09/16/2010

• 10% in Diamonds Trust DIA (SPY)
• 15% in iShares DJ U.S. Total Market IYY (VTI, DVY)
• 7.5% in Fidelity NASDAQ Composite ONEQ (QCLN, QABA)
• 7.5% in Power Shares Dynamic Market PWC (VTV, VUG)
• 10% in iShares Russell 2000 IWM (IWO, IWW)
• 15% in Mid Cap SPDR Trust MDY (IJJ, VO)

International Equities

• 25% in iShares MSCI International EAFE EFA (VEA, EFV)
• 10% in iShares MSCI Emerging Markets EEM (VWO)

• 100% in equities is an aggressive portfolio
• 65% in US equities is high in today’s market environment
• There is no real estate (IYR, VNQ, ICF) or fixed income which would likely result in improved performance today
• With three asset classes (US, international and emerging markets), this can be mapped against a 3 asset class SIB

• Large Blend VTSMX (ETF VTI)
• Foreign Large Blend VGTSX (ETF VEU)
• Intermediate-Term Bond VBMFX  (ETF BND)

• The Lowell SAA and TAA were driven with a 100% in equities -- the TAA strategy will move to fixed income (cash) should the momentum drive it that way, the SAA strategy will not
• The 3 asset SIBs are using an aggressive model portfolio that still includes some fixed income

• The choice of funds, even if diversification enables reasonable returns
• Before the downturn, the original portfolio was outperforming everything except the dynamic allocation of the original strategy
• The strategy falls foul of the 2008/2009 downturn and tracks pretty closely with any buy and hold strategy
• The three asset SIBs have a fixed income fund that enables slightly better performance in choppier market conditions
• The Lowell choice of funds allows the tactical asset allocation strategy to outperform the three asset class SIB with TAA
• The 2008/2009 downturn shows the benefits of a tactical asset allocation – even if it means moving equities to cash

Takeaways:

• The Sower’s growth portfolio is a low maintenance portfolio that is heavily weighted towards US equities. In the long term, there is still confidence in the US economy but following this portfolio and strategy will give you some heartache
• This portfolio was created when the sort of downturn we experienced in 2007/2008 was not envisioned -- it's hard to imagine that this portfolio would still be recommended today
• Migrating to a dynamic strategy with the same funds provides much higher returns. Given a dynamic strategy, it would make sense to add some fixed income such as AGG, BND, SHY, CSJ rather than just cash
• Conventional tactical asset allocation with the right number of asset classes (at least five) still provides the best performance
• ETF’s give you a good degree of choice a good vehicle for any portfolio and with increasing track record, it’s possible to demonstrate good historical performance

labels:investment,

Symbols:DIA,IYY,VTI,DVY,ONEQ,QCLN,QABA,PWC,VTV,VUG,IWM,IWO,IWW,MDY,IJJ,IJK,VO,AGG,BND,SHY,SPY,VBK,IJS,IWP,IWS,VEA,EFG,EFV,VWO,VEU,ETF,Asset,Allocation,Tactical,Asset,Allocation,

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09/14/2010

John Wasik has been a professional journalist and author for 30 years specializing in personal finance, the environment, investing and social issues. John has proposed a Nano plan investment portfolio which employs just a handful of index or exchange- traded funds (ETFs) to cover virtually the entire world of bond and stock markets. This portfolio is supposed to be rebalanced annually.

John Wasik presents a classic asset allocation strategy with simple buy and hold.

• 20% in Vanguard Total Stock Market VIPERS (VTI) – alternatives: SPY, IWM    
• 20% in Vanguard Total International (VGTSX) – alternatives: EFA, VEU, EEM, VWO, ADRE     
• 20% in Vanguard REIT VIPERS (VNQ) – alternatives: IYR, ICF
• 20% in iShares Lehman TIPS Bond (TIP)    
• 20% in iShares Lehman Aggregate Bond (AGG) – alternative: BND

 
Things to note about the portfolio:

• With 40% in fixed income, this would be considered moderate risk
• With VGTSX covering both international and emerging markets (albeit in one fund) this would be something between a 4 and 5 asset class portfolio
• VGTSX is not an ETF; while VGTSX can easily be replaced by VEU (Vanguard FTSE All-World ex-US ETF) we will keep VGTSX because it has a longer history for back testing

