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Articles on LSBDX

  • Portfolio Management: Best of Fixed Income Managers vs. Retirement Income ETFs

    09/08/2011

    Two defensive investment strategies useful in current stressful times are compared. The first is based on selecting the best bond fund every month or every quarter from a list of bond funds managed by Morningstar's 'Manager of the Year' P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly. These funds include PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX.

    The second is Retirement Income ETFs that consists of a list of candidate dividend stock and bond ETFs including DVY, EMB, HYG, ICF, IDV, TIP, VIG, VWO.

    The conclusion: the Fixed Income Managers of the Year is solid and has lower volatility, a good defensive strategy one should consider. Both of them are better alternatives than a broad based index such as S&P 500 (SPX) or total bond market index (AGG)

    Read more from our SeekingAlpha's article:

    Defensive Strategies In Stressful Times: The Best Of Fixed Income

    Symbols: SPX, DVY, EMB, HYG, ICF, IDV, TIP, VIG, VWO, PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX, Retirement Investing, Dividend Stock, Retirement Income, Portfolio Management

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  • How Are Morningstar's Best Bond Fund Managers Faring in These Trying Times

    04/29/2011

    Many working people put off their retirement investing -- just one more year until it has becomes a "hair on fire" problem. The problem is that we can easily be overwhelmed and shut down. The way to solve this is to focus on what works in the long term -- that is what long term investing is all about -- and allow that to filter out what may work in the short term but won't stand the test of time.

    We continue to examine different portfolios to see what we can learn and use to further our investment portfolios.

    This article reviews the best of bond strategy that we first published in November of last year. This outlined a strategy based on bond funds only It was simple: out of the seven top bond managers (according to Morningstar) own the top performing bond fund which you review on a monthly basis (or quarterly if you prefer). Every year we review the list of top performers and you update your list of funds to maintain only the top performers in your list. We will call this Best of Bonds (BoB).

    Currently, the top seven we use are:

    Bond Fund

    Ticker

    PIMCO Total Return

    PTTRX

    TCW Total Return Bond

    TGLMX

    Western Asset Core Bond

    WATFX

    Metropolitan West Total Return Bond

    MWTRX

    Loomis Sayles Bond

    LSBDX

    Dodge & Cox Income

    DODIX

    FPA New Income

    FPNIX

    In a previous set of articles we tried to compete using bind ETFs such as BND, BWX, CIU, CMF, CSJ, IEF, JNK, LQD, MBB, MUB, NYF, PCY, SHV, SHY, TIP, TLH, TLT, WIP but we were unable match the returns of these managed bond funds. With PIMCO recently announcing a managed ETF bond fund, it will be interesting to see whether this gap will be filled.

    Bonds have had a torrid time since the turn of the year with many tactical strategies moving to cash rather than staying in bond funds. With interest rates sticking to their lows and with QEII still in operation, there has been little joy for bond owners.

    We compare this against a portfolio of dividend bearing ETF's that we have reviewed and use as a recommended plan for those looking to invest for income.

    The comparison is

     

    Portfolio Performance Comparison

    Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year Quarterly 5% 85% 11% 194% 10% 164%
    P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly 6% 110% 12% 219% 11% 172%
    Retirement Income ETFs Strategic Asset Allocation Moderate 13% 96% 4% 16% 5% 23%
    Retirement Income ETFs Tactical Asset Allocation Moderate 7% 52% 10% 76% 10% 66%


    Full details with drawdown and other parameters -- you can also add other portfolios for comparison

    Three Month Chart (Blue is Quarterly)

    One Year Chart  (Blue is Quarterly)

    Three Year Chart  (Blue is Quarterly)

    Five Year Chart  (Blue is Quarterly)


    Takeaways
    • Despite the challenging conditions, the Bond funds continue to deliver reasonable results in the short term and still look good over the longer time horizon
    • The retirement income ETF tactical asset allocation has a similar long term performance but with more trading activity
    • The strategic asset allocation has been doing well in the short term but suffered in the big downturn

    The best of bonds is still a solid approach and with the advent of managed bond ETFs, it may be possible to have an ETF equivalent plan.

    Disclosure:

    MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.


