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Articles on VGTSX

  • Keep It Simple Stupid -- A Simple Benchmark to Measure Your Investment Returns

    04/19/2011

    There is an easy to understand strategy that can improve returns with low risk. If you have a portfolio with the correct asset classes represented, over the long term, you will get better results at a lower risk than picking the latest and greatest fund or stock. This is not the bleeding edge of new ideas. This is proven and widely used – being the basis of most money manager’s strategies.

    MyPlanIQ created SIB portfolios (Simpler Is Better) – market index funds from key asset classes that can be used to measure historical returns to show the impact of asset class selection rather than fund or stock selection. SIB portfolios for different numbers of asset classes are built and used to benchmark returns. From this, conclusions can be drawn as to what is an effective investment strategy for today.

    The following funds were used:

    Index Funds Asset Class

    Ticker

    Name

    Large Blend

    VTSMX

    Vanguard Total Stock Mkt Idx

    Foreign Large Blend

    VGTSX

    Vanguard Total Intl Stock Index

    Diversified Emerging Markets

    VEIEX

    Vanguard Emerging Mkts Stock Idx

    Real Estate

    VGSIX

    Vanguard REIT Index

    Commodities Broad Basket

    DBC

    PowerShares DB Commodity Idx Trking Fund

    Intermediate-Term Bond

    VBMFX

    Vanguard Total Bond Market Index

    ETF Asset Classes

    Ticker

    Description

    LARGE BLEND

    VTI

    Vanguard Total Stock Market ETF

    Foreign Large Blend

    VEU

    Vanguard FTSE All-World ex-US ETF

    Diversified Emerging Markets

    VWO

    Vanguard Emerging Markets Stock ETF

    Real Estate

    VNQ

    Vanguard REIT Index ETF

    Commodities Broad Basket

    DBC

    PowerShares DB Commodity Idx Trking Fund

    Intermediate-Term Bond

    BND

    Vanguard Total Bond Market ETF

    Three Asset Class SIB: The three core assets are U.S. and international equities and fixed income. This represents what used to be conventional wisdom: Heavy dependence on the U.S. and the rest of the developed world. With a conservative strategic asset allocation strategy, the portfolio would consist of 60% fixed income and 20% each for U.S. and international equities. With a tactical asset allocation strategy, the fixed income would never be less than 60% but the split of the three asset classes would move based on asset price movement.

    Three Core Asset Portfolios

    1 year AR

    3 year AR

    5 year AR

    SAA Index

    11%

    1%

    4%

    SAA ETF Index

    15%

    1%

    3%

    TAA Index

    7%

    4%

    6%

    TAA ETF Index

    9%

    4%

    5%

    The SAA (buy and hold) strategy represents what many people may end up with. There is little thought put into which asset classes are represented but these are the most likely ones to be covered.
    The TAA strategy gives a little higher long term performance because of the ability to move to other asset classes when one aspect of the economy is slowing.

    It’s clear that world economics has changed; becoming smaller, more interlinked and complex. It’s no longer possible to ignore the impact of emerging markets and we are very aware that real estate has an impact on the economy.

    If you are just using three asset classes, you should look to upgrade your portfolio immediately.

    Four Asset Class SIB: There are two variants for the four asset class SIB. Either add emerging markets or real estate trusts to the three asset class SIB. Note that the international asset class means established nations such as those in Europe and emerging asset classes are represented by developing nations. With a conservative strategic asset allocation strategy, the portfolio would consist of 60% fixed income and 13.33% each for U.S., international and REIT or emerging market equities. With a tactical asset allocation strategy, the fixed income would never be less than 60% but the split of the three asset classes would move based on asset price movement.

    Four Core Asset Portfolios

    1 year AR

    3 year AR

    5 year AR

    SAA Em Index

    12%

    2%

    6%

    SAA REIT Index

    17%

    2%

    5%

    SAA ETF Em

    16%

    2%

    6%

    TAA Emerging

    11%

    7%

    10%

    TAA REIT

    15%

    6%

    8%

    TAA ETF Em

    15%

    7%

    11%

    Adding another asset class improves the performance as it balances risk. TAA is also able to increase its long term benefit over SAA as there are more asset classes to move into when one of the asset classes is not performing properly. Choosing between REIT and emerging markets is hard and further diversification is of long term value.

