.
I don't trust that.
There aren't drawbacks notincluded in the document and I'm
very suspicious whenever givenan offer that requires me to
fork over money.
The risk seems very low, but Idon't trust my judgment in this
(17:49):
case as this is my retirementaccount and I need it to live
for the rest of my life.
Voices (17:55):
What's up?
Gunn the money in your account.
It didn't do too well, it'sgone.
What do you mean?
I have a hundred dollars, notanymore.
You don't poof.
Well, what can I do to get backmy?
I'm sorry, sir, but this lineis for bank members only.
Mostly Mary (18:07):
I just opened an account.
Voices (18:08):
Do you have any money invested with this bank?
No, you just lost it all.
Then please stand aside forpeople who actually have money
with us Next, please, hey.
Hello, mrs Farnickle, how areyou today Making a deposit?
Are we Great?
We can just put that into yourretirement account and make it
go to work for you, and it'sgone.
Mostly Mary (18:27):
It's unlikely Fidelity will go under, but I'm
sure there are otherconsiderations I'm not aware of.
I'd love to hear your thoughtson this program.
Thanks, Jack here's.
Voices (18:38):
Johnny.
Mostly Uncle Frank (18:39):
Well, jack, these types of things have been
around for quite a long time,although I think this is the
first time that Fidelity hasreally rolled it out en masse.
I've used a similar program atInteractive Brokers for many
years, basically loaning somestock and getting paid a little
bit of income or interest on it.
Honestly, the interest orincome on it is so paltry that
(19:02):
it really doesn't make a bigdifference in the grand scheme
of things, but on the other hand, it doesn't seem to be causing
any problems that I've seen.
Potentially it could cause somedelays in closing trades or
confirming trades, but I don'tthink that's going to be an
issue.
If you're not trading very much, so you can go ahead and do it
(19:23):
if you want, but I wouldn'texpect to get much out of it.
Put it that way, maybe you tryit out for a couple of months
and if you don't like it, thenyou ditch it.
It's not an irreversibledecision and it won't affect the
overall performance of yourportfolio.
Voices (19:38):
What?
Sorry?
Yeah, that's gone.
Please step aside for peoplewho actually have money with the
bank Next, please, Dad.
Hey, I'm trying to teach my sonthe importance of savings.
You already lost his money.
Oh, Mr Marsh, don't worry, wecan just transfer money from
your account into a portfoliowith your son and it's gone.
This line is for people whohave money with the bank only.
Please step aside.
Mostly Uncle Frank (20:00):
I do note that your $600,000 allocation to
GLDM is probably worth morethan like $700,000, given you
sent this to me in February 27th, but that's been the kind of
year it's been, at least forgold.
Voices (20:14):
And that's the way.
Uh-huh, uh-huh, I like it.
Kc on the sunshine band.
Mostly Uncle Frank (20:20):
Anyway, hopefully that helps and thank
you for your email.
Now we're going to do somethingextremely fun, and the
extremely fun thing we get to donow is our weekly portfolio
reviews of the eight sampleportfolios you can find at
wwwriskprioritycom on theportfolios page.
Just looking at how the marketsare doing this year so far the
(20:44):
S&P 500, represented by VOO, isdown 3.41% for the year.
Nasdaq 100, represented by thefund QQQ, is down 4.41% for the
year.
Small cap value, represented bythe fund VIOV, is down 12.55%
for the year.
Still the worst of the lot, butdoing a little better than it
was.
Moving to the worst of the lot,but doing a little better than
it was Moving to the best of thelot.
(21:06):
Gold, represented by the fundGLDM, continues to shine and is
up 26.81% for the year so far.
Voices (21:14):
You're insane gold member.
Mostly Uncle Frank (21:17):
Long-term treasury bonds, represented by
fund VGLT, are up 1.44% for theyear right now.
Reits, represented by the fundREET, are up 1.44% for the year
right now.
Reits represented by the fundREET are up 2.7% for the year.
Commodities, represented by thefund PDBC, are down 1.77% for
the year.
Preferred shares, representedby the fund PFFV, are down 0.15%
(21:38):
for the year so far, andmanaged futures are a little
better, but they're still bad.
Not really that bad.
Our representative fund, DBMF,is down 2.57% for the year so
far.
Moving to these portfolios,first one's a reference
portfolio called the All Seasons.
It's only 30% in stocks and atotal stock market fund.
Vti.
