07/29/2011

Geoff Considine had a recent article on Portfolioist.com that shared some interesting facts about low-beta stocks. Beta is a statistic parameter for a stock price volatility with respect to stock benchmarks such as S&P 500 index (SPX).

He cited two research resutls that supported the assertion that these low beta stocks tend to out perform other stocks in a long term period:

• Research by Eugene Fama (Chicago) and Ken French (Dartmouth) popularized the idea that value stocks and small cap stocks generate out-sized returns (the so-called size and value factors). What is less well-known is that their research also found that stocks with low beta tend to out-perform : "...funds that concentrate on low beta stocks, small stocks, or value stocks will tend to produce positive abnormal returns ...even when the fund managers have no special talent for picking winners.

• A more recent academic study written in late 2010, also finds that ... low beta stocks tend to outperform. This study examines a wide range of non-U.S. equity markets, corporate bonds, and futures.

He further mentioned three ETFs that mainly invest in low-beta stocks:

• PowerShares S&P 500 Low Volatility Fund (SPLV): Invests in the 100 stocks from the S&P 500 Index with the lowest beta performance (as determined by the underlying index which is maintained by Standard and Poor's). The ETFs has an expense ratio of 0.25%. (Source: PowerShares S&P 500 Low Volatility Fund prospectus, available at http://www.invescopowershares.com/).

• Russell 1000 Low Volatility ETF (LVOL): Invests at least 80% of total assets in comprising the Russell-Axioma U.S. Large Cap Low Volatility Index. The ETF has an expense ratio of 0.49% (Source: Russell 1000 Low Volatility ETF prospectus, available at available at http://www.invescopowershares.com/).

• Russell 1000 Low Beta ETF (LBTA): Invests at least 80% of total assets in common stocks that comprise the Russell-Axioma U.S. Large Cap Low Beta Index. The ETF has an expense ratio of 0.49% (Source: Russell 1000 Low Beta ETF (LBTA) prospectus, available at available at http://www.invescopowershares.com/).

With the above, let's look at an interesting stock that is not glamorous at all: Colgate-Palmolive (CL), a household name for personal care items such as tooth pastes. The following is CL's performance from 1/3/1977 (the first date we have its price data) to 7/19/2011:

For more details, refer here.

This is a remarkable stock with very consistent price return performance and about half (0.5) beta, compared with S&P 500. In the last five years, it returned 9.6% annualized, what is more astounding is that it had annualized 18.3% in the past 38 years! Talk about shareholders' returns!

Symbols: CL, SPLV, LVOL, LBTA, SPX, Dividend Stocks

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12/03/2010

This report reviews AMERICAN EXPRESS RETIREMENT SAVINGS 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 AMERICAN EXPRESS RETIREMENT SAVINGS PLAN can achieve reasonable investment results using asset allocation strategies.

Plan Review and Rating

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AMERICAN EXPRESS RETIREMENT SAVINGS PLAN's 401K plan consists of 24 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, Emerging Market Equity, Fixed Income. The list of minor asset classes covered:

Diversified Emerging Mkts: EEM, GMM, PXH, DEM, SCHE
Foreign Large Blend: EFA, VEU, GWL, PFA
Foreign Large Value: EFV, PID, DWM
Foreign Small/mid Value: SCZ
Intermediate-term Bond: AGG, CIU, BIV, BND
Large Blend: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
Long-term Bond: CLY, LQD, BLV, VCLT
Mid-cap Blend: IJH, IWR, JKG, VO, MDY, EMM, PJG, DON, EZM, MVV
Small Blend: IJR, IWM, JKJ, VB, DSC, PJM, DES, SAA, UWM, SCHA
Us Equity: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX

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 (61%)
Fund Quality -- Rated as (60%)
Portfolio Building -- Rated as (96%)
Overall Rating: (75%)

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 AMERICAN EXPRESS RETIREMENT SAVINGS 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 4 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)
Emerging Market Equity: (EEM or VWO)
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), Emerging Market Equity (EEM,VWO) and Fixed Income (AGG,BND) are doing relatively well. These asset classes are available to AMERICAN EXPRESS RETIREMENT SAVINGS PLAN participants.

To summarize, AMERICAN EXPRESS RETIREMENT SAVINGS PLAN plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.

Symbols: AXP , SPY , VTI , EFA , VEU , EEM , VWO , AGG , BND , IVV , IYY , IWV , VV , DLN , RSP , SCHX , CIU , BIV , GWL , PFA , SCZ , EFV , PID , DWM , IJH , IWR , JKG , VO , MDY , EMM , PJG , DON , EZM , MVV , IJR , IWM , JKJ , VB , DSC , PJM , DES , SAA , UWM , SCHA , GMM , PXH , DEM , SCHE , CLY , LQD , BLV , VCLT

12/03/2010

12/07/2010

06/13/2011