Rob Arnott Portfolio, Better Than The Permanent Portfolio?

Rob-arnott-portfolio

Rob Arnotts Portfolio is exposed to 30% stocks, 60% bonds, and 10% commodities. It can be built with just 8 ETFs. Rob Arnotts Portfolio is a low-risk portfolio.

For the past 10 years Rob Arnotts Portfolio returned 5.76% with a standard deviation of 7.38%. The dividend yield is 1.82. The 30-year return is 7.4%. Year to date Rob Arnotts Portfolio has returned 1.88%. Last year it returned 16.42%.

What is the return of Rob Arnott’s portfolio?

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
Rob Arnott Portfolio81.8816.425.76%7.410.18%
Rob Arnott ETF.com model portfolio70.2916.795.99%7.6610.21%
Rob Arnott’s portfolio displays good returns while at the same time getting good returns. The Permanent Portfolio has lower returns and also a lower drawdown.

How do you build Rob Arnott’s portfolio with ETFs?

  • 10% Large Cap Blend (VOO)
  • 10% Total International Stocks (VEA)
  • 10% REITs (VNQ)
  • 10% Commodities (DBC)
  • 10% Long Term Treasuries (TLT)
  • 20% Intermediate Corporate Bonds (LQD)
  • 10% TIPS (VTIP)
  • 20% International Bonds (BNDX)
Check the best mutual funds and ETFs here.

Who is Rob Arnott?

Research Affiliates is a giant in wealth management with $193 billion in assets under management.  Research Affiliates license their strategies. An example of this is their RAFI index used by ETF provider Invesco for many of their smart-beta ETFs. PRF – Invesco FTSE RAFI US 1000 ETF should be well known for smart-beta investors. Rob Arnott is their founder. He is the archetypical investment specialist with over 100 academic articles to his name. He is also the author of the book The Fundamental Index: A Better Way to Invest. In that, he lays out the method for constructing the above mentioned RAFI index. It is co-written with Jason Hus and John West who are both smart-beta masterminds.

Description of the Rob Arnott portfolio

The Rob Arnott portfolio comes from an article from the now-defunct indexuniverse.com, where Robb Arnott analyzed hedge-fund performance against a model portfolio. The article is now available at etf.com. Meb Faber included the model portfolio in his fantastic book Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies. The portfolio that Meb Faber presented in his book is slightly different from the one presented at indexuniverse.com. Originally Robb Arnott proposed an equal weight of the following asset classes:
  • Commodities
  • REITs
  • Emerging market bonds
  • TIPS
  • High-yield bonds
  • Long-term U.S. government bonds
  • Unhedged non-U.S. bonds
  • International stocks
  • U.S. stocks
  • investment-grade bonds
Meb Faber’s version merged some of the bond asset classes, probably due to missing time-series data for the asset classes. We present both versions here as we have time-series data for all asset classes. We believe it offers a smidgin of a higher fidelity to the original model portfolio. Spoiler: The higher fidelity model has slightly higher returns. We call it the Rob Arnott ETF.com model portfolio. If we consider Rob Arnott’s position on smart-beta he would most likely recommend a different portfolio. A portfolio with the majority of asset classes dedicated to smart-beta index strategies. The portfolios have a 50% allocated to bonds so we don’t expect to see record-breaking returns but we do expect to see a low drawdown.

Resources for the Rob Arnott portfolio

As mentioned, his book The Fundamental Index: A Better Way to Invest is very worthwhile. It was one of the first books I read detailing smart-beta strategies. Meb Faber’s interview with Rob Arnott is here. Barry Ritholtz interview with Rob Arnott on his Master in Business series. You can find links here. Research Affiliates website.

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