Coward’s Portfolio by Bill Bernstein: Allocations, Performance, and Returns Analysis
The Bernstein Coward’s Portfolio by Bill Bernstein aims to diversify investments as widely as possible across asset classes (bonds & stocks), countries, company size, and valuation.
Bill Bernstein Coward’s Portfolio strategy can be implemented with only 9 ETFs, of which 60% are stock ETFs and 40% are bond ETFs. You do not need to pick individual stocks and bonds. In other words, this is close to a passive portfolio that only requires some rebalancing once in a while.
According to our backtests spanning 16 years, Bill Bernstein Coward’s Portfolio got the following performance metrics:
- Compound annual return (CAR): 5.14%;
- Standard deviation: 14.34%;
- Maximum drawdown (MDD): –36.20%;
- Sharpe ratio (with a risk-free rate of 3%): 0.15;
- CAR/MDD ratio: 0.14.
(This article is just one of hundreds we have written about different investment strategies.)
Let’s explain and backtest the portfolio in detail:
Who Is Bill Bernstein – personal bio
Bill Bernstein is an American author, financial theorist, and retired neurologist. He is best known for his work on asset allocation and portfolio construction, and he has written several influential books on the subject, including “The Intelligent Asset Allocator” and “The Four Pillars of Investing”.
Bernstein has also written extensively on financial history, including “A Splendid Exchange: How Trade Shaped the World” and “Masters of the Word: How Media Shaped History”.
He co-founded the investment advisory firm Efficient Frontier Advisors and has served as a consultant to several financial institutions.
Bernstein’s work has earned him a reputation as a leading expert in the field of investment theory and portfolio construction. His approach emphasizes the importance of diversification, risk management, and a long-term perspective.
He has been a strong advocate for using low-cost index funds and has been critical of the financial services industry for its focus on high fees and active management.
What Is The Bernstein Coward’s Portfolio – facts and figures
The Bernstein Coward’s Portfolio is a broadly diversified portfolio that consists of two main asset classes:
- Stocks that make up 60% of the portfolio and are diversified by stock types (growth, value, and both), capitalization (small and large caps), market development types (emerging and developed markets), and geographic regions (European, Pacific, and domestic regions). Real estate stocks are also included;
- Corporate bonds make up the remaining 40% of the portfolio.
The asset allocation of The Bernstein Coward’s Portfolio is as follows:
| Asset class | Weight in the Portfolio |
| US Large Cap Blend | 15% |
| US Large Cap Value | 10% |
| US Small Cap Blend | 5% |
| US Small Cap Value | 10% |
| REITs | 5% |
| Europe | 5% |
| Pacific | 5% |
| Emerging Markets | 5% |
| Short Term Corporate Bonds | 40% |
Stocks In The Bernstein Coward’s Portfolio – which sectors?
Stocks are used as high-return securities that increase overall portfolio returns, but the downside is that stocks are more volatile than bonds. Bill Bernstein Coward’s Portfolio includes the following types of stocks:
- US Large Cap Blend – US large-cap growth and value stocks that virtually replicate the benchmark S&P 500 stock index;
- US Large Cap Value – large-cap value stocks. Such stocks have historically outperformed growth stocks;
- US Small Cap Blend – US small-cap growth and value stocks. Such stocks have historically outperformed large-cap stocks;
- US Small Cap Value – US undervalued small-cap stocks These stocks have historically outperformed growth stocks and large-cap stocks;
- Real estate fund stocks (REITs) – these stocks historically have a low correlation with the S&P 500 stock index;
- Europe, Pacific – these international stocks allow you to increase diversification by reducing the overall correlation of the portfolio. European and Pacific stocks are located on other continents and are weakly dependent on US stocks;
- Emerging Markets – these stock markets are more risky but typically outperform developed stock markets in terms of growth.