    Symbols: PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX, BND, BWX, CIU, CMF, CSJ, IEF, JNK, LQD, MBB, MUB, NYF, PCY, SHV, SHY, TIP, TLH, TLT, WIP

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  • Smart U.S. Money Managers Dumped Long Term Treasury Bonds, Who Are Holding The Bag?

    04/04/2011

    We all read about the story that, at the beginning of March,  Bill Gross at PIMCO dumped all of his U.S. treasury holdings in PIMCO Total Return Fund (PTTRX). With $237 billion dollar of assets, PIMCO Total Return Fund is the largest bond fund in the U.S., in fact, the largest fund in the world.

    Based on a recent analysis by MyPlanIQ.com, all 12 intermediate bond and total return bond funds tracked by MyPlanIQ SmartMoneyIQ, have liquidated and now hold virtually none or little in long term U.S. treasury bonds in their portfolios. These funds are managed by some of the best fixed income managers. They include Loomis Sayles fund (LSBDX), managed by Dan Fuss, TCW Total Return Bond (TGLMX), Western Asset Cord Bond (WATFX) and Templeton Global Bond (TGBAX). For more detailed fund portfolio asset allocation analysis, please refer to MyPlanIQ Smart Money Allocation Manager page.

    If all the smart money managers dumped treasury bonds, it begs the question:  who are holding the bag now?

    The following are possible candidates:

    1. Federal Reserve: As of Dec. 31, 2010, the Fed held $1.2 trillion treasury debt, more than $892 billion treasury bond held by China, the largest foreign country treasury holder.
    2. Foreign countries: Foreign countries including China, Japan and oil producer middle east coutries are the largest debt creditors to the U.S. They bought U.S. treasury bonds due to their largest foreign reserve accrued from their trade surplus to the U.S. As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion
    3. Insurance companies: These include large insurance companies that have to use long term bonds to match their long term liabilities.
    4. Speculators: They hold opinions that currently the long term treasury bonds can not go that low, otherwise, the economic recovery will be derailed. But they will be the first ones to dump these bonds when the inflation presure heats up.
    5. 'Dumb' money: These include fund managers who are buy and hold and certainly some individual investors.

    One possible cause for treasury bonds' free fall is that Fed stops buying and foreign countries can no longer absorb the treasury bonds anymore (due to trade surplus reduction or reducing the U.S. treasury and buying other countries' debts or both). By that time, speculators will flee and who will hold the bag?

    Exchange Tickers (TLT), (IEF), (SHY), (SHV), (PTTRX), (LSBDX), (TGLMX), (WATFX), (MWTRX), (TGBAX), (NSTTX), (AGDIX), (FSRRX), (PRSNX), (DPGIX)

    Symbols:TLT, IEF, SHY, SHV, PTTRX, LSBDX, TGLMX, WATFX, MWTRX, TGBAX, NSTTX, AGDIX, FSRRX, PRSNX, DPGIX

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  • Morningstar's 401K Clone Begs the Question- What about Managed Funds?

    02/27/2011

    We have already examined the Morningstar 401K plan. We explained why it is a model of plan creation - providing a manageable number of funds with broad asset class exposure that enables portfolios that can deliver solid returns. We also provided an ETF clone which enabled portfolios that underperformed the original.

    Performance chart (as of Feb 25, 2011)

    Performance table (as of Feb 25, 2011)

     

    Portfolio Name

    1Yr AR

    1Yr Sharpe

    3Yr AR

    3Yr Sharpe

    5Yr AR

    5Yr Sharpe

    Morningstar 401K ETF Clone Tactical Asset Allocation Moderate

    15%

    112%

    8%

    63%

    11%

    75%

    Morningstar 401K ETF Clone Strategic Asset Allocation Moderate

    17%

    155%

    3%

    14%

    6%

    30%

    Morningstar Inc 401K Plan Tactical Asset Allocation Moderate

    22%

    168%

    13%

    121%

    14%

    125%

    Morningstar Inc 401K Plan Strategic Asset Allocation Moderate

    15%

    178%

    3%

    22%

    5%

    35%

     

     

    The chart is a little misleading as the ETF Clone has fewer choices until recently because of the newness of the ETF funds. If we look at the table and consider just the five year return figures we can see that the strategic asset allocation returns are similar but there is an additional 3% garnered from the original.

