I've explained these different categories previously. Basically "beta" contains mutual funds that are likely to be highly correlated with either the stock or bond market, while "passive alpha" contains funds that are expected to have a lower correlation with general stock market movements and financial stocks whose underlying business is not directly investing in the stock market index. Hopefully, these "passive alpha" investments will generate alpha - a risk adjusted excess return. I call these passive alpha because this is an attempt to earn alpha by investing with other managers rather than through my own trading efforts. Industrial stocks are individual non-financial companies, trading is cash and any very short-term trading instruments, liquidity is cash not dedicated to trading (mostly in Snork Maiden's accounts), asset loans is our rental deposit and car primarily, and borrowing includes margin loans, credit cards etc.
At the moment about 25 percentage points of the portfolio is in stocks within the "beta" category and 43 percentage points are in bonds. When we reach what looks like a bottom in the stock market to me, I plan to switch out of all the bond-heavy funds into stock beta investments. We'll do this by investing in CREF's Global Equities Fund (instead of their Bond Market Fund) and investing in Colonial First State's Geared Share Fund (rather than their Conservative Fund). We'll also shift some of our holdings of the Conservative Fund into CFS's Future Leaders, Developing Companies, and Imputation Funds.
For those who've questioned my judgment that the market is close to a bottom, I'm not planning on buying US stocks in a big way. I will also add individual US stocks in a small way as I did around the 22 January bottom. On the buying list are: IBKR, XLF, BWLD, SSRX, RICK, GOOG, PBD and maybe SHLD, AAPL, and NCT.
I plan on maintaining this same rough allocation between passive alpha and beta, but the beta funds will include a large chunk of a leveraged fund - the Geared Share Fund (geared = leveraged in Australian lingo). In the longer term I plan on having a portfolio beta of about one with a big chunk of passive alpha investments. The goal would be to achieve 10% returns from the stockmarket beta in the long-term and hopefully 10% or so of alpha for a 20% total return. If you use leverage, you can be fully exposed to the stockmarket while also trying other strategies. A simple version of this is the increasingly popular 130/30 funds. A much more sophisticated approach is followed by Bridgewater Associates. What I am attempting is somewhere in between.
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