The IFR Portfolio

Invest Equal Amounts Monthly In…

  • iShares Core S&P Small Cap Value – IJS
  • PowerShares NASDAQ 100 – QQQ
  • Guggenheim S&P 500 Equal Weight – RSP

Here’s Why!

In the  14 year period* (2004 – 2018), a $100,000 investment in the IFR portfolio outperformed “The  Market” (S&P500) by $108,000.

IFR Portfolio vs S&P500, 17 years, spreadsheet

 

Here’s the comparative graph (click to enlarge)

IFR Portfolio vs S&P500, 17 years

Why 14 Year Period?

The Guggenheim S&P500 balanced portfolio (RSP) inception date was 10/1/2003.  In order to compare equities, the start dates must be the same; hence the start date of 01/01/2004.

Explanation

Why Three Funds? 

These three funds combine to completely cover the traditionally, high performance sectors. Read on.

Why Small Cap Value (IJS)?  

A large and growing body of academic research suggests there are market anomalies that can be exploited.  Some of that research has been recognized with Nobels in economic science — William F. Sharpe in 1990 and Eugene F. Fama in 2013.  One of these findings is that value outperforms growth, rewarding those who identify stocks with lower price-earnings ratios and lower market capitalization.

“Value” stocks have consistently outperformed their opposite “Growth” category over all time periods. In particular, Small Cap Value stocks have significantly outperformed other investment categories since 1929. Look at the table below.

Small Cap value 1930 - 2009, highlightedSmall Cap Value outperformed the S&P500 by nearly 5% on an annualized basis over an 83 year period. That is food for thought… and action!

Still More Evidence 2000-2017

IJS vs S&P500

The green-red line  represents the S&P 500, the light blue line represents iShare’s S&P Small Cap Value fund (IJS) performance over the same time period.

Why IJS?

There are many funds that track small cap value funds. Here’s a diagram that shows the top four funds – IJS is significantly superior to the other funds.

ijr vs other value funds

Click to enlarge

For even more evidence of the superiority of IJS, click HERE.

Why Nasdaq (ONEQ)?

First, What is the ‘Nasdaq’?

A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy and transparent system, and commenced operations on February 8, 1971. The term “Nasdaq” is also used to refer to the Nasdaq Composite (ONEQ), an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel and Amgen.

Second, How Has Nasdaq Done Vis-a-Vis Dow Jones?

It has done very well! – 4783% vs 1924%

DJIA vs NASDAQ

Why Guggenheim S&P500 Equal Weight (RSP)

Because it provides the same coverage of the large cap stocks in the S&P500 as the standard S&P500 …
and
because it has significantly outperformed its parent, the S&P500.

What is the Guggenheim S&P500 Equal Weight?

In the S&P 500® Equal Weight Index, each of the 500 stocks that make up the index are “equally weighted.” This is in contrast to the standard S&P500 (SPY) where each component stock is weighted according to its total market capitalization.

For example, Apple, Microsoft and Amazon account for over 8.5% of the value of the standard S&P500. In contrast, the same three companies account for only 0.6% (100% divided by 500 companies = 0.2% times 3 companies = 0.6%)  of the value of the S&P500 equal weight.

How Has The Guggenheim Performed vis-a-vis the S&P500 (SPY)?

It has done very well as shown in the chart below:

RSP vs S&P500

As you can see, the equally weighted S&P500 has outperformed its parent, the market cap weighted S&P500, by a 2-1 ratio!

How Likely Is This To Continue?

Very Likely

But even if the outperformance should not be as pronounced in the future, you will probably still meet or exceed the performance of the S&P500 – there’s a lot of distance between them.

Summary

One more time: The S&P500 vs the IFR Portfolio

IFR Recommended Portfolio vs SPY

 

 

Red-Green Line: S&P500 150%
Equally Weighted (RSP) Gained 217%
Green: Light Blue: Nasdaq (ONEQ) Gained 244%
Dark Blue: iShares Small Cap Value (IJS) Gained 263%

For a detailed presentation of results, CLICK HERE

Conclusion

While it is much simpler to merely invest in the S&P500 the improvement in expected average annual returns (17% vs 11%) is worth the extra effort.