    This has prompted further analysis of the funds which we present here.

    We tracked returns for all of the funds used in each portfolio over 5, 3 and 1 years. Some of the ETFs are sufficiently new that there wasn't five year data. We then created a score which was the summation of the five year number multiplied by three, the three year number multiplied by 1.5 and the one year number.

     

     

    Name

    5 year AR (%)

    3 year AR (%)

    1 year AR (%)

    ETF Score

    Mu Fund Score

    DBC

    PowerShares DB Commodity Index Tracking

    5.97

    (4.76)

    20.50

    31%

     

    PCRIX

    PIMCO Commodity Real Ret Strat Instl

    2.32

    (8.45)

    20.85

     

    15%

    EWX

    SPDR S&P Emerging Markets Small Cap

    8.69

    (0.04)

    18.93

    45%

     

    NEWFX

    American Funds New World A

    8.29

    (0.21)

    17.00

     

    42%

    ODVYX

    Oppenheimer Developing Markets Y

    (2.86)

    (7.95)

    25.22

     

    5%

    VWO

    Vanguard Emerging Markets Stock ETF

     

     

    17.45

    17%

     

    JNK

    SPDR Barclays Capital High Yield Bond

    4.15

    6.89

    11.89

    35%

     

    PHIYX

    PIMCO High Yield Instl

    5.51

    6.10

    7.11

     

    33%

    PRRIX

    PIMCO Real Return Instl

    5.40

    4.34

    5.44

     

    28%

    TIP

    iShares Barclays TIPS Bond

    4.10

    2.46

    4.06

    20%

     

    AGG

    iShares Barclays Aggregate Bond

    5.28

    5.05

    3.76

    27%

     

    PTTRX

    PIMCO Total Return Instl

    8.07

    8.64

    6.61

     

    44%

    GVI

    iShares Barclays Interm Govt/Credit Bond

     

    3.12

    2.53

    7%

     

    LSBDX

    Loomis Sayles Bond Instl

    6.35

    4.82

    8.32

     

    35%

    PRWBX

    STABLEVALUE

    3.96

    3.07

    (0.21)

     

    16%

    SHY

    iShares Barclays 1-3 Year Treasury Bond

    3.65

    1.99

    1.07

    15%

     

    BSV

    Vanguard Short-Term Bond ETF

     

    1.08

    0.90

    3%

     

    VBISX

    Vanguard Short-Term Bond Index Inv

    4.36

    2.87

    0.10

     

    17%

    VEA

    Vanguard Europe Pacific ETF

     

    (2.68)

    17.45

    13%

     

    VWILX

    Vanguard International Growth Adm

    4.04

    (1.26)

    21.65

     

    32%

    EFV

    iShares MSCI EAFE Value Index

    (0.66)

    (4.69)

    12.77

    4%

     

    TBGVX

    TweedyBrowne Global Value

    2.87

    1.38

    13.75

     

    24%

    REFDX

    Morgan Stanley Real Estate I

    2.55

    2.13

    34.01

     

    45%

    VNQ

    Vanguard REIT Index ETF

    2.09

    2.26

    33.32

    43%

     

    FSLBX

    Fidelity Select Brokerage & Invmt Mgmt

    (1.09)

    (1.28)

    15.23

    10%

     

    XLF

    Financial Select Sector SPDR

    (10.63)

    (12.91)

    15.61

     

    -36%

    IWV

    iShares Russell 3000 Index

    1.91

    1.28

    21.97

    30%

     

    OAKMX

    Oakmark I

    4.75

    5.85

    17.86

     

    41%

    SLASX

    Selected American Shares S

    1.35

    (1.68)

    15.91

     

    17%

    VIG

    Vanguard Dividend Appreciation ETF

     

    3.37

    18.54

    24%

     

    VINIX

    Vanguard Institutional Index Instl

    2.11

    0.16

    19.63

     

    26%

    VTI

    Vanguard Total Stock Market ETF

    2.57

    1.55

    23.38

    33%

     

    CISIX

    Calvert Social Index I

    1.71

    1.66

    23.25

     

