News and Articles

• Evergreen Plans Launches Web Services and Communities for Retirement Plan Investment Solutions

  03/02/2010

  EvergreenPlans.com today announces its launch of web services and communities of retirement plan investment solutions for investors. With the secular demographic trend towards to an aging population, the new 'normal' economic growth in the coming years and the grossly underserved investors by the current financial industry (hefty fees and unrewarding or risky investment solutions), our mission is to provide low cost, easy to use, systematic investment solutions to mass investors. These solutions are personal risk tolerance tailored and plan specific. Our solutions are to make it possible for mass investors to utilize the investment strategies and processes that are once employed and well practiced by institutions and high net worth wealth management.

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• International Stock Investing: Diversified Timing on Country ETFs

  12/27/2009

  In our previous article, we alluded that in a diversified portfolio, putting a long term timing indicator such as 10 month simple moving average on risky assets such as stocks, commodities could effectively reduce risk (i.e. big loss) while improving return. Investors are in a heightened state of anxiety these days as equity markets are consistently at a level where some analysts find them over valued (such as John Hussman's recent analysis or Robert Shiller's Cyclically Adjusted 10 Year PE ratio (Price to Earnings Ratio). Using a long term timing indicator to safe guard these portions of a portfolio is an effective way to do so.
  
  In the international stock asset, investors could utilize today's diverse array of country ETFs to get an exposure. The following is the list of country ETFs used in this strategy:

  • The Netherlands (EWN)
  • Germany (EWG)
  • France (EWQ)
  • Switzerland (EWL)
  • Italy (EWI)
  • United Kingdom (EWU)
  • Belgium (EWK)
  • Austria (EWO)
  • Singapore (EWS)
  • Hong Kong (EWH)
  • Japan (EWJ)
  • Canada (EWC)
  • South Africa (EZA)

  The portfolio has equally weighted amount on each country ETF. A 10 month Simple Moving Average (SMA) is used for each ETF. The strategy checks the SMA indicators at the end of each week and does the necessary transactions. Furthermore, the portfolio is rebalanced every year.
  
  The following table illustrates the performance of this portfolio from  5/18/2009 to 12/18/2009.

  	Last 5 Years	Last 3 Years	Last 1 Years	Up To Date	2004	2005	2006	2007	2008	2009
  Annualized Return(%)	11.749	7.969	20.542	13.414	19.892	9.477	21.57	11.594	-6.249	20.541
  Sharpe Ratio(%)	70.258	43.454	109.953	84.593	186.162	69.757	134.478	47.291	-195.092	108.191
  Standard Deviation(%)	14.011	15.175	18.597	13.697	10.319	10.475	13.589	18.123	3.679	18.9
  Draw Down(%)	16.916	16.916	9.694	16.916	3.938	7.902	15.169	10.354	6.529	9.694

  
  This portfolio compares favorably with the unguarded EFA which has the following performance (2004 is a full year data) while Up To Date being from 5/18/2004 to 12/18/2009.

  	Last 5 Years	Last 3 Years	Last 1 Years	Up To Date	2004	2005	2006	2007	2008	2009
  AR(%)	3.33	-7.032	28.904	6.21	18.93	13.322	25.806	9.951	-42.126	24.844
  Sharpe Ratio(%)	5.051	-24.366	89.625	16.4	123.536	103.547	162.686	44.417	-92.86	79.664
  Standard Deviation(%)	28.199	34.513	32.145	26.7	14.541	11.664	14.933	18.337	47.084	32.209
  Draw Down(%)	61.761	61.761	30.238	61.761	9.806	7.192	15.755	11.576	54.496	30.238

  
  Users could modify this portfolio to allow addition of recently introduced country ETFs such as emerging or new country ETFs including EWZ (Brazil), FXI (China), INP (India, an ETN or INDY, an ETF). RSX (Russia), TUR (Turkey), THD (Thailand),  South Korea (EWY), PLND (Poland) and VNM (Vietnam), or even regional ETFs such as EPP (pacific), AFK (Africa), GAF (Africa and Middle East), VGK or IEV (Europe).  Moreover, users could change the country weights. It is very encouraging to see that there are some many country ETFs available for investors to get a diversified exposure. Certainly cautions should be taken for those with very little liquidity.

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• John Hussman: Decidedly Speculative Week on 12/14/2009

  12/14/2009

  John Hussman's weekly comment on 12/14/2009: Any virtue of stocks here is decidedly speculative. Stocks are overvalued to a level from which uninspiring returns have always followed. That fact is true regardless of whether or not the economy is in a sustainable recovery. [url=http://hussman.net/wmc/wmc091214.htm]More detailed here. [/url]Hussman has been negative since September this year. Recently, however, he has adopted a slight speculative stance on US stock market through call option exposure. Based on his commentary and our estimate [url=http://www.validfi.com/LTISystem/jsp/fundcenter/AATrend.action?symbol=HSGFX&chart=true]here[/url], the stock exposure beta of Hussman Strategic Growth Fund HSGFX is less than 10%. The following are some key points from his above commentary.
  • S&P historical return: Using Barsky-Delong model, to achieve annual real return of 4.2%, the S&P would need to be at 810. Or putting it the other way, Hussman stated that "the conclusion is not that stocks must decline immediately, but rather, that long-term total returns for the S&P 500 are likely to be less than 4.2% after inflation." "Alternatively, on the assumption that future growth rates match what we've observed over the past two decades and indeed over most of the past century, an expected long-term total return of 10% for the S&P 500 (what investors generally carry in their heads as the “typical” long-term return on stocks) would currently be consistent with an index level of 672".
  • “Second wave” concerns begin to appear: Hussman has been warning that the second wave of housing credit crunching (the mortgage reset) is approaching the peak at this moment. He quoted Meredith Whitney's interview on CNBC which was very negative on the outlook of 2010: “which is so disturbing on so many levels to have so many Americans be kicked out of the financial system, and the consequence both political and economic of that is a real issue – you can't get around. It's never happened before in this country or in the modern economy. The biggest trend in 2010 will be seeing who gets kicked out of the banking system.”
  Any way you put it, we are definitely at a situation with many potential landmines. The best approach at this moment is to rebalance your portfolio’s asset allocation back to a risk level you could tolerate (remember 2008?) and then stick to the strategies/plans you have chosen.