    If you are using a four asset class portfolio, you could be doing better. Making the choice between emerging markets and real estate is a tough one.

    Five Asset Class SIB: Has been covered in a previous article and the results are included for completeness. The five class SIB takes both REIT and Emerging markets so is a fusion of the two four asset class SIBs.

    Five Core Asset Portfolios

    1 year AR

    3 year AR

    5 year AR

    SAA Index

    15%

    3%

    5%

    SAA ETF

    20%

    3%

    7%

    TAA Index

    15%

    8%

    10%

    TAA ETF

    19%

    8%

    12%

    The five asset class SIB is a strong platform for portfolio creation. It has broad diversification and, with tactical asset allocation, good returns.

    If you are using a five asset class portfolio, you are in good shape – but take a look at the six asset class portfolio because it will be increasingly important in the current macro economic climate.

    Six Asset Class SIB: The last asset class adds commodities to the portfolio. This gives another type of asset class and will further help diversification

    Adding another asset class does not significantly improve the result within the 5 year time frame. It may be asked whether the extra effort of building and managing a six asset class portfolio is worth it. Broader diversification is good, but is it really necessary? In our view, the addition of commodities will be increasingly important as commodities will protect against inflation as the recovery slowly continues and there is increasing inflationary pressure.


    Figure 1 5 Year Annualized Returns for the different SIBs with SAA and TAA strategies

    What conclusions can be drawn from this?

    • It’s time to leave a three asset class portfolio in the past. The world is more connected and complex and higher returns require more sophistication

    • Four and five asset class portfolios have fared well and show solid returns but everybody should consider adding commodities in the light of the current economic realities

    • This is not rocket science and you should be able to increase your returns and be in control of improving your returns

    • ETF’s are a very effective vehicle for implementing a SIB strategy and deliver excellent returns compared to the other funds selected


    Symbols: AGG, BND, DBC, EEM, EFA, GSG, ICF, IYR, LQD, SPY, TLT, VEU, VNQ, VTI, VWO, VTSMX, VGTSX, VEIEX, VGSIX, VBMFX

    Exchange Tickers: (NYSE: AGG), (NYSE: BND), (NYSE: DBC), (NYSE: EEM), (NYSE: EFA), (NYSE: GSG), (NYSE: ICF), (NYSE: IYR), (NYSE: LQD), (NYSE: SPY), (NYSE: TLT), (NYSE: VEU), (NYSE: VNQ), (NYSE: VTI), (NYSE: VWO), (NYSE: VTSMX), (NYSE:VGTSX), (NYSE:VEIEX), (NYSE:VGSIX), (NYSE:VBMFX)

    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.

     

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  • UPS, Fedex Square off in Retirement Plans

    04/19/2011

    The combination of a robust U.S. equity market and the proliferation of company-sponsored retirement plans helped push total assets in 401(k) pans over the $3 trillion threshold at close of last year, up 13% from 2009. The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

    The starting point for any retirement investing is the company provided retirement plan. Not all plans are created equal. Not all plans have the same number of choices, asset classes, quality of funds and, most importantly, risk adjusted returns.

