With the dour state of the economy, would you be at all interested in investing ten-grand in a portfolio that returned 45% last year? If it was the Google Finance portfolio described in a previous blog, it wouldn’t be doing too much for you because you’d be down over 30% already. On average, the portfolios from our previous blog lost 24% of their value, were over 50% more volatile than the market and had weekly variances of nearly double the S&P 500.

This time we implemented a couple of changes. First, we tracked these portfolios on a weekly rather than monthly basis. Second, portfolio weights were dynamic; they were reconfigured each week to reflect actual query volumes. Of 215,000 unique visitors searching for the ten most popular securities on MSN Money in the first week of 2008, 31,000 of them queried Citigroup, Inc, which allocated 14% of the portfolio into that security. Since that figure dropped to 11% in the following week, the security’s weight in the portfolio was adjusted down by 3%.

Observations:

• Google Finance – Heavily vested in declining tech stocks like Google, Apple and Baidu.com, this portfolio has a balance just under $7,000. The combination of stocks in this portfolio are still quite sensitive to market fluctuations, while the growth in Caterpillar’s price may have tempered portfolio variance to only 41% over the market.
• Market Watch – With unique stocks and declining stocks like FuelCell Energy and Shuffle Master, the Market Watch portfolio has a balance of $7,400. This portfolio is currently the most sensitive to market fluctuations, and with all its stock heading south, it had more than twice the weekly variance of the market.
• Yahoo! Finance – This portfolio had a March 22 balance of $8,100 and this portfolio has suffered the least. With the inclusion of stocks like Bank of America, Washington Mutual and GE it is also the least sensitive to market fluctuations, but still has double the market’s weekly variance.
• MSN Money – With a balance of $7,800, this portfolio is in the middle of the pack. While it is more sensitive to market fluctuations than the Yahoo!, this portfolio’s combination of bank and technology stocks give it the least weekly variance of any FSE portfolio.
• CNN Money – This portfolio lost 21% since the beginning of the year, which left it with a balance of $7,900. It is below the FSE portfolio average in terms of market sensitivity and includes many of the same securities as the MSN portfolio. However, as a testimony to the power of portfolio optimization, these securities fail to offset one another resulting in a weekly variance of nearly 1½ times the market.

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