Golden Triangle Index monthly report (1 Dec 2012) Results for November 2012
Golden Triangle Index return +0.14%
●
Gold
–
0.47%
●
S&P 500 +0.57%
●
3-year T-note +0.13% GTI drawdown (30 Nov 2012)
–
1.05%
0 20 40 60 80 100 120 140 160 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12
Golden Triangle Index
with component breakdown end-Oct 2007 = 100
Gold (20%) S&P (30%) 3tn (50%)
GTI current value =
137.91
-14% -12% -10% -8% -6% -4% -2% 0% Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12
Golden Triangle Index
end of month drawdowns Oct. 2008 -11.79% Sep. 2011 -4.48%
Golden Triangle Index
5 yr 1yr
Return
6.64% 4.50%
Volatility
7.36% 6.30%
Sharpe
0.81 0.69
-1.05%
Total return indexes for GTI's three components
–
gold, S&P stocks and 3-year T-notes
–
are depicted as colored lines in the chart above. Owing to the wide dispersion in their cumulative performance, six rebalancings were required during this period to keep their weights in GTI within five percent of their targets. (Blog post: Rebalancing)
GTI's annualized five-year return of 6.64% (top chart, front page) exceeded five-year inflation of 2.06% by 4.58%
–
the real return. In the past 12 months GTI's return was 4.50%, with mild volatility of 6.30%. Thanks to near-zero T-bill rates, GTI's Sharpe ratio ran at an elevated level of 0.81 for the five-year period. GTI's drawdown of
–
11.79% in October 2008 was its deepest since 1974. Since August 2009 when GTI recovered to a new high, its worst drawdown was
–
4.48% in September 2011. At the end of November, GTI remained 1.05% below its most recent equity high of two months ago. On the next page, a chart shows the S&P's dividend yield (blue line) and the yield on the 3-year T-note (violet line), compared to expected inflation (rose shading). Expected inflation is the difference between the yields on conventional and inflation-protected five-year Treasuries. It represents the annualized change in the Consumer Price Index that would be needed for the return on the inflation-protected note to equal the return on the conventional note when they mature. A smoothing has been applied to the expected inflation values.
40 60 80 100 120 140 160 180 200 220 240 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12
Golden Triangle Index
total return indexes of GTI and its components end-Oct 2007 = 100
Gold 3tn S&P
GTI current value: 137.91
GTI (shaded area)
-0.47% +0.14% +0.57% +0.13%
Nov:
Over the past 87 years, the yield on the 3-year T-note averaged about 1.6% higher than inflation. As the chart shows, currently its yield is 1.7%
below
expected inflation. Since October 2007, when the 3-year T-note's yield traded at a normal premium to expected inflation, it has plunged in connection with the Federal Reserve's policy of pushing down yields to near-zero levels. Historically the dividend yield on the S&P 500 has exceeded inflation by an average 1.3%. Currently the S&P dividend is 1.0% below its usual premium to inflation, implying that stock valuations are on the high side. Low current yields imply below-average returns on Golden Triangle Index over the next few years. Besides current yields, GTI typically collects a small amount of capital appreciation from 3-year notes, substantial capital appreciation from S&P stocks and gold, and a rebalancing return from the interaction of its three components. Despite the modest outlook for Golden Triangle Index, it remains attractive compared to any of its components on their own. Stocks and gold by themselves are much riskier than GTI, while the return on the 3-year T-note will remain miniscule until its yield again exceeds inflation. Current positions:
50% weight
: 0.375% T-note of 11/15/2015. CUSIP: 912828TX8
30% weight
: SPDR S&P 500 ETF (symbol:
SPY
)
20% weight
: iShares Gold Trust (symbol:
IAU
)
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12
Golden Triangle Index
component yields (percent) vs. expected inflation
S&P 3tn Expected inflation (shaded area) 3tn
2.0% 2.3% 0.3%
S&P