    The list of minor asset classes covered by UPS Savings Plan The list of minor asset classes covered by Federal Express (FedEx) 401K Plan for Pilots
    Emerging Markets Bond: BAEDX
    Foreign Large Blend: EFA
    Inflation-protected Bond: BPRAX
    Intermediate-term Bond: SSINX, SBMRX
    Large Blend: SVSPX
    Mid-cap Blend: MDY
    Real Estate: VGSIX
    Retirement Income: VTINX
    Small Blend: IWM
    Target Date 2000-2010: VTENX
    Target Date 2011-2015: VTXVX
    Target Date 2016-2020: VTWNX
    Target Date 2021-2025: VTTVX
    Target Date 2026-2030: VTHRX
    Target Date 2031-2035: VTTHX
    Target Date 2036-2040: VFORX
    Target Date 2041-2045: VTIVX
    Target Date 2050+: VFIFX
    Conservative Allocation: VSCGX
    Foreign Large Blend: VGTSX
    Foreign Large Value: VTRIX
    Inflation-protected Bond: VIPSX
    Intermediate-term Bond: VBTIX
    Large Blend: VIFSX
    Large Value: VWNDX
    Mid-cap Blend: VEMSX, VMISX
    Moderate Allocation: VWELX, VSMGX
    Retirement Income: VTINX
    Small Blend: VSISX
    Target Date 2000-2010: VTENX, VTOVX
    Target Date 2011-2015: VTXVX
    Target Date 2016-2020: VTWNX
    Target Date 2021-2025: VTTVX
    Target Date 2026-2030: VTHRX
    Target Date 2031-2035: VTTHX
    Target Date 2036-2040: VFORX
    Target Date 2041-2045: VTIVX
    Target Date 2050+: VFIFX

     

    Asset Class UPS Savings Plan Federal Express (FedEx) 401K Plan for Pilots
    REITs 1 0
    Balanced Fund 10 14
    Fixed Income 4 2
    Sector Fund 0 0
    Foreign Equity 1 2
    US Equity 3 5
    Other 0
    0
    Total 19 23

     

    Fedex has more funds but have one less asset class -- UPS has REITs and Fedex does not. Neither company provides Emerging Markets or Commodity funds.

    Both companies have a wide choice of Target Date funds which may appeal to some but are expensive and have mixed reviews as to their value for money.

    It is interesting that UPS has emerging market bonds but no emerging ma
    There are easy ways to improve these plans with emerging market and commodity exposure.

    As of Apr 18, 2011, UPS Savings Plan investment choice is rated as average and Federal Express (FedEx) 401K Plan for Pilots investment choice is rated as below average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:

    Attribute UPS Savings Plan Federal Express (FedEx) 401K Plan for Pilots
    Diversification above average (85%) below average (13%)
    Fund Quality below average (21%) average (47%)
    Portfolio Building above average (66%) below average (31%)
    Overall Rating average (58%) below average (31%)

     


    Performance chart (as of Apr 18, 2011)

    Performance table (as of Apr 18, 2011)

    Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    UPS Savings Plan Tactical Asset Allocation Moderate 10% 77% 10% 102% 10% 98%
    UPS Savings Plan Strategic Asset Allocation Moderate 7% 55% 1% 9% 3% 11%
    Federal Express 401K Plan Tactical Asset Allocation Moderate 4% 39% 7% 73% 7% 69%
    Federal Express 401K Plan Strategic Asset Allocation Moderate 8% 87% 4% 36% 6% 41%
    Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate 10% 71% 9% 73% 13% 91%
    Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate 13% 103% 3% 20% 7% 35%


    Currently Commodities, Real Estate and US Equity are doing well. US Equity and Real Estate available to UPS Savings Plan participants Only US Equities are available to FedEx participants.

    When we add the six asset class SIB benchmark to the table, it is possible to see how the two compare against a reference.

    Takeaways

    • The UPS plan with its extra asset class has a three point lead over the FedEx plan when comparing tactical asset allocation
    • The Six asset class benchmark has a three point lead over the UPS plan when comparing tactical asset allocation
    • The FedEx plan without the recent burden of the Real Estate crash beats UPS when comparing strategic asset allocation
    • The Six asset class benchmark beats the FedEx plan over five years where emerging markets and commodities offset the drag of real estatewhen comparing strategic asset allocation


    With either plan, augmenting a retirement portfolio with emerging market equities and commodities will provide better diversification and likely higher risk adjusted returns. As inflation seems like a near certainty, commodity exposure becomes increasingly important.


