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News and Articles
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Can we Beat Morningstar Bond Managers with ETF's
11/26/2010
In a previous article we questioned conventional wisdom that risk based assets as the main engine of portfolio growth. We presented a simple investment strategy -- pick the top seven bond managers and own the top performing bond fund which you review on a monthly basis (or quarterly if you prefer).
Currently, the top seven are:
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Bond Fund
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Ticker
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PIMCO Total Return
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PTTRX
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TCW Total Return Bond
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TGLMX
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Western Asset Core Bond
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WATFX
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Metropolitan West Total Return Bond
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MWTRX
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Loomis Sayles Bond
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LSBDX
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Dodge & Cox Income
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DODIX
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FPA New Income
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FPNIX
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In this article, we examine other bond only plans and see if the results can compete.
There are two other portfolios we present.
Goldman Sachs Global Tactical Asset Allocation:This is a cross-asset (or multi-asset) momentum based tactical asset allocation. This is based on a published report by Goldman Sachs on some of their funds. This is a simplified interpretation of strategies proposed by Goldman Sachs on Global Tactical Asset Allocation. The original strategy is based on the following:
- Among six asset classes: US equity (represented by ETF S&P 500 Spider SPY), International equity (represented by MSCI ETF EFA), Real Estate (represented by NAREI ETF IYR), Commodities (represented by Goldman Sachs commodity index ETF GSG), US aggregate bond (represented by ETF AGG), cash, simply calculate the previous 12 month return at year end.
- Rank the year end returns among these 6 assets.
- Choose the top 3 assets and invest these top 3 assets for the next year in equal money amount.
We have modified this by removing all the risk based assets and replaced the aggregate bonds with US long term treasury bond fund. In addition, any asset has to have the score higher than CASH to qualify for the purchase.
This allows the best bond funds to be selected based on their momentum.
TDA Ameritrade's Commission Free ETFs
We recently reviewed their plan with over 100 commission free ETFs. We use this plan but drove the strategy to select only bond funds using MyPlanIQ's tactical asset allocation.
Given that some of the ETFs don't have a long history, we only went back to 2007. It is possible to see the impact of the strategies b
 Portfolio Performance Comparison
Click for full details
Looking over a five year horizon, it is clear that BoB delivers the best results by quite a margin. In the shorter term, the results are much closer and as more fixed income ETF's become established and liquid, it will be worth watching and paying a return visit to look at returns in the future.
For now, the simplicity of the approach and the strength of the results leave BoB out in front. In this case, actively managed funds appear to beat the index funds.
labels:investment,
Symbols:SPY,VTI,EFA,VEU,EEM,VWO,IYR,VNQ,ICF,AGG,BND,HYG,JNK,PHB,CIU,BIV,GII,PUI,DBU,RYU,UPW,IYH,IXJ,VHT,XBI,PBE,DBR,RYH,IXP,PTE,DGG,LTL,IYM,IGE,VAW,XLB,XME,PYZ,DBN,RTM,UYM,MTK,PTF,DBT,RYT,ROM,GWL,PFA,IVE,IWW,JKF,VTV,ELV,PWV,RPV,SCHV,IYF,VFH,IPF,PFI,DRF,RYF,KXI,
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ETF Cloning of Fidelity Variable Annuity
11/23/2010
In a previous article noted that Variable Annuities have well chosen sub account funds that can lead to a portfolio that can deliver good returns. We examined the Fidelity Personal Retirement Annuity and broke down its funds.
In Summary, the Fidelity Personal Retirement Annuity's plan consists of 56 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, REITs, Emerging Market Equity and Fixed Income.
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Asset Class
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Number of funds
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US
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13
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International
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5
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Sector
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12
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Balanced
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8
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Fixed income
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7
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Emerging Markets
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3
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Real estate
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1
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Target Date
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7
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We are now going to build a clone plan and see how it performs. We will simplify the choice and not duplicate styles.
