Model portfolio and bear market concerns

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Question: Hi, in the recent growth portfolio article in the Switzer newsletter Paul Rickard states that, “as a growth-oriented portfolio, our investment timeframe is in the three to five year range….our aim is to deliver slightly above market performance over that timeframe.” He also says that the portfolio has beaten the index over the last three years by net 2.85%.

Does this 2.85% take into consideration that each year he starts the portfolio afresh, without reference to selling the existing previous year’s stock for either a profit or loss when rebalancing? That is, each year is a new discrete portfolio that, at the end of the year, disappears into the ether. If it was assumed that the portfolio continued from year to year with rebalancing, what would the total net profit/loss be against the index?

Answer (by Paul Rickard): The model portfolio calculations do not take into account any transaction or bid offer costs - it is assumed that holdings are purchased/disposed at the closing price at the end of the month. For example, when re-balancing at the end of the year, holdings are disposed of at the closing price at 31 December – and new holdings are acquired at the closing price on 31 December.

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