High Sharpe Portfolios

I’m taking my own advice to stop reading the news, but unfortunately that means less to blog about.

Anyway, last Friday I discussed low volatility “Madoff’ portfolios. One of the most important statistics to keep in mind when constructing a portfolio is the Sharpe Ratio, which measures the risk adjusted return. A low ratio means you’re not being rewarded well for the risk you are taking. Generally, a higher Sharpe ratio is better, and a really good fund may have a ratio of 1.6 year-over year. After running hundreds of simulations testing various linear combinations of ETF allocations, the best I could come up with has a 3-year Sharpe of 2.35, and it looks like this:

Te biggest draw-down is around 3% versus 18% for the S&P 500. It’s rebalanced monthly and requires no trading or signals – simply buy & hold.

The YOY performance is even better with a Sharpe of over 4:

Of course, part performance is not indicative of future results, but this looks promising.

So this is now the official portfolio of the one-person Grey Enlightenment endowment fund