US Funds
| Style |
Fidelity |
ETF |
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LARGE BLEND
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FUSVX
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VTI
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LARGE GROWTH
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FCNTX
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VUG
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LARGE GROWTH
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FSGFX
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LARGE GROWTH
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FGIOX
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LARGE GROWTH
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FAGCX
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LARGE GROWTH
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EQPGX
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LARGE VALUE
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EQPIX
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VTV
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LARGE VALUE
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FVLIX
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MID-CAP BLEND
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FASOX
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VO
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Mid-Cap Growth
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FRVIX
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IJK
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Mid-Cap Growth
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FMCCX
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MID-CAP VALUE
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FVIFX
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IJJ
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SMALL BLEND
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FSCIX
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VB
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The US funds provide access to large, mid and small cap funds. Large Cap funds are probably overweighted, especially on growth. Having more mid cap value and small cap value would improve the portfolio slightly. Nevertheless, this is a high scoring section.
International Funds
| Style |
Fidelity |
ETF |
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Foreign Large Blend
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FAOIX
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EFA
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Foreign Large Blend
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WPETX
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Foreign Large Blend
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INLDX
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Foreign Large Growth
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FCPIX
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EFG
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Foreign Large Value
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IVQDX
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EFV
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World Stock
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FGEBX
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VT
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This is a good international section. Large cap are overweighted, medium and small cap funds would be a good upgrade.
Emerging markets
| Style |
Fidelity |
ETF |
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Emerging Markets
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FIMKX
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EEM
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Emerging Markets
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LZEMX
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VWO |
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Emerging Markets
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MGEMX
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Three alternative funds in this category is a good choice. It may be that having some large or mid-cap blend would provide a good alternative.
Real Estate
| Styles |
Fidelity |
ETF |
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REAL ESTATE
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FHEIX
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IYR |
Real estate is under represented -- an international REIT would strengthen this asset class.
Fixed Income
| Style |
Fidelity |
ETF |
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Emerging Markets Bond
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MSIEX
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EMB
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High Yield Bond
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FHNIX
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HYG
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Inflation-Protected Bond
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PRRIX
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TIP
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Intermediate-Term Bond
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FBNDX
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BND |
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Intermediate-Term Bond
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PTTRX
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Cash
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CASH
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CASH |
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Short-Term Bond
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PTLDX
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SHY
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The fixed income class is well balanced with good choices and diversification.
Even without going into the balanced funds, there are enough funds here to build a solid portfolio.
While the managed funds are available, the fee structure is such that the returns are going to leak into other people's pockets and it will pay you to be on top of your own investments -- either directly or through a professional.
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies (SAA and TAA, both provided by MyPlanIQ). For comparison purpose, we also include the moderate model portfolios of a typical 5 asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:
US Equity: SPY or VTI
Foreign Equity: EFA or VEU
REITs : IYR or VNQ or ICF
Emerging Market Equity :EEM or VWO
Fixed Income :AGG or BND
Performance chart (as of Nov 15, 2010)
Performance table (as of Nov 15, 2010)
There is an opportunity to build good returns and benefit from the tax free gains while mitigating the known high fees of this type of instrument.
There are certainly the funds in the plan to make this possible and overlaying a tactical asset allocation is empowered by the range and richness of the funds.
labels:investment,
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Smart Money Going to Equities
11/23/2010
Monitoring where moderate allocation funds are putting their money gives an indication of whether fund managers are being more conservative or aggressive this week.
We track two separate indicators:
- Top 3 Moderate Allocation Funds
- Aggregation of all Moderate Allocation Funds
This is calculated weekly and covers the last one year
We can see some big variations over the past year and considerable recent volatility. We can see the impact of QE2 driving equities up and then the weakness towards the end of the weak as most indices fell and there would be a more defensive move to fixed income assets. At this point, the balance is marginally defensive.  The aggregate group is not reacting to the changes -- the moderate portfolios have become slightly more aggressive. This may change if the current sentiment continues.
labels; investment
Symbols:SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,DBC,DBA,USO,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB,
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ETF's for Income Rebound Well
11/23/2010
ETFs for high dividend stocks can be used to represent their corresponding equity classes in asset allocation. Monitoring these ETF's give insight into the funds for a high performance portfolio that provides income as well as growth. The fixed income (bond) trend is covered in a separate weekly report.
