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Special Benchmarks

Benchmark Portfolios for Classic Asset Allocations

Introduction

Every Portfolio and Strategy has a stated investment style (such as large-cap value, Eurozone growth, balanced-moderate, technology, etc.) and an objective of either matching or outperforming a particular benchmark. Unfortunately there is no set of "off the shelf" benchmarks that covers the requisite set of asset allocations and also has data sufficiently long for benchmark comparison with the Prudent Momentum Portfolios. The solution was to create a new set of five benchmarks from combinations of the well-established Fidelity Asset Manager Funds. There is an exact match in FASIX (Fidelity Asset Manager 20%) for the B2080 benchmark. However, the B6040 benchmark is not so lucky. The FSANX (Fidelity Asset Manager 60%) fund has only 10 years of history. Thus B6040 must be produced from of a 50/50 weighted average of FASMX (Fidelity Asset Manager 50%) and FASGX (Fidelity Asset Manager 70%) funds, each of which have a sufficiently long data history. Other benchmarks are produced in a similar manner, as detailed below.

The chart below illustrates how different asset class weights affect performance through many different market conditions. Currently these benchmarks are only available for the Prudent Momentum Portfolios.

Benchmark Relative Performance 

Benchmark Definitions as SectorSurfer Portfolios

       
Symbol  Stocks:Bonds — Benchmark Allocation Definition Benchmark Model Composition Strategy-ID
B2080 20:80 — 20% Stocks, 80% Bonds  —  Fixed Income 100% FASIX (Fidelity Asset Manager 20%)   636325971190377499-126-15-205572
B4060 40:60 — 40% Stocks, 60% Bonds  —  Conservative 33% FASIX (Fidelity Asset Manager 20%)
67% FASMX (Fidelity Asset Manager 50%)
636325971190377499-126-16-205573
B6040 60:40 — 60% Stocks, 40% Bonds  —  Moderate 50% FASMX (Fidelity Asset Manager 50%)
50% FASGX (Fidelity Asset Manager 70%)
636325971190377499-126-17-205574
B8020 80:20 — 80% Stocks, 20% Bonds  —  Growth 33% FASGX (Fidelity Asset Manager 70%)
67% FAMRX (Fidelity Asset Manager 85%)
636325971190377499-126-18-205575
B1000 100:0 — 100% Stocks, 0% Bonds  —  Aggressive 33% FOSFX (Fidelity Overseas Fund)
66% FUSEX (Fidelity 500 Index Fund)
636325971190377499-126-19-205576

Using Benchmarks

One of the above Benchmarks can be automatically used with any Portfolio simply by (1) including the Stocks:Bonds ratio (i.e. 60:40) in the name of the Portfolio (see chart title), and (2) setting the White Reference Index in the Advanced Charting Options to the "Automatic" selection.  When one of the above Benchmarks is successfully enabled you will see it's name posted in the top-center of the main black chart and likewise posted just above the numerical statistics of the overall chart at center-left. All statistics regarding the chosen reference index will be calculated and displayed accordingly.

The most important reason for using the proper benchmark for a Portfolio is readily understood by examining the 2-year Rolling Return chart — one must compare apples with apples. In this example chart, if the reference for comparison was the S&P500, the Portfolio would inherently outperform the reference during bad stock market periods, but underperform during good stock market periods. When markets are good it will falsely appear that the Portfolio is performing poorly when in fact it is beating the daylights out of any other 60:40 portfolio using buy-and-hold MPT. This can cause individuals and advisors to incorrectly decide to fire the Portfolio (and maybe the advisor) to become more aggressive. Keeping things in perspective is with the right Benchmark alleviates this problem.

Of course, if being more aggressive during bull markets is preferred, the simple solution is to own a 100:0 (no bonds) style Portfolio that incorporates StormGuard-Armor and an Integrated Bear Market Strategy in its underlying Strategies to automatically detect and strategically avoid the risk of loss in any future market crash.