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• A Well Balanced Wealth Management Investment Strategy

  12/07/2009

  A Well Balanced Wealth Management Investment Strategy

  Inflation and deflation are the two most important factors for a well designed wealth management investment strategy. Inflation destroys the long term purchasing power while deflation reduces the effectiveness of the capitalism's basic profit machine. A well designed long term strategy thus needs to have a well balanced hedge in both economic cycles. Harry Browne's [url=http://www.amazon.com/Fail-Safe-Investing-Lifelong-Financial-Security/dp/031226321X]permanent portfolio[/url] is designed over various major asset classes to tackle this problem. A more actively managed strategy is Doug Roberts' [url=http://www.amazon.com/Follow-Fed-Investment-Success-Effortless/dp/0470226498/ref=sr_1_1?ie=UTF8&s=books&qid=1259522552&sr=1-1]Follow the Fed[/url] Strategy. In this article, we will discuss this [url=../LTISystem/jsp/strategy/View.action?ID=582]well balanced strategy[/url] ValidFi maintains in some detail. This strategy is simply based on the fed monetary policy to follow the Fed. Research shows that big caps behave better than small caps when money is tight while small caps outperform big caps when money is easy. Similar relationship is also found in gold and Treasury bonds. Gold is doing better than Treasury bonds when the Fed's money policy is easy, and vice versa. Switching between large and small stocks, gold and Treasury bonds depends on the Fed's monetary policy. To lower the risk still further, simple intermediate government notes are added to the portfolio. Thus this strategy allocates assets equally among large/small stocks, gold/Treasury bonds and intermediate government notes. [b]1. Determine whether money is tight or easy[/b]
  • The indicator we use is T-bill -12 month  value minus Inflation - 12 month value, as described in [url=http://online.barrons.com/article/SB124570645962738625.html#mod=BOL_hpp_dc]the Barrons' articles[/url]. If the former is larger than the latter, then Fed's money policy is tight.
  • The T-bill - 12m is the trailing 12 - month compound return using the last twelve monthly T - bill's values.
  • Similarly the Inflation -12m measures the trailing 12-month compound return using the last 12- month inflation values. Inflation is calculated as the change in CPI index between this month and last month divided by last month's CPI index.
  • We can also compare the above indicator value with the 64-day simple moving average value of the indicator. If the former is larger than the latter, then the Fed's tight, and vice versa.
  [b]2. Portfolios[/b] A conservative model portfolio would be simply allocating 1/3 each to large/small cap equity,  gold/long term treasury and intermediate treasury notes.
  • If money is tight, the portfolio is composed of:
    • 33.33% in large stocks
    • 33.33% in Treasury bonds
    • 33.33% in intermediate treasury notes
  • If money is easy, the portfolio is made up of:
    • 33.33% in small stocks
    • 33.33% in gold
    • 33.33% in intermediate treasury notes
  [b]3.  Switching frequency[/b] The strategy adjusts portfolios every month according to the money status.
  • If short-term T-bill rate remains higher/lower than inflation, no adjustment is made to the portfolio because money remains tight/easy.
  • Similarly, if the indicator value stays above/below 0, or it's higher/lower than the 64-day simple moving average value of the indicator, no adjustment needs to be done to the portfolio.
  • However, if the money status changes, for example, money is tight right now while it was easy last time, investors must adjust the portfolio accordingly. In this case, portfolios should be switched to the other type so that investors can achieve higher returns while remaining lower risks.
  We have found that using the 64-day simple moving average performs much better than  simply basing on whether the indicator's value is positive or negative. The following table compares the performance between [url=../LTISystem/jsp/portfolio/ViewPortfolio.action?ID=5667]the conservative portfolio[/url] and the permanent portfolio ([url=../LTISystem/jsp/fundcenter/View.action?symbol=prpfx&type=4]PRPFX[/url]) from 1/1/1997 to 11/27/2009.

  	Last 1 Years	Last 3 Years	Last 5 Years	Since 1/1/97 to 11/27/09
  Roberts Portfolio Annualized Return	22.3%	7.4%	9.4%	9.9%
  PRPFX Annualized Return	28.7%	7.3%	8.5%	8.46%
  Roberts Portfolio Sharpe Ratio	1.7	0.5	0.68	0.77
  PRPFX Sharpe Ratio	1.66	0.41	0.54	0.65

  Doug Roberts' strategy is one of those well balanced long term strategies adopted by wealth managers to preserve capital and purchasing power while achieving reasonable growth. At the moment, the strategy decides that "money is easy" (which is obviously true) and invests in both small cap and gold.

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• PIMCO's Global Multi-Asset Fund PGMAX Reduced Equity Exposure Recently

  11/25/2009

  Recent Barron's article: seeking safe returns in a perilous world revealed PIMCO's newly introduced global multi-asset fund PGMAX and their asset allocation guidelines: based on risk factor allocation instead of traditional asset pigeonholes. It is interesting to see that ValidFi's Realtime Asset Allocation tool revealed that PGMAX recently reduced its equity exposure (click to enlarge the chart):

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