    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: UPS, FDX, BAEDX, EFA, BPRAX, SSINX, SBMRX, SVSPX, MDY, VGSIX, VTINX, IWM, VGTSX, VTRIX, VIPSX, VBTIX, VIFSX, VWNDX, VEMSX, VMISX, VWELX, VSMGX, VTINX, VSISX, AGG, BND, VTI, VNQ, IYR, DBC, VWO, EEM, EFA


    Exchange Tickers: (UPS), (FDX), (BAEDX), (EFA), (BPRAX ), (SSINX), (SBMRX), (SVSPX), (MDY), (VGSIX), (VTINX), (IWM), (VGTSX), (VTRIX), (VIPSX), (VBTIX), (VIFSX), (VWNDX), (VEMSX), (VMISX), (VWELX), (VSMGX), (VTINX), (VSISX), (AGG), (BND), (VTI), (VNQ), (IYR), (DBC), (VWO), (EEM), (EFA)

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  • Armstrong's Informed Investor Lazy Portfolio Feels The Commodities Pain

    04/18/2011

    The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

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

    Frank Armstrong, author of The Informed Investor, proposed this portfolio for an MSN Money article. The two key points of the portfolio are that it has four asset classes (US, International, REIT, Bonds) and relies on market indices rather than active management. The portfolio uses index funds because index funds eliminate manager risk. It overweights small-cap stocks as small-cap stocks have historically outperformed large caps stocks. The portfolio has a strong value tilt, based on the theory that, over the long haul, beaten-down stocks will perform better than high-flying growth stocks.

    This should be a low cost, well performing portfolio.

    The fund selection for testing the strategy is listed below with the ETF alternatives:

    • 9.25% in Vanguard Small Cap Value VISVX (SCZ)
    • 9.25% in Vanguard Value VIVAX (SPY, IYY)
    • 6.25% in Vanguard Small-Cap Growth VISGX (VBK)
    • 6.25% in Vanguard 500 Index VFINX (IVW)
    • 31% in Vanguard Total International Stock VGTSX (EFA)
    • 8% in Vanguard REIT VGSIX (IYR, VNQ, RWX)
    • 30% in Vanguard Short-Term Bond VBISX (BND, AGG)

    Things to note about the portfolio:

    • This is designed as a lazy portfolio with limited rebalancing specified
    • 31% in US equities is significant with a mix of large and small cap stocks
    • With 70% in equities, this is a growth portfolio
    • REIT is possibly underweighted
    • There is no commodity asset class


    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 6 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent: US Equity: SPY or VTI
    Commodity: DBC
    Foreign Equity: EFA or VEU
    REITs: IYR or VNQ or ICF
    Emerging Market Equity: EEM or VWO
    Fixed Income: AGG or BND

    Portfolio Performance Comparison

    Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    Armstrong Original 10% 66% 4% 17% 5% 20%
    Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate 10% 71% 9% 73% 13% 91%
    Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate 13% 103% 3% 20% 7% 35%

    A detailed comparison can be found here

     

    Takeaways

    • 2010 was a good year for lazy portfolios and as we continue through 2011while equities are still performing well, not having a commodities option hurts returns

    • TAA has benefits in terms of being able to stay away from some area such as European equities

    • Index funds continue to show good results against managed funds

    • Larger asset class plans have the benefit of stability and good returns

    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: VISVX, SCZ, VIVAX, SPY, IYY, VISGX, VBK, VFINX, IVW, VGTSX, EFA, VGSIX, IYR, VNQ, RWX, BND, AGG, DBC, VEU, ICF, EEM, VWO

     

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  • Understanding and Building Your ETF Portfolio

    06/27/2010

    There is an easy to understand strategy that can lead to high returns with low risk. If you have a portfolio with the correct asset classes represented, over the long term, you will get better results at a lower risk than picking the latest and greatest fund or stock. This is not the bleeding edge of new ideas. This is proven and widely used – being the basis of most money manager’s strategies.

    MyPlanIQ created SIB portfolios (Simpler Is Better) – market index funds from key asset classes that can be used to measure historical returns to show the impact of asset class selection rather than fund or stock selection. SIB portfolios for different numbers of asset classes are built and used to benchmark returns. From this, conclusions can be drawn as to what is an effective investment strategy for today.

