Re-balance Cycle Reminder

We had our monthly re-balance today. The next re-balance time will be on next MondayJanuary 28, 2013. You can also find the re-balance calendar of 2013 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

New Feature: Post-Liquidation Tax Based Returns

We have added our tax impacted return calculation for both post-liquidation and pre-liquidation methods. You now can select pre or post liquidation in the Tax, Commission Performance Analytics on a portfolio page. For background information, see this user’s comment on our support Forum. 

As a side note, we have revamped our support page to make it really easy for users to ask a question. Please check it out on our Support page. 

Year End Review: Featured ETF Portfolios

As a tradition, we review performance of  model portfolios of various plans in a series of newsletter. In this letter, we will review the performance of those ETF portfolios listed on Overview & Featured ETF Portfolios

The following shows the tactical portfolio performance: 

TAA Portfolio Performance Comparison

Ticker/Portfolio Name 2012 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Vanguard ETFs Tactical Asset Allocation Moderate 11.9% 12.7% 216.5% 8.8% 81.8% 7.3% 59.7% 10.5% 80.9%
Permanent Global Portfolio ETF Plan Tactical Asset Allocation Moderate 5.0% 5.8% 113.4% 7.4% 68.6% 6.8% 58.0% 10.9% 89.3%
Six Core Asset ETFs Tactical Asset Allocation Moderate 7.5% 8.0% 153.2% 5.0% 50.5% 6.8% 61.8% 10.3% 86.0%
Retirement Income ETFs Tactical Asset Allocation Moderate 7.4% 9.0% 143.4% 9.3% 93.0% 7.2% 65.3% 11.7% 99.4%
MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate 10.9% 11.6% 183.6% 6.4% 61.5% 7.4% 66.8% 11.6% 97.8%

NOTE: 1, 3, 5, 10 year AR (Annualized Return) and Sharpe are as of 1/7/2013. 

Latest up to date performance >>

 

The following shows the last one year performance chart: 

The following are the strategic portfolio performance: 

SAA Portfolio Performance Comparison

Ticker/Portfolio Name 2012 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation – Equal Weight Moderate 10% 9.8% 139.1% 7.1% 70.4% 3.1% 19.4% 8.0% 57.0%
MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation – Optimal Moderate 11.3% 11.1% 142.3% 8.8% 77.5% 5.7% 34.9% 9.3% 64.0%
Permanent Global Portfolio ETF Plan Strategic Asset Allocation – Equal Weight Moderate 8.9% 8.0% 103.0% 6.9% 58.9% 4.6% 27.1% 8.3% 55.5%
Permanent Global Portfolio ETF Plan Strategic Asset Allocation – Optimal Moderate 10.8% 10.7% 134.1% 6.8% 59.9% 3.4% 20.0% 6.8% 44.5%
Retirement Income ETFs Strategic Asset Allocation – Equal Weight Moderate 13.3% 14.1% 200.3% 8.6% 79.2% 4.1% 23.4% 9.4% 63.6%
Retirement Income ETFs Strategic Asset Allocation – Optimal Moderate 11.6% 12.1% 180.5% 9.9% 98.2% 6.2% 38.2% 8.0% 56.4%
Six Core Asset ETFs Strategic Asset Allocation – Equal Weight Moderate 10.2% 9.8% 129.2% 7.1% 62.4% 3.6% 20.5% 7.6% 48.3%
Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate 11.3% 11.1% 140.3% 7.5% 65.6% 3.8% 21.7% 6.8% 42.9%
Vanguard ETFs Strategic Asset Allocation – Equal Weight Moderate 11.5% 11.8% 158.6% 8.3% 65.1% 4.2% 21.7% 8.1% 48.0%
Vanguard ETFs Strategic Asset Allocation – Optimal Moderate 10.9% 11.3% 134.7% 8.8% 73.5% 4.9% 26.8% 7.6% 46.9%

NOTE: 1, 3, 5, 10 year AR (Annualized Return) and Sharpe are as of 1/7/2013. 

Latest up to date performance >>

Strategic Asset Allocation: Optimal vs. Equal Weight

Strategic Asset Allocation (SAA) – Optimal portfolios are very comparable with SAA – Equal Weight. Among the 5 plans, 3 SAA – Optimal portfolios out performed their SAA – Equal Weight counterparts while 2 under performed in 2012.

SAA – Optimal had more concentration in US stocks and bonds. Flashing back in 2012, US assets (stocks and bonds) were more favored (or the least dirty) than European and Emerging market assets (stocks and bonds) in the majority of time.  It was not until the last quarter that these international market assets rebounded strongly. That led the equal weight portfolios to catch up. 

We can claim that diversification served its purpose in 2012!

Tactical Asset Allocation (TAA) vs. Strategic Asset Allocation (SAA)

Other than Vanguard ETFs Tactical Asset Allocation Moderate (and MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate), all other 3 TAA portfolios under performed their SAA counter parts.

Overall, however, we are very pleased with the TAA performance, considering 2012 was yet another year when central banks and governments around the world adopted extremely loose monetary policies to jump start  economies. Such a ‘kicking the can down the road’  behavior resulted in risk asset puts (so called ‘Bernanke Put’) that put a floor to risk asset prices. However, these interventions broke many trend following and momentum based strategies.

We believe that the key factor that  made our TAA performed reasonably well in 2012 is the that most plans are very well diversified with major asset representation. A trend following or momentum strategy had a much harder time if only operating on a limited set of asset classes (such as only US stocks, International stocks and US bonds). 

In fact, the pure momentum based strategy didn’t work well at all in managed futures or commodities. See for example, the P S and P Commodity Trend Indicators Strategy listed on Advanced Strategies  has struggled for the past 3 years. This again validates our belief that trend following or momentum work best for an array of diversified assets instead of in a narrow asset class such as commodities or stocks. 

Market Overview

Stocks had most rise in the early part of last week and have been consolidating since. It is hard to believe that the Fiscal Cliff deal that really didn’t solve that much US debt issue can be the major catalyst for the world wide buoyancy of  risk assets.

One noticeable major trend movement: both long term Treasury bonds and Gold are now ranked at the bottom on the major asset trend ranking table on Asset Trends & Correlations or more detailed ones on 360° Market Overview.  Either this is signaling the ending of the bond bull market and the beginning of the rising bond yields (thus Federal interest rates) or this is just one of those market’s endless wrong guesses. We don’t know but we will stick to the well established formula to follow the market trends. 

We again copy our position statements (from previous newsletters): 

Our position has not changed: We still maintain our cautious attitude to the recent stock market strength. Again, we have not seen any meaningful or substantial structural change in the U.S., European and emerging market economies. However, we will let markets sort this out and will try to take advantage over its irrational behavior if it is possible. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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