Bill Bernstein Coward’s Portfolio stock market ETFs
For stocks, we have picked these ETFs, which are well diversified, have high liquidity, and a long performance history:
| Asset class | ETF Name | ETF Ticker |
| US Large Cap Blend | iShares Core S&P 500 ETF | IVV |
| US Large Cap Value | Vanguard Value Index Fund | VTV |
| US Small Cap Blend | iShares Core S&P Small-Cap | IJR |
| US Small Cap Value | Vanguard Small Cap Value Index Fund | VBR |
| REITs | Vanguard Real Estate Index Fund | VNQ |
| Europe | Vanguard European Stock Index Fund | VGK |
| Pacific | Vanguard Pacific Stock Index Fund | VPL |
| Emerging Markets | Vanguard Emerging Markets Stock Index Fund | VWO |
There are also bonds in the portfolio. Let’s show you which ETFs we picked to include:
Bonds In Bernstein Coward’s Portfolio (ETF)
Bonds are used to minimize portfolio volatility and drawdowns. Bonds are regarded as a safe haven, but that’s not always the case. For example, in 2022 both stocks and bonds crashed. It’s easy to forget that bonds have been rising since 1981, but that came to and end in 2022. However, historically bonds have served a purpose in the 60/40 portfolio. You need to think long term in investing.
Bernstein Coward’s Portfolio includes only short-term corporate bonds.
As a rule, corporate bonds are riskier than treasuries, but high returns compensate for the high risk: corporate bonds yield higher than treasury bonds.
In turn, short-term corporate bonds are safer than long-term ones because it is easier to predict the ability of a company to pay off debts in the next 1-5 years than in 10-20. The more distant the future, the less predictable.
For short-term corporate bonds, we have picked these ETFs, which are well diversified, have high liquidity, and a long performance history:
| Asset class | ETF Name | ETF Ticker |
| Short-Term Corporate Bonds | iShares 1-5 Year Investment Grade Corporate Bond | IGSB |
Let’s do backtest the portfolio to find the risk, return, and performance:
Backtesting Of Bill Bernstein Coward’s Portfolio – performance and risk
We backtested Bill Bernstein Coward’s Portfolio using a “buy and hold” strategy with our picked ETFs with appropriate weights.
This is the portfolio’s equity curve:
We are just as interested in the drawdowns as in the returns (because of risk). The portfolio’s underwater curve (drawdowns) looks like this:
The portfolio’s monthly and annual returns:
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Yr% |
| 2007 | 1.2% | -0.5% | 0.9% | 1.8% | 2.1% | -0.9% | -2.3% | 0.9% | 2.6% | 1.9% | -3.4% | -1.0% | 3.2% |
| 2008 | -3.0% | -1.0% | -0.3% | 3.1% | 0.8% | -5.5% | -0.1% | 0.2% | -5.5% | -11.6% | -3.9% | 3.2% | -21.9% |
| 2009 | -5.1% | -5.8% | 3.5% | 7.1% | 4.2% | -0.1% | 4.8% | 2.3% | 2.6% | -1.7% | 2.7% | 1.8% | 16.5% |
| 2010 | -1.9% | 1.7% | 3.9% | 1.3% | -4.7% | -2.5% | 4.5% | -2.3% | 4.8% | 2.1% | -0.3% | 4.0% | 10.6% |
| 2011 | 0.8% | 2.1% | 0.2% | 2.2% | -0.9% | -1.0% | -1.2% | -4.1% | -5.7% | 6.7% | -0.7% | 0.4% | -1.6% |
| 2012 | 3.5% | 2.1% | 1.3% | -0.6% | -4.1% | 2.8% | 0.5% | 1.3% | 1.5% | -0.5% | 0.4% | 1.9% | 10.4% |
| 2013 | 2.9% | 0.5% | 1.9% | 1.4% | 0.3% | -1.2% | 3.1% | -2.2% | 3.0% | 2.6% | 1.3% | 1.2% | 15.9% |
| 2014 | -2.3% | 3.0% | 0.8% | 0.2% | 1.3% | 1.8% | -1.5% | 2.4% | -2.5% | 2.4% | 0.9% | -0.0% | 6.4% |