    The following funds were used:

    Index Funds Asset Class 

     Ticker 

     Name 

    Large Blend

    VTSMX

    Vanguard Total Stock Mkt Idx

    Foreign Large Blend

    VGTSX

    Vanguard Total Intl Stock Index

    Diversified Emerging Markets

    VEIEX

    Vanguard Emerging Mkts Stock Idx

    Real Estate

    VGSIX

    Vanguard REIT Index

    Commodities Broad Basket

    DBC

    PowerShares DB Commodity Idx Trking Fund

    Intermediate-Term Bond

    VBMFX

    Vanguard Total Bond Market Index

    ETF Asset Classes 

     Ticker 

     Description 

    LARGE BLEND

    VTI

    Vanguard Total Stock Market ETF

    Foreign Large Blend

    VEU

    Vanguard FTSE All-World ex-US ETF

    Diversified Emerging Markets

    VWO

    Vanguard Emerging Markets Stock ETF

    Real Estate

    VNQ

    Vanguard REIT Index ETF

    Commodities Broad Basket

    DBC

    PowerShares DB Commodity Idx Trking Fund

    Intermediate-Term Bond

    BND

    Vanguard Total Bond Market ETF

     

    Three Asset Class SIB: The three core assets are US and international equities and fixed income. This represents what used to be conventional wisdom: Heavy dependence on the US and the rest of the developed world. With a conservative strategic asset allocation strategy, the portfolio would consist of 60% fixed income and 20% each for US and international equities. With a tactical asset allocation strategy, the fixed income would never be less than 60% but the split of the three asset classes would move based on asset price movement.

    Three Core Asset Portfolios

     1 year AR  

     3 year AR  

     5 year AR  

    SAA Index

    11%

    1%

    4%

    SAA ETF Index

    15%

    1%

    3%

    TAA Index

    7%

    4%

    6%

    TAA ETF Index

    9%

    4%

    5%

     

    The SAA (buy and hold) strategy represents what many people may end up with as there is little thought put into which asset classes are represented but these are the most likely ones to be covered. The TAA strategy gives a little higher long term performance because of the ability to move to other asset classes when one aspect of the economy is slowing.

    It’s clear that world economics has changed becoming smaller, more interlinked and complex. It’s no longer possible to ignore the impact of emerging markets and we are very aware that real estate has an impact on the economy.

    If you are just using three asset classes, you should look to upgrade your portfolio immediately.

    Four Asset Class SIB: There are two variants for the four asset class SIB. Either add emerging markets or real estate trusts to the three asset class SIB. Note that the international asset class means established nations such as those in Europe and emerging asset classes are represented by developing nations. With a conservative strategic asset allocation strategy, the portfolio would consist of 60% fixed income and 13.33% each for US, international and REIT or emerging market equities. With a tactical asset allocation strategy, the fixed income would never be less than 60% but the split of the three asset classes would move based on asset price movement.

    Four Core Asset Portfolios

     1 year AR  

     3 year AR  

     5 year AR  

    SAA Em Index

    12%

    2%

    6%

    SAA REIT Index

    17%

    2%

    5%

    SAA ETF Em

    16%

    2%

    6%

    TAA Emerging

    11%

    7%

    10%

    TAA REIT

    15%

    6%

    8%

    TAA ETF Em

    15%

    7%

    11%

     

    Adding another asset class improves the performance as it balances risk. TAA is also able to increase its long term benefit over SAA as there are more asset classes to move into when one of the asset classes is not performing properly. Choosing between REIT and emerging markets is hard and further diversification is of long term value.

    If you are using a four asset class portfolio, you could be doing better and making the choice between emerging markets and real estate is a tough one.

    Five Asset Class SIB: Has been covered in a previous article and the results are included for completeness. The five class SIB takes both REIT and Emerging markets so is a fusion of the two four asset class SIBs.

    Five Core Asset Portfolios

     1 year AR  

     3 year AR  

     5 year AR  

    SAA Index

    15%

    3%

    5%

    SAA ETF

    20%

    3%

    7%

    TAA Index

    15%

    8%

    10%

    TAA ETF

    19%

    8%

    12%

     

    The five asset class SIB is a strong platform for portfolio creation. It has broad diversification and, with tactical asset allocation, good returns.

