Kepler Portfolio Update: December 19, 2025 | ITA Asset Management

Kepler will review the portfolio this morning. Major asset allocation changes are coming for Kepler for two reasons. 1) The portfolio performed poorly. Therefore, adjustments are appropriate. 2) The new asset allocation model is designed to be somewhat recession-proof. I say “somewhat” because I don’t think there will be a completely safe place to hide in 2026 unless someone is willing to short the market. Shorting the market is not the best idea as the market has historically been on an upward trend and it is extremely difficult, if not impossible, to time the market. You have to be right twice. When to get out and when to get back in. That second phone call, when you have to go back in, is the hardest psychologically. When the market bottoms or gets close to it, investors are reluctant to buy stocks because the thought is that the market will fall.

With the Kepler I aim for broad diversification, concentrating a larger part of the portfolio with government bonds such as IEF, TLT and SHV. In addition, I sold all shares of VOO because this S&P 500 Exchange Traded Fund (ETF) had too much exposure to the overvalued, AI-dominated stocks. Instead of VOO, I use RSP, also focused on S&P 500 stocks, but an equal-weight ETF. Shares in RSP are given an equal weight, while shares in VOO have a capitalization-weighted weight.

Kepler asset allocation model

Below you will find the current composition of the Kepler portfolio. Yes, there are overlapping ETFs like VYM and SCHD. I’m not too concerned about such circumstances as the recommended percentages are not that high for either ETF.

Three sector ETFs are included: Utilities (VPU), Healthcare (VHT) and Consumer Discretionary (VDC). All three ETFs offer products and services needed during recessions and depressions, so it makes sense to hold them in this market protection environment.

Readers will note that the expected return is almost 3.0%. Future dividends will generate cash to balance the portfolio.

Also included in the following asset allocation is exposure to developed international equities (VEA) and emerging markets (VWO). If US stock markets stumble, we have some hope that markets elsewhere in the world will prosper. One reason for this logic is that the G7 no longer dominates global gross domestic product (GDP). BRICS is now the world’s dominant economic engine.

Definition of BRICS: “The BRICS economic alliance is a bloc of major emerging economies (Brazil, Russia, India, China, South Africa, plus newer members such as Iran, Egypt, UAE) with the aim of increasing cooperation, increasing South global influence in global governance, and challenging Western economic dominance by promoting trade, investment and alternative financial systems, including creating institutions such as the New Development Bank. It functions as a platform for political coordination and economic partnership, advocating a multipolar world order.”

Recommendations for Kepler rebalancing

How does rebalancing the Kepler portfolio work? The following worksheet is from the Kipling spreadsheet. The goal is to keep each ETF with a Buy designation within one percentage point (1.0%) of the target percentage. If cash is needed, I sell SHV shares to raise the necessary cash. I sold SHV shares this morning to balance all ETFs with a buy rating. Note the Out of Balance column or the third from the right.

ETFs with a Hold or Sell recommendation are not touched. One of the overarching goals for 2026 is to reduce portfolio turnover in order to reduce taxes. Minimizing transactions should also boost performance and reduce taxes.

Kepler performance data

Now we come to the disappointing news. As of 12/31/2021 (launch date), the Kepler lags behind the AOR benchmark by a wide margin. With 53% of the portfolio in fixed income securities, this is a very conservative portfolio.

By the way, I think the IRR values ​​for VT are an error I just noticed.

Kepler risk ratios

How does Kepler perform when risks are taken into account? The Jensen Alpha is the most important of the four risk measurements and remains in the -4% region. Not good, because the Jensen should be positive. Based on the slope, Jensen shows a downward trend throughout the year. The hope is that the new asset allocation will reverse this performance.

If managing an asset allocation portfolio like Kepler is too difficult, seriously consider setting up an Intelligent Portfolio with Schwab. The Schrödinger is such a wallet. Below you will find a link to the Schrödinger. There are many blog posts explaining how the Schrödinger works. Once this style of portfolio is set up, one does nothing but add new money. The Schrodinger’s owner regularly deposits new money into the portfolio, and when the money reaches a certain level, Schwab’s computers reinvest the money. The computer model comes into action and rebalances the portfolio. The wallet owner does nothing. This is truly a passive way of investing and works for people who have no knowledge of investing.

Schrödinger Robo Advisor Portfolio Review: November 26, 2025

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