Following a loss in January, Fiat Fantasy rebounded to post a 3.2% gain for the quarter. The S&P 500 and AGG bond ETF total returns for the quarter were 4.7% and .1% respectively. Fiat Fantasy volatility was less than half that of the S&P 500.
Now that the dust has settled, it turns out one theme of the quarter was searching for high yielding non bond investments. To that end, CPL and FSC joined the team. We swapped DBA for the broader commodity ETF USCI. We sold USAGX to a) keep Hard Assets within bounds and b) consolidate eventually on GDX.
We launch into the second quarter overweight hard assets, precious metals, professional allocators, US bonds and cash. We are underweight equities in general. Thanks to strong performance, the Permanent Portfolio mutual fund (PRPFX) is now more than 9% of Fiat Fantasy total value. Despite being my favorite investment of all time, I plan to reduce our stake in PRPFX. I also want to raise cash by reducing our US bond holdings. Freeing up cash will give us the ability to initiate the market neutral strategy we've been simulating. That will sure liven things up in terms of the amount of trading, but the strategy should be quite conservative.
Oct - Dec 2010
Fiat Fantasy and the S&P 500 both cooled off slightly this quarter, but investment returns remain outstanding. Our portfolio increased 5.3% compared with 9.6% for the S&P 500. The highest one year CD rate I find is 1.28%. Bonds were weak as the iShares Barclays Aggregate Bond Fund (AGG) returned -1.6%. The annualized standard deviation of Fiat Fantasy was 8.8% compared with 20.3% for the S&P 500. December was our seventh month without a loss, a string we won't keep up forever, but fun while it lasts.
New additions to the portfolio this quarter, hard assets DBA, BPT, and KOL, did exceptionally well. We trimmed our stake in another hard asset, MERKX, and will sell the remaining shares when practical. We took profits in SIVR to remain within our allocation model, but remain optimistic on silver for the long haul.
Jul - Sep 2010
During the third quarter the Fiat Fantasy portfolio had a return of 8%. By comparison, the S&P 500 stock index rose 10.6%. One year Certificates of Deposit paid about .4% interest and the iShares Barclays Aggregate Bond Fund (AGG) returned 2.34%.
One measure of volatility is the annualized standard deviation of monthly returns. The idea is the less the volatility (variation) the less the risk. Fiat Fantasy had a value of 9.3 compared with a value of 20.2 for the S&P 500. Lower is good-- less risk. A simpler approach is to compare the worst monthly return. Fiat Fantasy's poorest month was a +1.21% return while the S&P 500 had a poorest month return of -4.71%.
This was an exceptional quarter. We were especially fortunate to have investments in emerging markets (both bonds and equities), precious metals, and mining companies. Remarkably, all asset classes generated positive returns. I remind myself that the reverse situation can develop quickly.
All asset classes are within their target ranges except for an underweighting in Developed Equities. I haven't found a European Exchange Traded Fund (ETF) that is performing well.