    If you are using a five asset class portfolio, you are in good shape – but take a look at the six asset class portfolio because it will be increasingly important in the current macro economic climate.

    Six Asset Class SIB: The last asset class adds commodities to the portfolio. This gives another type of asset class and will further help diversification

    Adding another asset class does not significantly improve the result within the 5 year timeframe. It may be asked whether the extra effort of building and managing a six asset class portfolio is worth it. Broader diversification is good, but is it really necessary? In our view, the addition of commodities will be increasingly important as commodities will protect against inflation as the recovery slowly continues and there is increasing inflationary pressure.

    Figure 1 5 Year Annualized Returns for the different SIBs with SAA and TAA strategies

    What conclusions can be drawn from this?

    ·         It’s time to leave a three asset class portfolio in the past. The world is more connected and complex and higher returns require more sophistication

    ·         Four and five asset class portfolios have fared well and show solid returns but everybody should consider adding commodities in the light of the current economic realities

    ·         This is not rocket science and you should be able to increase your returns and be in control of improving your returns

    ·         ETF’s are a very effective vehicle for implementing a SIB strategy and deliver excellent returns compared to the other funds selected

    In a future article, we will look at the impact of the actual fund selection to increase the return still further.

    Click here for a detailed view of the six asset portfolio

    labels:investment,ETFs,401K,IRA,

    Symbols:vti,spy,veu,efa,vwo,eem,iyr,icf,vnq,dbc,gsg,bnd,agg,tlt,lqd,VTSMX,VGTSX,VEIEX,VGSIX,VBMFX,

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  • David Swensen's Six Asset Investment Plan

    06/09/2010

    David Swensen, the Yale Endowment Manager, proposed this one size fit in all model portfolio for individual investors. The major difference between this portfolio and other conventional portfolios is that it emphasizes international equities (including emerging market equities) as well as real estate investment. Compared with various diversified portfolios, an interesting asset class missing is the commodities, which has been considered to be an excellent anti-inflation diversifier. This is complemented with its emphasis on the inflation-protected treasury bonds. In the model portfolio constructed, we assume annual rebalance although Swensen actually pointed out that in Yale's institutional portfolio, they rebalanced daily, which, by his estimate, gave about 1-2% of excessive returns vs. annual rebalancing.

    Compared with the Simpler Is Better (SIB) portfolios we discussed in the previous article, Swensen excluded commodities while putting emphasis on using fixed income for the purposes of inflation protection and portfolio hedging. Since commodities ETFs and index funds are still problematic (see this article), Swensen's six assets are the most investable assets.

    Note: it has been confusing whether Swensen advocated using long term treasury bonds or just an average duration treasury bonds. In his book Unconventional Success: A Fundamental Approach to Personal Investment, he wrote "The purity of noncallable, long-term, default-free Treasury bonds provides the most powerful diversification to investor portfolios". Based on this sentence, it has been interpreted that he meant to use the long term treasury bond. However, recently, a reader posted a reply from David Swensen on this question in morningstar.com that indicates the average duration of treasury bonds.

    The portfolio consists of the following:

    • 30% in Vanguard Total Stock Market Index (VTSMX or Vanguard ETF VTI)
    • 20% in Vanguard REIT Index (VGSIX or Vanguard ETF VNQ)
    • 20% in Vanguard Total International Stock (VGTSX) or (15% in VGTSX or Vanguard ETF VEU and 5% in VEIEX or Vanguard ETF VWO)
    • 15% in Vanguard Inflation Protected Securities (VIPSX or iShares Tip TIP)
    • 15% in Vanguard Long Term Treasury Index (VUSTX or iShares TLT or Vanguard ETF EDV)

    We have constructed both index fund based and ETF based plans using the above funds. Model portfolios using MyPlanIQ Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA) are generated. The following compares the Swensen's portfolio with SAA moderate and TAA moderate model portfolios.  Since the ETF based plan has shorter history, we present here the index fund based portfolios.