 We will make a comparison of the performance of this portfolio with

• Rebalancing every month as opposed to every year
• Simpler Is Better (SIB) portfolios we discussed in a previous article,
• Tactically managing the portfolio

 The first set of results compares strategic asset allocation performance. What we note is:

• All portfolios suffer from the sharp downturn and is what is driving the increasing move towards a tactical allocation strategy
• The lazy portfolio – rebalancing once a year performs as well as the monthly rebalancing
• Wasik’s portfolio performance matches the 4 Asset SIB closely
• The extra asset class in the 5 asset SIB enables it to outperform everything else

The second set of results compares tactical asset allocation performance. What we note is:

• The tactical asset allocation strategies clearly mitigate the downturn
• Wasik’s portfolio performance matches the 4 Asset SIB closely when tactical asset allocation strategies are applied to both
• The extra asset class in the 5 asset SIB enables it to outperform everything else

 
Takeaways:

• ETF’s are a good vehicle for any portfolio and with increasing track record, it’s possible to demonstrate good historical performance
• It is increasingly clear that deploying a tactical asset allocation strategy is key. All buy and hold strategies are going to suffer the same downturn properties and with choppy market conditions, minimizing downside risk is critical
• With a buy and hold, there is little difference between monthly or annual rebalancing so you can be very lazy if you don’t mind the downside!
• Five asset classes perform better in all cases – in the TAA case, the five asset SIB gives you an extra 6% a year since inception – doubling the asset base every decade

labels:investments,

Symbols:ti,vnq,tip,agg,veu,spy,iwm,efa,iyr,icf,bnd,eem,vwo,adre,

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07/29/2010

• 401K plans based on ETF’s are available and provide a low cost and effective retirement alternative
• Increasingly ETF’s play a central role in retiirement plans. You should push your benefits department to increase the number of ETF’s in your plan.
• Having  five asset classes delivers better results
• While there is continued volatility in the market, a dynamic portfolio clearly improves returns
• Retirement is for the long haul and so it’s important to build the right portfolio based on the longer term returns

Symbols:agg,dvy,eem,efa,icf,iwd,iwf,tip,

labels:401K,IRA,Retirement,Investment,

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07/27/2010

In June, Schwab announced reducing expenses for their proprietary ETFs. This, along with recently announced commission free ETF trading from Schwab, Vanguard and Fidelity, represents an important and promising trend for ETFs in portfolio building. The following is the comparison among similar ETFs from Schwab, Vanguard and iShares. 

So far, Schwab ETFs are all equity (stock) index based funds that include U.S. stocks, international stocks and emerging market equity. Compared with iShares or even Vanguard, Schwab has been late in the game and their ETFs have short history. However, Schwab has a relatively good record in their mutual funds that are managed using quantitative models. That experience using quantitative models in their portfolio management certainly can help their ETF management.  Ultimately, what it really matters for investors are the total returns of ETFs that reflect both expenses (taken out from asset under management, usually monthly) and fund performance before fee. The following is the total annualized return table for ETFs from Schwab, Vanguard and iShares up to 7/23/2010. All performance data are calculated from Schwab ETFs’ inception date.

From their short history, it is very  impressive that almost all of Schwab ETFs deliver better or no worse total returns: all Schwab ETFs outperform their iShares counterparts while, compared with Vanguard,  only SCHE (emerging mkt equity) and SCHC (international small cap) slightly underperform Vanguard VWO and VSS respectively. Coupled with commission free trades for these ETFs, Schwab ETFs are very enticing for investors. The main drawback, however, is that Schwab does not offer ETFs in other major asset classes, especially in fixed income (it was reported that Schwab will soon provide fixed income ETFs). To build an effective portfolio, investors are forced to use other ETFs to cover missing major asset classes such as fixed income. Schwab charges $8.95 per trade for ETFs provided by other parties.

