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Introducing: The Moby Flagship Fund

portfolio strategy Dec 29, 2021

Today we're updating the Moby Flagship Fund's allocation!

What that means is we're showing you exactly how our portfolio is now allocated across different sectors and investments.

We gave you our portfolio's allocations back in September, but now going in 2022, we've made some tactical changes to adjust for market conditions going forward!

This is important because while picking the right investments is obviously crucial, creating and managing an investment portfolio is even more important. Even if certain stocks in your portfolio are performing well, the losers can easily outweigh the winners, thereby causing your overall wealth to decline.

Even if you're able to spot the next bitcoin years ahead, it may not matter if you didn't allocate a large enough position to it or if all of your other investments went to $0.

Therefore making the right allocation decisions is one of the smartest things you can do. As institutional investors, we need to know not only what investments to buy but how much to buy. So, for example, if we like the financial asset Tesla, we also need to know how much. Tesla should represent in our portfolio. Should it be 1%, should it be 5%, or should it be 50%? 

The answer varies from person to person, but our portfolio investment is perfectly tailored towards our flagship fund (more on this below).

But before we dive into our portfolio and asset allocation, let us help explain a bit more about on why this is so important.

 

Portfolio Management Explanation:

If we lost you, let's use a quick example to help explain investment portfolios further. Imagine you have $1,000, and you allocate that $1,000 equally across four investments. Those four alternative investments end up performing as such:

  • Investment A: Returns 100% over the next year
  • Investment B: Returns -100% over the next year
  • Investment C: Returns 0% over the next year
  • Investment D: Returns 10% over the next year

If you allocated your portfolio equally ($250) into each direct investment, Investment A would turn into $500, Investment B would turn into $0, Investment C would remain at $250, and Investment D would turn into $275. Even though investment A doubled, if you add up all of your returns, you only made $25 -- which equates to a 2.5% annual return.

Even though 50% of the investments you made performed very well, you significantly underperformed the market because you made poor decisions at the portfolio construction level.

Now take those same investments but let's change our % allocated towards each investment. Now let's imagine that you’re investing 70% in Investment A and split the remaining 30% equally between B, C & D. The results of this investment strategy would be game changing.

If you were to do that, your total stock funds returns for the year would be 71%!

That means that even with the same exact investments, your returns would be drastically different because of the allocation decisions you made for your diversified portfolio. That is why it is extremely important to not only select the right alternative investments, but it is also extremely important to select how much to put into them and how long you keep it there.

 

How To Apply This:

The next question you may be asking then is:

  • What should my allocation be?
  • How much should I put in each investment?

The answer changes from person to person, but for us, we think about constructing portfolios at the asset class level before diving into the specific stocks, coins, debt, etc.

What that means is that we construct investment portfolios by saying we want to put a certain percentage in US stocks, fixed income, etc. From there, we then make decisions within those financial asset classes to the specific investments themselves.

While the creation of these percentages would be a massive lesson within itself (check out our course to learn more on this) we've skipped the heavy lifting and got straight towards publishing our Flagship Model Portfolio.

Please note this is an updated model from our flagship's portfolio back in Q3 (see it here)

 

The Moby Flagship Portfolio Prelude:

The Moby Flagship Portfolio was created in order to help you think about how to invest at the asset class level. What that means is that this portfolio construction will show you how we decide how much to allocate towards each asset class, thereby helping us choose our investment percentages at the stock level.

We apologize if this is redundant from our last post, but we can't emphasize enough how important portfolio management is. That is why we're repeating a lot of the same information so you do not miss it!

So similar to last time, this model portfolio was created using the following guidelines:

1) Aim to outperform the S&P 500 while taking on less risk

2) Use algorithms and big data to "test" these projections

The output of this is below 👇 

 

The Moby Flagship Portfolio:

  • 25% US Large Cap Growth

    • This consists of US based companies that are growth weighted and have market caps over $10B. This growth tilt implies they are growing fast, are expensive and often are more speculative.
    • This used to be at 50% but we're trimming this back pretty significantly. As we've been saying the entire 2nd half of 2021, the current environment does not suit very high growth companies well. More value companies have been outperforming individual growth companies for some time now and we think this will continue into the first half of 2022. We're therefore overweight value relative to growth.
    • Our growth stocks are mostly listed: here, here & here.
  • 35% US Large Cap Value

    • This consists of US-based companies that are value weighted and have market caps over $10B. This value tilt implies they are growing slow, are cheap, undervalued, and pay dividends.
    • This used to be at 25% but as we mentioned above, we're adding to our position here.
    • Our Value Stocks mostly are listed: here, here & here.
  • 25% Crypto

    • This consists of all of our investments in the crypto space. This includes coins, NFTs, DAOs, DeFi & More!
    • Our favorite crypto's are listed: here 
  • 5% US Smid (Mid + Small) Cap 

    • This consists of US-based companies below $10B in market cap. This is often skewed towards younger more speculative companies.
    • This used to be at 7.5% but we're trimming this back to add to less-growth value stocks that exist at large market caps.
    • This sector lives within other sectors. What that means is that small cap stocks exist in financials, tech, & more! Here are a few examples of small cap stocks that we like: here & here.
  • 5% International Developed (ex-US) 

    • This consists of companies who are not in the US but have developed economies. This often includes companies based in Europe and other developed countries.
    • This used to be at 6% but we're trimming this back slightly as international developed markets will likely continue to trail the US.
    • Similar to small cap this sector lives within other sectors. What that means is that these stocks exist in financials, tech, & more! Here's an example of a stock in this sector that we like: here.
  • 2.5% Emerging Markets 

    • This consists of companies who are in underdeveloped countries that are primed for growth. This often includes companies based in Asia, Africa and Latin America.
    • This used to be at 4% but we're trimming this back as these markets are still fully in COVID mode -- sans China and a few others.
    • For the third time in a row (sorry!) this sector lives within other sectors. What that means is that these stocks exist in financials, tech, & more! Here's an example of an emerging market stock that we like: here. 
  • 2.5% Real Estate 

    • Since real estate should be a part of your portfolio this section includes the only liquid way to invest in real estate and that is via REIT's. REIT's are companies that own, and in most cases operate, income-producing real estate. This is always good to include in a portfolio as it produces income and hedges against inflation.
    • Keeping this % allocation the same  -> Please find them: here

 

Portfolio Explained:

For the purpose of managing your investments, we've created this flagship portfolio to show you how to create specific allocations for each sector.

Now that we've shown you how we created our portfolio and what they consist of, below is a brief example of ETF holdings if you want to match this portfolio's allocation like-kind.

 
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