Sunday, December 29, 2019

New Target Portfolio Allocation

Following up on my post on the best portfolios for Australia, this post will lay out the new target portfolio allocation. The basic idea is to reduce the allocation to managed futures from 25% in my previous target portfolio to 10%. This is because I plan to do little active trading going forward and futures funds have had lacklustre performance for several years. Maybe they will come back, but we should see them more as a potential hedge than as a main asset class at this point I think.

At the top level the portfolio is 60% in stocks and 40% in other assets. The other assets are allocated equally between bonds, futures, gold, and real estate. The stocks allocation is roughly equally divided between Australian and international stocks. 10% of the portfolio is allocated to private equity and 50% to public. Then the public allocation is divided between long only and hedge fund strategies. Within the long only Australian allocation, 1/3 is devoted to small cap stocks. The full allocation is:

10% Australian large cap
5% Australian small cap
12.5% International stocks
10.75% Australian oriented hedge funds
10.75% International oriented hedge funds
10% Private equity
10% Bonds
10% Real estate
10% Gold
10% Managed futures
1% Cash

We will also usually use some leverage or gearing. 1% in cash seems sufficient given the ability to borrow.

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