More details are available on the MyPlanIQ website.
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Description
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Symbol
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Nov 22 Trend Score
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Direction
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Nov 15 Trend Score
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iShares MSCI Emerging Markets Index
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EEM
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11%
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^
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8%
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SPDR DJ Wilshire Intl Real Estate
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RWX
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10%
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^
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8%
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PowerShares Intl Dividend Achievers
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PID
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10%
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^
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7%
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iShares Dow Jones Intl Select Div Idx
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IDV
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10%
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^
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6%
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iShares S&P U.S. Preferred Stock Index
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PFF
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8%
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^
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7%
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iShares MSCI EAFE Index
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EFA
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8%
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^
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6%
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iShares Dow Jones US Real Estate
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IYR
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8%
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v
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8%
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PowerShares HighYield Dividend Achievers
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PEY
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8%
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^
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6%
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SPDR S&P 500
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SPY
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7%
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^
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6%
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SPDR S&P Dividend
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SDY
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7%
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^
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6%
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iShares Dow Jones Select Dividend Index
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DVY
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7%
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^
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5%
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Vanguard Dividend Appreciation
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VIG
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7%
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^
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5%
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Vanguard High Dividend Yield Indx
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VYM
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7%
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^
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5%
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First Trust Value Line Dividend Index
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FVD
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6%
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^
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5%
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Top Three
COMMENT
Bottom Three
COMMENT
CONCLUSION
labels:investment,
Symbols:IYR,RWX,EEM,PID,IDV,PEY,EFA,SPY,SDY,PFF,DVY,FVD,VYM,VIG,
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US Sectors Up Across the Board
11/23/2010
US sectors provide insight into the parts of the US economy that are flourishing or floundering. We are tracking the ETF's that represent ten different financial sectors.
More details are available on the MyPlanIQ website.
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Description
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Symbol
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Nov 22 Trend Score
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Direction
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Nov 15 Trend Score
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Energy
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XLE
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13.12%
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^
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10.06%
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Consumer Discretionary
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XLY
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12.95%
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^
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11.04%
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Telecom
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IYZ
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10.57%
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^
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9.77%
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Industries
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XLI
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10.05%
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^
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6.94%
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Materials
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XLB
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9.88%
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^
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9.14%
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Technology
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XLK
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8.46%
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^
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6.92%
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Consumer Staples
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XLP
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5.68%
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^
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4.74%
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Healthcare
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XLV
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4.42%
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^
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3.16%
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Utilities
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XLU
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4.24%
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^
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3.26%
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Financial
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XLF
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2.40%
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^
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1.24%
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COMMENT
Top Three
COMMENT
Bottom Three
COMMENT
CONCLUSION
labels:investment,
Symbols:XLY,IYZ,XLI,XLB,XLK,XLE,XLF,XLP,XLU,XLV,SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,DBC,DBA,USO,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB,
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Commodities Mixed -- Some up, Some down
11/23/2010
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Most Countries Rebound Some Do Not
11/23/2010
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Currencies react to rate raises and bailouts
11/23/2010
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ETF Based Bond Trend Indicators For The Week of November 22
11/23/2010
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ETF Asset Class Markers Recover but US REIT Is Under Pressure
11/22/2010
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Commodity ETFs Show Muted Downturn This Week
11/20/2010
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Top US Sectors Weather the week well -- bottom half feels the pain
11/19/2010
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Using Morningstar's Top Bond Manager to Build a Low Stress Portfolio
11/19/2010
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Currency ETF's show movement in who is top and who is bottom of the table
11/19/2010
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Commodity Indicators for Week of November 15th
11/17/2010
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Where is the Smart Money Going
11/17/2010
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Fidelity Annuity Analysed For Those Investing for Income
11/17/2010
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Countries All Drop -- India significantly, Japan only a little
11/16/2010
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ETF Based Major Asset Class Trend Indicators For The Week of November 15
11/15/2010
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ETF Based Bond Trend Indicators For The Week of November 15
11/15/2010
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