Interesting - Trinity Portfolio

[NJDoc]

Just bumped into this and thought it is an interesting approach , trying to combine the best of buy and hold and momentum.

I have not invested with this company, nor do I have a vested interest in their success. Just sharing an interesting investment idea:

http://www.cambriainvestments.com/wp-content/uploads/2016/07/Trinity_DIGITAL_final.pdf

Thoughts?

[VagabondMD]

I am a big fan of Meb Faber's work. I have enjoyed listening to his new podcast series and now realize that they were a lead up to this product. I have mixed feelings about the Cambria offering, but I do like the idea of combining a buy-and-hold portfolio with a trend following component. I think it is something that you can do on your own, if you understand the concepts and have the discipline.

[Zaphod]

I like Meb Faber (and have a couple of his books), hes a smart guy and has some great papers. One of them is the "myth of the ten best days" or where the black swans hide and its very interesting. I read the trinity paper a month or so ago, and on twitter was watching a discussion about how he achieved the 0% fee, I'll have to go back and see how it was accomplished.

Im not sure or sold on the overall strategy (rather his motivation, since it can be done yourself), its basically just more diversification, which of course makes sense and can be implemented yourself. Cullen Roche espouses a similar strategy and is also a bright no nonsense guy, his blog/book is pragmatic capitalism, lots of good stuff there about things most dont have a good understanding of (monetary policy, macroeconomics, etc..).

 

[VagabondMD]

"...was watching a discussion about how he achieved the 0% fee, I’ll have to go back and see how it was accomplished."

The 0% fee can be accomplished in two ways (perhaps more):

1. He uses his own ETFs in the managed portfolios. The have ERs of 0.59-69%.

2. Betterment layers their management fee (0.15%) on top of the ETF expenses, as they would for any other account. I would be willing to bet that Faber/Cambria is getting a vig from that.

 

As an aside, this is the first time I have seen a robo-advisor platform being used by someone else bringing in and implementing their own strategy. I think we are witnessing robo-advisor 2.0, and I expect that we will soon see a lot more of this in the future.

[NJDoc]

Vagabond MD wrote:

I think we are witnessing robo-advisor 2.0, and I expect that we will soon see a lot more of this in the future.

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I totally agree, I think there will be more and more of these offering in the near future.

Do you know if the trinity is using Cambria's ETF's exclusively? That could be a deal killer, especially since his GMOM did has not done that well.

[VagabondMD]

^^

I do not believe that he is using his own funds exclusively, as he does not have the asset classes covered sufficiently. I have not seen any model portfolios, however. I think that these are Intentionally being hidden.

In my opinion, his own funds have been lackluster thus far. They are relatively new and have not been tested across various stages of market cycles.

[Zaphod]

Such is the problem with all tactical asset portfolios, they look great backtested, make perfect sense, but they have never produced in real time. They always come with a fee as well, and unless you have a broker that lets you trade for free a large amount of frictional costs. Same thing with that Alpha Architect guy, nice, seems very focused on the right things...but in the end nothing adds up.

Everyone is always fighting the last war and are thus unprepared for the next one.

[NJDoc]

Zaphod wrote:

Such is the problem with all tactical asset portfolios, they look great backtested, make perfect sense, but they have never produced in real time.

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With all due respect - I beg to differ , there is at least one investment firm running momentum portfolios for several years, with real world net of fees results outperforming the S&P. There is likely more than one, but I have reviewed the results of one such firm and it is quite solid.

It would be interesting to know how Meb Faber's private clients have performed???

 

 

 

[Zaphod]

NJDoc wrote:

Zaphod wrote:

Such is the problem with all tactical asset portfolios, they look great backtested, make perfect sense, but they have never produced in real time.

Click to expand…

With all due respect – I beg to differ , there is at least one investment firm running momentum portfolios for several years, with real world net of fees results outperforming the S&P. There is likely more than one, but I have reviewed the results of one such firm and it is quite solid.

It would be interesting to know how Meb Faber’s private clients have performed???

