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Mohamed El-Erian Portfolio, Too Special?

Mohamad el-erian portfolio-png

This is the article displaying the portfolio by Mohamed El-Erian. Here you will find a description, performance for the portfolios as well as detailed information on how to implement it yourself.

Mohamed El-Erian portfolio

Mohamed El-Erian is the former CEO of the PIMCO. PIMCO has $1.88 Trillion dollars under management. He is also a veteran of the International Monetary Fund (IMF). In El-Erian’s book When Markets Collide: Investment Strategies for the Age of Global Economic Change, he presents a shock-absorbent long-term portfolio. He is often attributed to coming up with the expression “new normal” in the post-financial crisis.

Mohamed El-Erian is often interviewed on macro-economics issues. That is his specialty. So it should be interesting to see if he can translate his macroscopic perspective into a viable portfolio.

Let’s find out.

Description of the Mohamed El-Erian portfolio

The portfolio of Mohamed El-Erian portfolio is characterized by having some asset classes we don’t usually see in private portfolios but only in institutional portfolios and sovereign wealth funds. The biggest problem is the allocation of special opportunities. Special opportunities is a broad term. It more often than not covers mergers and acquisitions. See this Zacks article for more.  It explains to some degree what special situations include. There has begun to pop up ETFs that cover this area but unfortunately, we do not have a long benchmarking history of these ETFs to really get a good picture. Therefore we cannot use them to benchmark the portfolio going back to 1989 as we have done with other portfolios.

We have noted which asset classes we use instead of the “problematic” allocations.

Performance of the Mohamed El-Erian portfolio

Portfolio nameAsset class count1 year return (2019)Year to date10 year returnCAGR since 1989DrawdownRisk LevelExpense ratioYield
Muhammad El-Erian Portfolio820.72%-0.05%6.14%8.40%-31.14%4 - high risk0.18%2.32%

Asset Allocation of the Mohamed El-Erian portfolio

  • 15.00%  US Total Stock Market (VTI)
  • 15.00%  International Developed Blend (VEA)
  • 12.00%  Emerging Markets (VWO)
  • 7.00% Private Equity (using small-cap as proxy) (VIOO)
  • 5.00% Total US Bond Market (BND)
  • 9.00% International Bonds (BNDX)
  • 6.00% REITs (VNQ)
  • 11.00% Commodities (DBC / GSG)
  • 6.00% Long Term Treasuries (TLT)
  • 6.00% TIPS (VTIP)
  • 5.00% Infrastructure (using VTI US Total Stock Market as proxy)
  • 8.00% Special Opportunities (using small-cap as proxy)

Check the best mutual funds and ETFs here.

If you want to replicate the portfolio in another way you can use the following ETFs for the special asset classes:

when-market-collide-Muhammad El-Erian-asset-allocation
From When Markets Collide” by Mohamed El-Erian, page 198.

Resources for the Mohamed El-Erian portfolio

You can find his book When Markets Collide: Investment Strategies for the Age of Global Economic Change on Amazon, voted best business book by the Financial Times and Goldman Sachs in 2008. (Spoiler: Even in 2009 when I read this, I found it very boring and it took too high a view to be of any use, especially for the individual investor. I suspect it is one of those books that you need to say you have read if you apply for an analyst position.

Conclusion

The Mohamed El-Erian portfolio has some very special asset classes in order to diversify your investments.

What do you think about the allocation to “special situations”?

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