    31%

    HACAX

    Harbor Capital Appreciation Instl

    3.15

    4.35

    20.33

     

    36%

    MGK

    Vanguard Mega Cap 300 Gr Index ETF

     

    3.25

    23.65

    29%

     

    VUG

    Vanguard Growth ETF

    3.25

    2.33

    22.48

    36%

     

    RWMFX

    American Funds Washington Mutual R5

    1.68

    (1.10)

    16.74

     

    20%

    VTV

    Vanguard Value ETF

    2.03

    (0.60)

    19.16

    24%

     

    BRWIX

    Brandywine

    1.16

    (3.55)

    36.42

     

    35%

    IWP

    iShares Russell Midcap Growth Index

    4.55

    5.27

    38.04

    60%

     

    POAGX

    PRIMECAP Odyssey Aggressive Growth

    6.64

    9.56

    18.72

     

    53%

    VOT

    Vanguard Mid-Cap Growth ETF

     

    3.45

    36.71

    42%

     

    VASVX

    Vanguard Selected Value Inv

    4.65

    4.17

    23.07

     

    43%

    VOE

    Vanguard Mid-Cap Value ETF

     

    3.77

    23.68

    29%

     

    AOM

    iShares S&P Moderate Allocation

     

     

    9.73

    10%

     

    VGSTX

    Vanguard STAR Inv

    3.61

    2.57

    12.85

     

    28%

    OTCFX

    T. Rowe Price Small-Cap Stock

    5.52

    10.67

    38.04

     

    71%

    VB

    Vanguard Small Cap ETF

    4.14

    6.49

    31.92

    54%

     

    PSVIX

    Allianz NFJ Small Cap Value Instl

    6.67

    5.67

    28.03

     

    57%

    VBR

    Vanguard Small Cap Value ETF

    2.50

    4.42

    25.69

    40%

     

     

     

    Instead of looking at each fund individually, we added the scores in each of the major asset classes together:

     

    Asset Class

    ETF Score

    Mutual Fund Score

    MF/ETF

    Delta

    US Equities

    4.20

    4.22

    0%

    International Equities

    0.17

    0.56

    228%

    Emerging Markets

    0.62

    0.46

    -26%

    Real Estate

    0.43

    0.45

    4%

    Commodities

    0.31

    0.15

    -52%

    Fixed Income

    1.07

    1.73

    62%

    This gives us some insight on the different portfolios.

    • US equity returns are running neck and neck - indicating that to improve the returns of the ETF portfolio, looking at the US equities should only be undertaken when the other asset classes have been examined
    • There is a significant gap in the international equities. The Vanguard Europe Pacific ETF looks like it will help but this is an area for shoring up the ETF portfolio
    • The Emerging Market ETF outperforms the original so, while it may be better to improve performance, that is a secondary task
    • Real estate runs neck and neck so look at that later
    • Commodities, the ETFs are running ahead so, again, we can look at that later
    • Fixed income is probably the biggest area where the difference is explained. It is the largest single asset category in terms of funds invested (in most cases) and there is a significant difference between the two. The original plan has two of the leading managed fixed income funds which shows consistently higher performance.

    The takeaway is that to look to improve returns from the Clone ETF, focus needs to be applied on international and fixed income asset classes.

    As we go through this exercise, this will bring to the fore a elephant in the ETF space - are there times when managed funds do outperform indexed funds - intuitively it would seem so and fixed income in this market seems to suggest itself as a prime example.

    We will examine this deeper in an upcoming article

    Disclosure:

    MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

    Symbols:DBC,PCRIX,EWX,NEWFX,ODVYX,VWO,JNK,PHIYX,PRRIX,TIP,AGG,PTTRX,GVI,LSBDX,PRWBX,SHY,BSV,VBISX,VEA,VWILX,EFV,TBGVX,REFDX,VNQ,FSLBX,XLF,IWV,OAKMX,SLASX,VIG,VINIX,VTI,CISIX,HACAX,MGK,VUG,RWMFX,VTV,BRWIX,IWP,POAGX,VOT,VASVX,VOE,AOM,VGSTX,OTCFX,VB,PSVIX,VBR,

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