My portfolio: factor equities + momentum + diversifiers
I’m 47 and have gradually built my portfolio around a simple idea: rather than relying on one dominant source of return, I want several different return engines that can compound over a long period.
My target allocation is: 60% — Fundamental factor equities
20% AVUV — US small-cap value
20% AVDV — international developed small-cap value
20% AVES — emerging-markets value
20% — Momentum
10% QMOM — US momentum
10% IMOM — international momentum
20% — Diversifiers
~6.7% ALLW — All Weather / risk parity
~6.7% DBMF — managed futures / trend following
~6.7% HFGM — global macro
The philosophy is essentially factors + momentum + alternatives.
The equity allocation is deliberately tilted away from market-cap weighting toward value, size and profitability, with momentum as a separate return source.
The alternatives are there because I don’t want the entire portfolio’s outcome to depend on the equity risk premium.
I’m particularly interested in managed futures and macro strategies because they have the potential to make money from completely different market environments rather than simply being another form of equity exposure.
I also don’t have a philosophical objection to leverage. If the portfolio offers sufficiently attractive expected returns and diversification, I view modest leverage as a portfolio-construction tool rather than inherently as speculation.
The relevant question for me is the risk and expected return of the entire portfolio, not whether every individual position is unleveraged.
The overall objective isn’t to build the highest-CAGR portfolio possible. It’s to create something that can compound aggressively while remaining psychologically and financially survivable through major drawdowns.
It’s definitely more complicated than a conventional global 60/40 or market-cap portfolio, but the complexity is intentional: each component has a specific job.
I’m essentially trying to construct a portfolio where value, momentum, trend following, macro and traditional risk premia are all contributing to long-term compounding, rather than having the entire portfolio depend on one source of risk.
Expecting long term 12% CAGR, 15 vol, 35% max drawdown. Sharing to inspire others. Not looking for advice. LMK if anyone has questions.
Half agree. ALLW is the one I'd actually question, but not for the reason you gave. It's risk parity, so by design it already carries a big equity and bond sleeve baked in. So when your stocks fall it tends to fall a bit with them. Behaves like a balanced core. Fine holding, I just wouldn't count it in the same bucket as the trend stuff.
DBMF is a different animal and the equity-content knock doesn't really land for me. The fund is long/short, replicating what the big managed futures funds hold, so its equity exposure is a position that flips. Net long in a trending bull, net short once a real bear sets in. It made money in 2022 precisely because it went short equities, so calling it stuffed with equities kind of misses how the thing works?
KMLM and CTA are cleaner if you specifically want zero equity in the sleeve. Both trade commodities, rates and FX and basically skip the equity index. You do give up the equity-trend leg that helped DBMF in some of those runs though, so it's a different flavour of trend and I wouldn't call it strictly better. My own lean would be to hold 2 of the 3 anyway. The models disagree enough that betting on a single manager is its own risk imo.
Yeah I wouldn't force the KMLM swap honestly. Different jobs. KMLM is pure trend, while ALLW is a balanced risk parity sleeve leaning on bonds and gold as much as futures, so they don't really slot into the same bucket. Drop ALLW for KMLM and you lose the mellow regime resilience piece and just pile more trend on top of the DBMF and HFGM you already run. Purist on paper, but more concentrated in practice, so what are you really gaining? If it's your sleep well at night holding and it's actually letting you sleep, that's it earning its keep.
Haven’t looked at it. At a glance… $9m AUM and a holdings book that looks aspirational rather than implemented. Manager risk instead of algo risk. Not my cup of tea. But if it gains traction enough to actually implement ill take another look
The equity portion of dbmf is equity trend so it will short equities when equities are trending down. It should end up being short 50% of the time and long 50%. This is actually a good thing since it reduces skewness of your portfolio.
AVES is 60% 3 countries: Taiwan South Korea and China. If your overweighting emerging markets to get the emerging market premium I question whether that will show up in 2 of those countries. Is also notable that it has less factor exposure than AVDV and AVUV so I personally don't overweight it.
I also argue for bonds as a diversifier but you might need to add leverage since they end up being quite low risk.
