Stanton & Castleton IRA Rebalance PSDS Scan

I made a few year end changes to reduced portfolio standard deviation without reducing return too much. I replaced RYVFX with NBGNX and DODFX with WASAX. I also added VFITX to increase my bond portfolio a few percent. I did not reduce my LSBDX investment because it continues to pay a very nice cash dividend every month.

Wells Fargo 401k Plan PSDS Scan 12/31/2008

The funds in the scan are mostly Wells Fargo mutual funds. VBIIX is a proxy for DB1i, SPY is a proxy for WFVEX and IJH is a proxy for SMMVX which do not yet have 5yr data. I did not include company stock, WFC. It had a 5yr return of 3.67% with a standard deviation of 10.64%. I did run a scan with WFC and DSVG1 the Wells Fargo stable return fund included. It made only a small change in the Balanced portfolio return but DSVG1 did have the usual effect of distorting the Sharpe ratio. In this case it increased it from .32 to 7.41 while reducing the APR to 4.56.

Honeywell 401k Plan PSDS Scan 12/31/2008

The funds in the plan are proxies for the SMA fund catagories, Short-Term Fixed Income, Investment Grade Bond, Conservative, Moderate, Aggressive, Value Yield Equity, S&P 500 Index, Growth Equity, International Stock, Small Cap Stock, and Honeywell Stock. The symbols used are in the correlation chart. Fund F is a fund from the U.S. Governmet 401k (TSP) plan.
As of the 2006 SEC 11-K filing the Honeywell 401k (Savings and Ownership Plan Master Trust) was invested in company stock (2647M), Mutual Funds (265M), Common & Commingled Funds (3607M), seperately managed stocks portfolio (811M), short term investmens (135M) and Investment Contracts (1292M). The portfolio scan covers only the Mutual Funds in the Master Trust and Honeywell stock.

Safeco 401k Plan PSDS Scan 12/31/2008

The funds in the scan were MNTRX, VBMFX, VBINX, HWLIX, AGTHX, GSSMX, and VTSMX. The inverted "efficient frontier" is again clear to see. The Balanced portfolio has most of the money invested in MNTRX and VBMFX.

Northrop Grummnan 401k (FSSP) Scan 12/31/2008

As before the SMA fund performance data in the plan are taken from the plan web site. I kept the Stable Value Fund (SVF) in the scan and in this "Black Swan" market it was the place to be. The Balanced portfolio has most of the money invested in it too but also has some money in each of the other funds with positive 5yr Sharpe ratios, USFIF and EMFF. The company stock fund has a small negative 5yr return.

ABN AMRO 401k (ESP) PSDS Scan 12/31/2008

This company sold part of its business to the Royal Bank of Scotland. The ABN SEC 11-K filing for 12/31/2006 was used to identify the funds in the scan. There was no fund with a positive 5yr Sharpe ratio so a uniform distribution was posted for this scan. There was one fund with a zero Sharpe ratio, NIVAX, but a very high STD. The best Sharpe ratio portfoio found in the scan had a negative Sharpe ratio. When many more than 1000 portfolios were searched the scanner eventually found a portfolio with virtually all the money in NIVAX and a near zero Sharpe ratio.

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A Balanced portfolio rule change to cover this situation was made and the resulting portfolio is shown in the 3D image. It allocates money to funds with positive 5yr APRs based on the ratio of their APR/STD which amounts to saying their Sharpe ratios are all zero. The portfolio has a slightly lower APR than NIVAX but a much lower STD.

Procter & Gamble 401k Plan PSDS Scan

This scan showed the effects of the Black Swan market on portfolio return and on the math model used to compute Sharpe ratio. In this scan I included company stock PG which has most of the employee money, well over 5B not counting ESOP stock. As the gold standard for US stocks PG has a very nice return but at the cost of high volatility. As I keep reminding myself arithmetic says volatility kills compounding.

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Several things about this scan were unusual. The first 3D scan image used 2.0% for the portfolio risk free rate causing an artifically high Sharpe ratio for portfolio No. 468 which had all the money in VMVXX. I ran the scan again using the risk free rate for VMVXX (2.862%) from the Thomson data for the portfolio risk free rate and got a "normal" 3D result. In effect the scanner found an arbitrage situation (artifical) in the data . This reminded me of an engineering design professor who used to say all models are wrong but some are still useful. Sharpe ratio is a useful model but it can be fooled if the data used to compute it are inconsistent. The rapid and large changes in market data in Q4 caused by a "Black Swan" created this situation which I had never seen before 2008 and hope to never see again.