| 2015 | -1.2% | 3.2% | -0.2% | 0.3% | 0.5% | -1.4% | 0.4% | -4.1% | -1.7% | 4.7% | 0.3% | -1.6% | -1.1% |
| 2016 | -3.5% | 0.0% | 5.3% | 0.7% | 0.7% | 0.8% | 2.8% | 0.1% | 0.2% | -1.7% | 3.1% | 1.8% | 10.5% |
| 2017 | 1.0% | 2.0% | 0.0% | 0.6% | 0.1% | 1.1% | 1.4% | -0.2% | 2.1% | 1.1% | 1.9% | 0.8% | 12.6% |
| 2018 | 2.8% | -3.4% | -0.4% | 0.3% | 1.7% | 0.1% | 2.4% | 1.6% | -0.4% | -5.5% | 1.8% | -6.5% | -5.9% |
| 2019 | 6.5% | 2.2% | 0.5% | 2.4% | -4.5% | 4.7% | 0.5% | -1.7% | 2.0% | 1.7% | 1.9% | 2.3% | 19.6% |
| 2020 | -1.4% | -6.3% | -12.8% | 8.2% | 3.3% | 1.6% | 3.4% | 3.6% | -2.3% | -0.6% | 9.6% | 3.8% | 8.3% |
| 2021 | 0.5% | 3.5% | 3.4% | 3.2% | 1.4% | 0.4% | 0.4% | 1.8% | -3.0% | 4.0% | -1.8% | 4.1% | 18.9% |
| 2022 | -3.7% | -1.2% | 1.7% | -5.7% | 0.8% | -6.8% | 6.2% | -3.1% | -7.7% | 6.7% | 5.3% | -3.8% | -12.0% |
| 2023 | 5.7% | -2.5% | -0.0% | 0.7% | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 3.8% |
| Avg | 0.2% | -0.0% | 0.6% | 1.6% | 0.2% | -0.4% | 1.6% | -0.2% | -0.6% | 0.8% | 1.2% | 0.8% |
Portfolio performance statistics compared to benchmark S&P 500 Total Return index:
| Statistical Metric | Portfolio | S&P 500 TR |
| Annual Return % | 5.14% | 8.91% |
| Exposure % | 85.24% | 100.00% |
| Risk-Adjusted Return % | 6.03% | 8.91% |
| Max. drawdown | -36.20% | -55.19% |
| CAR/MaxDD | 0.14 | 0.16 |
| Standard Deviation | 14.34% | 22.67% |
| Sharpe Ratio (3% risk-free) | 0.15 | 0.26 |
Bill Bernstein Coward’s Portfolio – conclusion
Bill Bernstein Coward’s Portfolio lost out to the S&P 500 TR regarding returns but outperformed in terms of risk.
The drawdown and standard deviation of the portfolio are significantly lower than that of the S&P 500 TR index, because a significant portion of the portfolio (40%) is corporate bond ETFs. “Bonds have managed to serve as a safe haven.”
Generally, this portfolio may interest conservative passive investors primarily concerned about preserving capital (and growth is of secondary importance). This is not a portfolio that makes you rich, unless you are willing to wait, which, of course, is the wisest thing to do. Time is the friend of the compounder.
FAQ:
Who is Bill Bernstein, and what is his contribution to investment theory?
Bill Bernstein is an American author, financial theorist, and retired neurologist. His notable contributions include work on asset allocation and portfolio construction. He has authored influential books such as “The Intelligent Asset Allocator” and “The Four Pillars of Investing,” emphasizing diversification, risk management, and a long-term perspective.
How is the Bernstein Coward’s Portfolio implemented?
The portfolio is implemented with a focus on simplicity and passive investing. It requires the use of only 9 ETFs, eliminating the need to pick individual stocks and bonds. Periodic rebalancing is the primary activity needed to maintain the desired asset allocation.
What is the asset allocation of the Bernstein Coward’s Portfolio?
The portfolio consists of 60% stocks and 40% short-term corporate bonds. Stocks are diversified across various categories, including US Large Cap Blend, US Small Cap Value, Real Estate stocks (REITs), and international stocks from Europe, Pacific, and Emerging Markets.