USA - Portrait - Mohamed El-Erian

Revisited: Pimco’s New Normal Portfolio

The monster theme coming out of 2008-2009 was the New Normal — so much so, that it’s actually become part of our vernacular to this day.

It’s a brilliant catch phrase. So, I decided backtest it against reality & now revisit it once a quarter, until I get bored…

Disclaimer stuff: First. This is not investment advice. This was for fun. I’m not telling you to invest in any of the securities or allocations in any of these reports. If you share this, make sure you say the same thing to the person with whom you are sharing. Ok? We cool? Scouts Honor? Ok. Here goes…

Assumptions: Purchases made 5/1/09 (roughly when the New Normal report was released to the public). Rebalanced Quarterly. Assumed $150k joint income, 28% tax rate, and 15% cap gains rate.

Benchmark: S&P 500 total return

The New Normal Allocation: I recreated the mix from an interview Mohamed El-Erian gave to Bottom Line Secrets in November 2010 {seemingly scooping absolutely every major business news network in the process}. (HT:nalledge)

Below is the initial mix & securities I used:

  • 15% US Large EQ (Vanguard Total Stock Index)
  • 15% Developed Non-US EQ (Vanguard FTSE All World)
  • 18% Emerging Market EQ (Vanguard MSCI Emerging Market)
  • 03% US Investment Grade Corporates (iShares iBoxx $ Invest Grade Corp Bond) –
  • 03% US Hi-Yield (iShares iBoxx $ High Yield Corporate)
  • 09% Non US Bonds (SPDR Barclays Capital Intl Treasuries)
  • 05% US TIPS (iShares Barclays TIPS Bond)
  • 06% US Real Estate (Vanguard REIT Index)
  • 11% Commodities (PowerShares DB Commodity Index)
  • 05% Infrastructure (iShares S&P Global Infrastructure)
  • 10% Cash (1% yield assumption)
The results? If you ask me —The New Normal STILL looks about the same as the Old Normal. Actually kind of worse. (through 9/30/2011)

 

(CLICK PIC TO VIEW COMPLETE REPORT, including Performance Attribution)

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