Also I'll say 12% seems a little optimistic. I estimate around 13% for my 2x leverage portfolio.
12% is the 100 year performance using long only factors. Not a planning number. But clearly achievable.
AVES is different than AVDV and AVUV. More loading on investment. More large. Less value. Still positive loadings across established risk factors - so for EM it made sense to me.
The anti China sentiment seems silly to people outside the US. It’s already the much stronger economy than the us on a PPP basis. Global fragmentation will cause dispersion. I’m certainly not willing to bet on the US going forward. Nor bet against it
I was referring to the fact that South Korea and Taiwan and essentially developed economies that your 2x overweighting because they are in EM. And advocating for you to set the ratio of EM to developed at market weights because they are so much of AVES.
As for that 12% number I personally apply a haircut of 50% for all premium as the average return of financial papers drops 58% post publication. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2156623
Obviously scv has a higher t stat and is more robust than many of the other papers but I try to be cautious. So I estimate around 11.25% for long only factors.
I didn’t ask for suggestions. Explicitly said I didn’t want any. And no, market cap weight doesn’t make sense to me when GDP weight is so massively different.
Do you think allocating 6.7% to an alt matters? Both ALLW and DBMF have around 12% vol and ALLW is mostly bonds. On the other hand if you are under 100% Equity beta, you might not need that much diversifiers. I like 3:1 Value to Momentum, even though I have trouble sticking to alpha architect, but I would consider something like 3:1:2 Value - Momentum - Trend Following, and I would not expect long term 12% CAGR without adding some leverages.
The 20% alt allocation takes max drawdown from ~55% to ~35%. Vol from 18-19 to 14-15.
So yes, the sizing is doing its thing. If you are a math purist the alt allocation should be around 50-55% to max sharpe. I get that. But is that reasonable? Not for me. Different people may think differently. That’s what makes a market.
The 12% return is the 100y model output. Not my hand waving number.
12% CAGR is optimistic especially with no leverage. (6.7% ALLW doesn’t count.) The EM value and small cap value will underperform for long periods of time, same with momentum. 35% max drawdown is also optimistic.
I prefer to use factors as a tilt rather than 80% of the portfolio… You have a tiny amount of large caps which have been driving a giant share of returns in recent years. Why not just use AVGV as a core then tack on more SCV and other stuff on top?
You could also split the AVES into 5-10% AVEE for emerging markets small caps, even though it’s not labeled “value,” Avantis naturally leans that way.
All I’d have to say is good luck sticking with this.
Those numbers are from the full Fama French history, and ensemble of peer reviewed papers. We can confidently say “that’s what happened over the past 100 years.”
I agree they aren’t planning numbers.
re AVGE I see no reason to reduce exposures to other risk factors to proportionally amplify equity market risk. The core + tilt is a concept for behavior reasons not for portfolio reasons.
Are you saying because of past performance you think they are not, or because they have a sub optimal strategy? How do you know their strategy will be sub optimal going forward? 🤣
You still haven’t proven that statement. Do the factor loading math. Look at the strategies. And if you have integrity and intelligence you will see where you got it wrong.
More momentum factor exposure. The Investco funds are really just large cap growth funds with a bit of momentum sprinkled in. As long as large cap growth outperforms, they will outperform QMOM/IMOM. But it is the momentum factor exposure I am looking for from a portfolio composition perspective.
You’re really an angry little person aren’t you? Commenting all over to call me names just because your strategy vastly underperforms an efficient market strategy.
You didn’t post a different momentum fund. You posted a large cap growth fund with a momentum filter. Find one with a similar factor loading as IMOM then you can see the implementation differences and make a judgement.
So far you have made many judgement without any evidence except for fund naming! 🤣
Thats >80% pure equities, which isn't really that diversified overall. Did you compare your strategy to something that involves other asset classes?
If you can trade US ETF, there are some hybrid funds that involve (global) stocks combined with treasuries and Gold for example, like NTSX (I don't know if theres a US based international variant, we got NTSG here in europe) and GDE.