(21:59):
It's got 55% in intermediateand long-term treasury bonds and
the remaining 15% in gold andcommodities.
It's down 0.2% for the month ofMay.
So far.
It's up 1.9% for the year and10.62% since inception in July
2020.
Now moving to thesebread-and-butter kind of
portfolios.
First one's golden butterfly.
(22:20):
This one is 40% in stocksdivided into a total stock
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort and 20% in gold GLDM.
It is up 0.63% for the month ofMay so far.
It's up 2.89% year to date andup 37.8% since inception in July
(22:42):
2020.
Next one's Golden golden ratio.
This one is 42% in stocks,divided into a large cap growth
fund and a small cap value fund,26% in long-term treasury bonds
, 16% in gold, 10% in managedfutures and 6% in cash in a
money market fund.
It's up 0.75% for the month ofMay so far.
(23:03):
It's up 0.88% year to date andup 31.09% since inception in
July 2020.
Next one's the risk parityultimate kind of the kitchen
sink here.
I will not go all through all14 of these funds.
Although the Bitcoin and Etherhave been doing pretty well
recently, they're a tinypercentage of this portfolio.
So this one is up 0.52% for themonth of May.
(23:26):
So far.
It's up 0.85% year-to-date andup 20.78% since inception in
July 2020.
Now turning to theseexperimental portfolios, which
all involve levered funds.
Don't try this at home.
Voices (23:41):
Well, you have a gambling problem.
Mostly Uncle Frank (23:44):
First one's the accelerated permanent
portfolio.
This one is 27.5% in a leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFVApreferred shares fund and 22.5%
in gold GLDM, although it'slooking more like 28% in gold
right now.
Although it's looking more like28% in gold right now, it is
down 1.11% for the month of Mayso far.
(24:07):
It's up 0.5% year-to-date andup 1.53% since inception in July
2020.
The next one is the mostlevered, least diversified and
worst performer of all theseportfolios.
It's the aggressive 50-50.
It's essentially half stocksand half bonds.
So it's 33% in a leveragedstock fund UPRO, 33% in a
(24:29):
leveraged bond fund TMF, and theremaining third divided into a
preferred shares fund, PFFV, andan intermediate treasury bond
fund, vgit.
It's down 1.52% for the monthof May.
So far.
It's down 7.33% year-to-dateand down 18.39% since inception
in July 2020.
(24:49):
Next one's the levered goldenratio.
This one is 35% in a compositelevered fund called NTSX.
That's the S&P 500 and treasurybonds combined.
It's got 20% in gold GLDM, 15%in a international small cap
value fund, avdv, 10% in managedfutures and KMLM, 10% in a
(25:15):
levered bond fund, tmf, and theremaining 10% divided into UDAO
and UTSL, which are leveredfunds.
Following the DowAnti-Utilities Index, it is up
0.36% month to date.
It's up 2.83% year to date anddown 1.72% since inception in
July 2021.
(25:35):
And the last one is our newestone, the Optra portfolio.
One portfolio to rule them all,my boss wants to get to my love
.
It is 16% in a levered stockfund, upro, 24% in a worldwide
(25:58):
value fund called AVGV, 24% inGOVZ, a treasury strips fund,
and the remaining 36% dividedinto gold and managed futures.
It's up 0.83% for the month ofMay.
It's up 0.88% year-to-date andup 3.56% since inception in July
(26:18):
2024.
So not even a year old yet.
And that concludes our weeklyportfolio reviews.
Hope you're having a happyMother's Day.
Voices (26:32):
If you celebrate Mother's Day, Times have changed
and times are strange.
Here I come, but I ain't thesame Mama, I'm coming home, but
now I see our signal isbeginning to fade.
Mostly Uncle Frank (26:52):
If you have comments or questions for me,
please send them tofrankatriskparodyradarcom.
That email isfrankatriskparodyradarcom.
Or you can go to the website,wwwriskparodyradarcom.
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike, subscribe and be some
stars.
A follow, a review that wouldbe great.
Mostly Mary (27:15):
Okay.
Mostly Uncle Frank (27:17):
Thank you once again for tuning in.
This is Frank Vasquez with RiskParity Radio signing off.
Voices (27:25):
I've seen your face a thousand times Every day.
We've been apart.
I don't care about the sunshineyeah, cause, mama, mama, I'm
(27:57):
coming home, I'm coming home,I'm coming home, I'm coming home
(28:17):
.
Mostly Mary (28:29):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
, tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
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