Constructing a ‘Madoff’ Portfolio

As a diversion from the usual politics, using a linear combination of ETFs I was able to construct a ‘Madoff-like’ portfolio, without the whole fraud aspect to it. Here’s what it looks like versus the S&P 500:

As a rule, I only used liquid, long-only ETFs and no re-balancing.

Here’s Madoff’s actual portfolio just before the implosion:

It returns on average 5% a year with a max draw-down of 2.77% versus 19% for the S&P 500. The advantage of this is it can be leveraged very easily with as little as $15000-20,000 to control up to $300,000 in stock. A max draw-down of 3% means a maximum loss of $9,000 with the hypothetical portfolio.

Here’s an even better one with a higher Sharpe ratio, but it’s slightly harder to implement, because it requires more ETFs to construct:

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