This post will take a first look into the actual realized performance of the constructed portfolio over the first 4 week period. Afterwards, the impact of the adjustments discussed in the previous post will also be looked into in more detail.
Below is the plotted returns of the client's portfolio compared to the benchmark:
The client's portfolio achieved a 1.31% return in this period compared to the 1.67% return of the benchmark. Looking at the plot of the performance difference, it can be seen that there was variation both above and below that of the benchmark.
At this stage it would seem premature to read too much into the differences or to over analyse the small sample of data. Instead this first period of returns can act as a yardstick against which further adjustments made to the portfolio can be compared. What this first period does seem to imply is that under a simple 1/N passive investment strategy, the performance of the portfolio is similar to the benchmark.
Recall from the previous post that it has been decided to re-weight the allocation of funds within the portfolio on the basis of the mean-variance optimization results. Below are the adjusted weightings for the new allocation:
Lets also take a brief look at how this has changed the structure of the portfolio. Average maturity is now 9.5 years (up from 8.9 years in week 0), and similarly duration has also increased slightly. This means that over the next period we can expect the portfolio to react a bit more to changes in interest rates.
The characteristics by country are also provided below:
It seems that going forward the performance of the portfolio will be stronger tied to the performance of corporate bonds in Canada and Japan, as they now each contribute 35% weightings.
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