Rebalancing the Golden Triangle Index
Here is a chart of the Golden Triangle Index (GTI), broken down into its three components (gold, S&P 500 stocks and 3-year T-notes), from October 2007 to October 2012. Below it is a chart showing GTI's monthly drawdowns.
0 20 40 60 80 100 120 140 160 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12
Golden Triangle Index
with component breakdown end-Oct 2007 = 100
Gold S&P 3tn
GTI current value =
137.31
Golden Triangle Index 5 yr 1yr
Return
6.54%
4.65%
Volatility
7.36% 6.30%
Sharpe
0.79 0.73
-14% -12% -10% -8% -6% -4% -2% 0% Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12
Golden Triangle Index
end of month drawdowns
Oct. 2008 -11.79% Sep. 2011 -4.48%
In the top chart on the front page, a step down in 3-year T-notes (violet color) in November 2008 does not indicate a sudden drop in their value. Rather, it reflects a rebalancing of the portfolio undertaken to bring 3-year T-notes back to their target weight of 50 percent, after they had climbed to 58.29% of the portfolio value in October 2008. Three upward steps in 3-year T-notes in 2009, 2010 and 2011 also are an artifact of rebalancing, rather than large price rises. As shown in the chart below, without rebalancing, gold would have grown to comprise about a third of the GTI portfolio by 2011, owing to its large price rise. Meanwhile, at their low point in February 2009, stocks' initial 30 percent weight in GTI would have been cut nearly in half without rebalancing. To keep GTI's component weights close to their targets of 20, 30 and 50 percent (for gold, stocks and 3-year T-notes, respectively), a five-percent tolerance band is applied to the target weight of each component, to serve as a threshold that prompts rebalancing. For example, 3-year T-notes jumped to 58.29% of the portfolio in October 2008. This happened not because their value was falling (in fact, it was rising, as the chart shows). Rather, the value of S&P 500 stocks and gold was falling, reducing
their
proportional weights in the portfolio. As shown in the charts that follow, six rebalancings were triggered during the past five years when one or more of GTI's components drifted beyond its plus/minus 5 percent tolerance band.
40 60 80 100 120 140 160 180 200 220 240 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12
Golden Triangle Index
total returns of GTI and its components end-Oct 2007 = 100
Gold 3tn S&P
GTI current value: 137.31
GTI (shaded area)
10% 15% 20% 25% 30% Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12
target zone
Jan '08: 25.42%
Feb '09: 26.07%
GTI rebalancings due to gold weight:
Gold
weight
20% 25% 30% 35% 40% Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12
S&P weight
Jan '08: 24.81% Oct '08:
24.12% Feb '09:
22.99% Jun '09: 35.24%
GTI rebalancings due to S&P weight:
40% 45% 50% 55% 60% Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12
3tn weight
target zone
Oct '08: 58.29%
Mar '10: 44.87%
Apr '11: 44.83%
GTI rebalancings due to 3tn weight:
target zone