    SAA moderate model portfolio differs from Swensen's portfolio in both its target allocation and rebalancing frequency. SAA moderate is equally weighted among risky assets US Equity, International and Emerging Market Equity. It rebalances monthly whenever an asset weight deviates 20% from the target weight. The Swensen's rebalances annually.  This, along with the proper selection between VIPSX and VUSTX in the fixed income portion, contributes to the outperformance over the Swensen's portfolio. TAA has the best performance as it used asset momentum to rotate out of risky equity assets and avoided big loss in 2008 and early 2009.

    The following table shows its performance from 12/31/2000 to 6/7/2010.

      1 Yr 3 Yr 5 Yr Inception
    Annualized Return (%) 16.56 7.72 11.2 11.32
    Sharpe Ratio (%) 107.23 55.36 84.95 103.24

    In conclusion, David Swensen's six assets are the most investable core assets with which main stream asset allocation strategies can be used to achieve reasonable investment results.


    labels:investment,ETF,

    Symbols:spy,efa,eem,iyr,dbc,agg,vti,veu,vwo,vnq,bnd,icf,gsg,vt,wfvk,VTSMX,VGSIX,VGTSX,VIPSX,VUSTX,

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  • Apple 401K Report On 06/01/2011

    06/01/2011

    This article is part of a series of case studies we are conducting for various 401K plans. In this article, we will discuss how participants in Apple 401K can achieve reasonable investment results using asset allocation strategies. We will also discuss how those portfolios are positioned in today’s market environment.

    Apple Inc., (Ticker: AAPL) together with subsidiaries, designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players, as well as sells various related software, services, peripherals, and networking solutions. The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells various third-party Macintosh, iPhone, and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative customers. As of September 26, 2009, it had 273 retail stores, including 217 stores in the United States and 56 stores internationally. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.

    Apple offers generous benefits to its employees. It was the first high tech company in Bay Area that offered free day care for employees' children.


    Apple 401K's 401K plan consists of 14 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, REITs, Fixed Income. Four Core Asset Index Funds REITs's 401K plan consists of funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, REITs, Fixed Income.

    The list of minor asset classes covered by Apple 401K The list of minor asset classes covered by Four Core Asset Index Funds REITs

    Asset Class Apple 401K Four Core Asset Index Funds REITs
    Total 14


    As of May 27, 2011, Apple 401K investment choice is rated as average and Four Core Asset Index Funds REITs investment choice is rated as based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:

    Attribute Apple 401K Four Core Asset Index Funds REITs
    Diversification above average (85%)
    Fund Quality below average (15%) No Rating
    Portfolio Building average (59%) No Rating
    Overall Rating average (54%) No Rating

    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 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
    REITs: IYR or VNQ or ICF
    Fixed Income: AGG or BND

    Performance chart (as of May 27, 2011)

    Performance table (as of May 27, 2011)

    Portfolio Name1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR 5Yr Sharpe
    Apple 401K Tactical Asset Allocation Moderate 12% 159% 9% 122% 9% 99%
    Apple 401K Strategic Asset Allocation Moderate 14% 225% 4% 27% 5% 32%
    Four Core Asset Index Funds REITs Tactical Asset Allocation Moderate 10% 88% 8% 81% 10% 85%
    Four Core Asset Index Funds REITs Strategic Asset Allocation Moderate 17% 158% 4% 19% 6% 24%

    Currently are doing well. But these asset classes are not available to Apple 401K participants.

    To summarize, Apple 401K plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. Currently, the tactical asset allocation strategy indicates overweighing on Foreign Equity, REITs and Fixed Income funds.


    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:AAPL, CASH, VBMFX, LHYZX, FBAKX, FGRIX, FMGKX, VITPX, VITSX, NAESX, FCNTX, RGRYX, VGTSX, VDMIX, TAREX, VTSMX, VGSIX

    Exchange Tickers: (AAPL), (CASH), (VBMFX), (LHYZX), (FBAKX), (FGRIX), (FMGKX), (VITPX), (VITSX), (NAESX), (FCNTX), (RGRYX), (VGTSX), (VDMIX), (TAREX), (VTSMX), (VGSIX)

  • Ford Motor 401K Report On 06/01/2011

    06/01/2011

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