 

 

 

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Momentum and tactical asset while related and sharing many attributes arent exactly the same. I wouldnt call the Trinity a TA portfolio either really. There have been some deadly simple combinations that have apparently worked for years, even decades, that just kind of stalled out the last year or two.

I mean a simple TLT/SPY switch based on relative strength did amazing with low dd, high sharp and low volatility, but did pretty poorly lately. It may revert back as not every year is a huge win of course. However, now that it seems all asset classes are somewhat bid up and things become more correlated it gets harder. Its also super hard in practice to stomach underperformance for long stretches since you dont know if its in the normal ranges or the elements that made the strategy have changed and its now busted, as that certainly occurs. That makes it easy to be your own worst enemy which magnifies the downsides.

I dont doubt some are doing it just fine, but we dont all have cheap liquid access to those firms.

I use indexes for the most part, and I will switch and am less passive than many folks, and certainly do things that terrify others so Im not against the idea. I just prefer things that are more simple to understand why it works, momentum works because it works and tactical asset portfolios work until they dont, but its hard to say why. Not as big a fan of that.

For example, its easy, quantifiable and real time followable to know why volatility and/or highly volatile indexes and their leveraged etfs trend toward zero. I love that stuff, its almost guaranteed. Much more my cup of tea (spiked with epi/vodka).

 

[Son of a Doctor]

I've been implementing some of the Trinity Portfolio and Alpha Architect concepts with some of my own money for a while.  I like that it reduces drawdowns, which has a great appeal when the stock market drops 20% or more and people freak out and sell.  It is going to lag a bull market, and the research from Cullen Roche, Meb Faber, Wes Gray, etc. all state that the plan needs to be in place for many years, through up and down markets, to see its benefits. These tactical approaches should shine when the inevitable bear market occurs.

The Cambria funds have not performed well at last check, but Meb Faber has the some of those tactical/momentum funds pointing in so many different directions that he may be trying to do too much with them rather than just keep the implementation as simple as suggested in his white papers.

From a research perspective, I enjoy that Meb Faber updates his Quantitative Approach to Tactical Asset Allocation white paper every few years. He moved from backtest only in the 2006 version to include actual results, answer popular questions to the article, and add more ideas for handling the approach in the 2009 and 2013 updates. I'm not sure if he will use his website to update the white paper going forward or publish another article, but the former appears to be the case.

[Zaphod]

Son of a Doctor wrote:

I’ve been implementing some of the Trinity Portfolio and Alpha Architect concepts with some of my own money for a while.  I like that it reduces drawdowns, which has a great appeal when the stock market drops 20% or more and people freak out and sell.  It is going to lag a bull market, and the research from Cullen Roche, Meb Faber, Wes Gray, etc. all state that the plan needs to be in place for many years, through up and down markets, to see its benefits. These tactical approaches should shine when the inevitable bear market occurs.

The Cambria funds have not performed well at last check, but Meb Faber has the some of those tactical/momentum funds pointing in so many different directions that he may be trying to do too much with them rather than just keep the implementation as simple as suggested in his white papers.

From a research perspective, I enjoy that Meb Faber updates his Quantitative Approach to Tactical Asset Allocation white paper every few years. He moved from backtest only in the 2006 version to include actual results, answer popular questions to the article, and add more ideas for handling the approach in the 2009 and 2013 updates. I’m not sure if he will use his website to update the white paper going forward or publish another article, but the former appears to be the case.

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I find that is Wes' problem as well. When they identify a possible trend to follow, they then try so hard to make their own mark upon it, which seems to only make it perform worse than the anomaly identified. His funds are doing pretty badly this year too. But its hard to charge a fee without some proprietary nonsense stacked on top of something, then you have a "secret sauce".

[Son of a Doctor]

I agree. They've published the concept, which is intuitive and builds on tons of other good research. Now they have to make it more complicated to justify their fee, and perhaps for the academic challenge of it. So far, it doesn't seem that the additional complication is worth it.