MyPlanIQ maintains Schwab Commission Efficient ETFs Plan. Since Schwab's ETFs only cover Domestic and International Equities, the additional ETFs are used to include other major asset classes including US REIT (IYR), Global REIT (IGR), Commodities (DBC, GLD), International Bonds (BWX), Fixed Incomes and Long/Intermediate/Short US Treasury Bonds (TLT, IEI, SHY) and High Yield Junk Bond (JNK). These additional ETFs are not commission free in a Schwab brokerage account. The strategic and tactical asset allocation moderate portfolios have the following performance:

In conclusion, like Vanguard ETFs, Schwab proprietary ETFs offer compelling values for portfolio building: low cost and commission free. To make their ETFs widely usable and competitive to iShares, however, Schwab (as well as Vanguard) needs to help to increase trading volume for these ETFs so that the tracking errors/friction could be reduced. This is perhaps the major important remaining obstacle for these ETFs to become staples for portfolios.

 labels:ETFs,brokerage,

Symbols:schb,vti,iwv,schx,vv,ivv,schg,vug,ivw,schv,vtv,ive,scha,vb,ijr,schf,vea,efa,schc,vss,scz,sche,vwo,eem,iyr,icf,igr,dbc,gld,bwx,tlt,iei,shy,jnk,iyg,agg,bnd,

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07/19/2010

MyPlanIQ SAA favors a diversified portfolio not just bonds but asset based ETF's all of which have low expense ratios and provide good returns.

Full Story

labels:investments,IRA,

Symbols:BSCH,BIV,AGG,CSJ,

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07/09/2010

06/27/2010

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12/03/2010

This report reviews Aflac Incorporated 401(k) Savings and Profit Sharing Plan plan. We will discuss the investment choices and present the plan rating by MyPlanIQ. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how participants in Aflac Incorporated 401(k) Savings and Profit Sharing Plan can achieve reasonable investment results using asset allocation strategies.

Plan Review and Rating

AFLAC Inc (Ticker:AFL) has the "Aflac Incorporated 401(k) Savings and Profit Sharing Plan".

Aflac Incorporated 401(k) Savings and Profit Sharing Plan's 401K plan consists of 11 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income. The list of minor asset classes covered:

Foreign Large Blend: EFA, VEU, GWL, PFA
Intermediate-term Bond: AGG, CIU, BIV, BND
Large Blend: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
Large Growth: IVW, IWZ, JKE, VUG, ELG, QQQQ, RPG, SCHG
Large Value: IVE, IWW, JKF, VTV, ELV, PWV, RPV, SCHV
Mid-cap Growth: IJK, IWP, VOT, EMG, PWJ, RFG, UKW
Moderate Allocation: AOM
Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK

As of Dec 2, 2010, this plan investment choice is rated as based on MyPlanIQ Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:

Diversification -- Rated as (35%)
Fund Quality -- Rated as (33%)
Portfolio Building -- Rated as (36%)
Overall Rating: (35%)

Current Economic and Market Conditions

We have experienced an uncertain 2010: plenty of worries on whether the US economy will climb out of the great recession and recover.

• The Federal Reserve embarked on Quantitative Easing II (QE2) to stimulate the economy.
• The housing market is still at its low but largely stabilized.
• The unemployment rate is stuck at 9%.

Americans continue to face an uncertain future, given (among others) the high unemployment rate, large federal and local government debts and global trade imbalance. With such an economic backdrop, the stock and debt markets are going to be volatile. Despite this, markets have been resilient and appear positioned to rebound.

In this market it is even more critical to properly diversify and respond market changes. MyPlanIQ offers two asset allocation strategies: strategic and tactical asset allocation strategies ( SAA and TAA for participants in Aflac Incorporated 401(k) Savings and Profit Sharing Plan).

Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.

Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.

Portfolio Discussions

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 3 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)
Fixed Income: (AGG or BND)

Performance chart (as of Dec 2, 2010)

Performance table (as of Dec 2, 2010)

Currently, asset classes in US Equity (SPY,VTI), Foreign Equity (EFA,VEU) and Fixed Income (AGG,BND) are doing relatively well. These asset classes are available to Aflac Incorporated 401(k) Savings and Profit Sharing Plan participants.

To summarize, Aflac Incorporated 401(k) Savings and Profit Sharing Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.

Symbols: AFL , SPY , VTI , EFA , VEU , AGG , BND , AOM , CIU , BIV , GWL , PFA , IVE , IWW , JKF , VTV , ELV , PWV , RPV , SCHV , IVV , IYY , IWV , VV , DLN , RSP , SCHX , IVW , IWZ , JKE , VUG , ELG , QQQQ , RPG , SCHG , IJK , IWP , VOT , EMG , PWJ , RFG , UKW , IJT , IWO , JKK , VBK , DSG , PWT , RZG , UKK

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