Changes to the hedge fund portfolio

Here is the new composition of the large portfolio:

Symbol Asset Class Weighting
DBA Commodity 3/120
DBC Commodity 17/120
GLD Currency 1/18
UUP Currency 1/9
SCZ International Equity 1/12
VWO International Equity 1/12
VNQ Real Estate 1/6
IJR US Equity 1/18
SPY US Equity 1/9
IEF US Treasury Bond 1/18
SHY US Treasury Bond 1/18
TLT US Treasury Bond 1/18

I made changes to the currency and commodity classes. In a change that effected both asset classes, I decided to switch gold (GLD) from commodities to currencies. Previously, I had only used the US dollar index (UUP) for the currency class. In a previous post, I mentioned that the this index had an antiquated weighting scheme that does not faithfully reflect current global asset flows. However, constructing a more balanced representation of asset flows from existing currency ETFs would be difficult, as many of these ETFs are thinly traded. Currently, gold is acting more like a global currency proxy than a commodity. With governments of most major nations debasing their currencies at ever increasing rates, gold represents a global measure of peoples’ faith in paper currency. Such sentiments may not be reflected in the US dollar index due to status of the dollar as a reserve currency. Thus I have a 2:1 weighting for UUP:GLD.

For commodities, I rebalanced the weighting  between DBC and DBA to reflect the movement of gold to the currency class and then ensure a reasonable balance between various individual commodities.

The 3rd column reflects weighting for the entire portfolio. As before, each asset class is equally weighted at 1/6 of the portfolio.

As with the small portfolio, I will use Collective2 to simulate its performance. See Cybernetic System 1 – Hedge Fund Portfolio for results.

Tonight, after the close of the markets, I will compute initial position sizes for both of the portfolios and enter market-on-open orders for Wednesday, 9/1.

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