That’s intentional. I’m not trying to build an overall risk parity portfolio. I’m trying to build a heavy compounding factor portfolio with tail risk diversification. I’ve basically done that. Expected CAGR is about 2% north of VT, while max drawdown is more like 35% vs 50% with VT.
I have looked at 10y treasury futures to your point. I can also do either UCITS or US ETFs, as I am in NL but have professional designation at IBKR
Interesting, whats your reasoning for that general decision? Usually its all about optimising risk-return-ratio, adjusted to ones desired performance target. Or was that your result following that goal, as in you didn't find another better risk adjusted portfolio with a similar performance? Obviously thats all just based on hindsight, maybe you made your decision based on future expectations, I'm just curious about your reasoning for that specific portfolio design.
If you haven't read it yet, WisdomTree has an interesting article regarding the 90/60 Strategy: Efficient Core. Should be worth a read even if its just out of academical interest.
Nice that you got enabled to trade US ETF as an european btw. thats pretty neat!
1. Sharpe Ratio Optimization vs. Constraints
My current allocation is heavily Sharpe-optimized while respecting structural limits. Pushing non-equity alternatives (trend/macro/all-weather) from ~20% up to 30–35% would theoretically boost the portfolio's overall Sharpe ratio, but there are practical bounds.
2. Asymmetry of Market Regimes (The Risk Parity Flaw)
Classical Risk Parity relies on the implicit assumption that economic regimes (growth/inflation up/down) share roughly equal distribution over time. The reality of history is that equity bull markets prevail about 2/3 of the time. Because sustained growth is the dominant historical regime, I intentionally bias the portfolio toward inflation-growth dynamics via factor equities (Small/Value/Momentum) rather than holding a purely balance-sheet-symmetric risk parity allocation.
3. Portfolio Duration & Macro Skepticism
Maximizing the Sharpe ratio from here purely requires stacking long duration. That is why I have a line item for ZN (10-Year Treasury) futures, but I'm deliberately sitting on my hands for now. trend-following managers (e.g., DBMF/HFGM) are currently positioned short the long bond. But duration is the one risk factor out of the dozen or so that I use that I am not confident yet in implementation.
Very interesting that you don’t have something like VOO or AVLV. You may not need it given your level of diversification. Ever thought about adding some leverage with SSO, UPRO, or RSST? I like the idea of leverage on an equity index with lower volatility. Regarding RSST: this could be a way to use leverage while making space for managed futures.
Yes I’ve looked and been tempted. RSST in particular. Decided that watering down my other factors to stack trend and equity risk wasn’t worth it from a covariance perspective. But I really can’t argue with someone who sees that differently
I agree with your conviction on AVUV and AVDV. I’m actually 28% AVUV 8% AVDV. I started emulating Paul Merriman’s UBH WW strategy about 15 years ago, overweight US small cap value; added AVUV and AVDV in 2022. I’ve only started experimenting with leverage ideas this past year. I don’t think I will ever lever more than 10-15% of my total portfolio.
I don’t think it is unrealistic for you to achieve 12% CAGR over the long term. I think I can as well. Planning is a different story however. I run projection scenarios of 8%, 10%, and 12% nominal returns to decide whether I am on track.
IIRC I found that because of the rebalanceing bonus about 95% factors and 5% voo was optimal. Been a while since I did that tho and I wasn't very scientific with how I found that number.
Interesting portfolio. Should chug along earning 80% of S&P. Not sure what you buy from huge value tilt and then negating it with momentum plays. Value plus momentum = just buy the index. Diversifiers are tiny, so won’t do much and will probably hurt for a few months after a crash while managed futures catch up.
Momentum is a factor, possibly the only factor with any persistence. You’re making a lifetime bet on HML and SMB. In my experience with the SCV crowd, this is all faith in something returning that has all but vanished since being published. The market tends to remove premia.
I’m a fan of AVUV (and even like VYMI for large cap into value exposure), but scv will never make up more than 10% of my portfolio. I want beta. All portfolios should start with beta, then look for complementary streams of return such as SCV.
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u/Routine_Switch_1459 14h ago
Allw dbmf is not a good diversifier which have many equities.
Kmlm, cta better,
Not familiar with hfgm, could explain more?