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The 4 Funds GFAP

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Regarding the 4 fund GFAP you published thelast time in 2018

Could you tell us what it looks like now at January 2021 ?

My view is for 20%BND, 29% BNDX, 26% VTI and 25% VXUS

Am I far off ?

Thank you

Hi @nomis,

You're not far off. The updated figures are:

18% BND

33% BNDX

21% VTI

28% VXUS

You may be getting data from certain sources that list the total market caps based on developed market economies. This ends up making the US markets look bigger than they really are. I guess it's fine to use developed markets only, but leaving out emerging markets does skew the data a bit.

Hope that helps.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Thanks for the numbers.

So if one the flaws of the GFAP is being procyclical, going with opposite weightings (49 % bonds / 51 % stocks) could be a good way to be countercyclical indexing ?

Going on with this thinking, since it's evolving constantly, I was consiering setting rebalancing when 5% spread occurs between asset categories.

Am I getting this all wrong ?

Thanks for your help !

Also

Found this new source for data, but seems a little late.

But using this I come closer to your numbers

Capital Markets Fact Book, 2020 - Capital Markets Fact Book, 2020 - SIFMA

VTI seems to always be the part I get wrong...

 

That's a good source. Their figures aren't updated though so those September figures don't reflect the huge rally in stocks since then. That might explain why your VTI figure seems a little off. My updated calculation shows US markets at 42% of global market caps. So that 39% figure isn't too far off in the SIFMA report.

Yeah, if you wanted to rebalance this in a countercyclical way you'd flip the weights. The weights are almost equal right now, but the point is that the financial markets are incredibly interest rate sensitive. So the equity piece grows disproportionately at times leaving you overweight stocks are the worst periods (like the early 70s and late 90s). In other words, the GFAP is a very procyclical portfolio to hold. Which is fine in the long-run but exposes you to outsized equity risk in the short-run because you're procyclical at the worst times.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

What's the frequency of your global stock market cap / global bond market cap calculations since all the data is somewhat late (BIS for bonds of world-exchanges for stocks) ?

I'll set up the 4 funds GFAP into my simulator, but this will only track the performance effect on the weightings...still, I'll need to compare with the actual market cap weightings from time to time... but I would think it should remain close.

 

 

Yeah, it lags by several quarters on the fixed income data. I don't rely on it too much to be honest. I more so find it interesting because its a true "efficient market" portfolio and that portfolio is basically just a big stock heavy procyclical portfolio.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Ok

so using this trying to quantify a ''contra-cyclical'' asset allocation level is far from the only thing to take into consideration.

Just trying to find a quantitative approach that depends less on discretionnary or emotions  in setting overweight / underweight allocation  !

My feeling right now would be to underweight stock more then what the inverse GFAP is telling...wich is pretty much 50/50... But it's also slowly comming down from the 60% weight it was saying in March 2020... so it still makes sense...

 

 

 

Is there a placed we could have acces to quaterly data of the global bond market size...but not 6 month late !

It's killing me...can't find this info other then with a 6 month lag...(SIFMA)

 

thanks !

Someone could set a 4 fund with a market cap weight and let it ride. Rebalance with the lag if you must on occasion, but it shouldn't deviate too far from the actual weights if you get it approximately right from the start....

 

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche
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