Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, March 24, 2014. You can also find the re-balance calendar for 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.

Versatile Portfolios Review

In previous newsletter December 2, 2013: Versatile Multiple Portfolio Construction, we introduced several ways to construct versatile composite (multiple) portfolios. In this newsletter, we will review these portfolios in more details. 

100% Risk Managed Stock Portfolios

The so called 100% stock portfolios are those that have 100% invested in risk assets that include stocks, REITs and commodities (if there are any). We also include high yield bonds in the risk asset category.  We will only review those portfolios that use Tactical Asset Allocation strategy, hence the phrase ‘risk managed’. They are essentially risk profile 0 TAA or absolute momentum based portfolios. 

US stocks

Portfolio Performance Comparison (as of 2/14/2014)

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
P Momentum Scoring Style ETFs and Treasuries -0.5% 26.5% 11.7% 13.9% 0.8 11.1% 0.65
SPY (SPDR S&P 500) -0.4% 23.3% 13.7% 19.8% 1.06 6.9% 0.29


**YTD: Year to Date

Detailed year by year comparison >>

The style ETFs are iShares ETFs that cover the nine styles for US stocks, these include large|mid|small and blend|growth|value combinations (or style boxes as Morningstar terms it). The above clearly shows that our style ETFs rotation, combined with Treasury bond ETFs (IEI and SHY) works well. This model portfolio is a good replacement for US stocks. 

Global stocks

These portfolios are what we labeled as ‘most aggressive’ portfolios that can be found on a plan page. For example, Six Core Asset ETFs Tactical Asset Allocation Most Aggressive can be found on Six Core Asset ETFs  plan. These portfolios have risk profile 0. 

Global Stock ETF Portfolio Performance Comparison (as of 2/14/2014):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Six Core Asset ETFs Tactical Asset Allocation Most Aggressive -0.6% 19.9% 8.7% 13.9% 0.81 13.9% 0.75
MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Most Aggressive 0.9% 18.8% 10.0% 15.7% 0.96 15.0% 0.85
Retirement Income ETFs Tactical Asset Allocation Most Aggressive -1.2% 12.2% 7.1% 13.0% 0.77 13.2% 0.72
SPY (SPDR S&P 500) -0.4% 23.3% 13.7% 19.8% 1.06 6.9% 0.29
EFA (iShares MSCI EAFE Index) -0.9% 16.8% 6.2% 15.0% 0.62 5.9% 0.2
EEM (iShares MSCI Emerging Markets Index) -5.1% -8.2% -2.5% 12.6% 0.46 8.7% 0.23

**YTD: Year to Date

See detailed year by year comparison >>

Again, our portfolios handily out performed the 3 major stock indices in the last 10 year time frame.

Global Stock Mutual Fund Portfolio Performance Comparison (as of 2/14/2014):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Fidelity Extended Fund Picks Tactical Asset Allocation Most Aggressive -2.6% 10.4% 4.9% 16.8% 1.09 14.3% 0.87
Schwab OneSource Select List Funds Tactical Asset Allocation Most Aggressive -3.1% 13.4% 7.7% 14.1% 1.03 11.1% 0.72
Etrade All Star Funds Tactical Asset Allocation Most Aggressive -0.1% 16.7% 10.5% 17.5% 1.2 15.9% 1.01
Vanguard Select Mutual Funds Tactical Asset Allocation Most Aggressive -3.1% 17.1% 9.6% 15.9% 1.01 14.6% 0.89
SPY (SPDR S&P 500) -0.4% 23.3% 13.7% 19.8% 1.06 6.9% 0.29
EFA (iShares MSCI EAFE Index) -0.9% 16.8% 6.2% 15.0% 0.62 5.9% 0.2
EEM (iShares MSCI Emerging Markets Index) -5.1% -8.2% -2.5% 12.6% 0.46 8.7% 0.23

**YTD: Year to Date

See detailed year by year comparison >>

Bond Portfolios

As what we stated elsewhere, we do not favor using ETFs only for an all bond portfolio. The reason is that these ETFs have shorter history and they are mostly index based (other than a standout active fund BOND (PIMCO Total Return ETF)). We still favor total return bond fund upgrade portfolios as mentioned in the last week’s newsletter February 10, 2014: Total Return Bond Fund Upgrade Portfolios

Balanced (Moderate) Portfolios

As mentioned in the newsletter, one can use stock portfolios and total return bond fund portfolios to construct a balanced portfolio. Risk Managed US Stocks and Schwab Total Return Bonds Moderate Portfolio has the following target allocations that are rebalanced once a year. 

Asset Fund in this portfolio Target Percentage
USStocks P_52486 (P Momentum Scoring Style ETFs and Treasuries) 60%
Bonds P_46880 (Schwab Total Return Bond) 40%

Here is its performance, compared with 60% US stocks and 40% bonds Vanguard VBINX: 

Portfolio Performance Comparison (as of 2/14/2014):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Risk Managed US Stocks and Schwab Total Return Bonds Moderate Portfolio 0.2% 16.7% 9.8% 12.5% 1.14 9.6% 0.86
VBINX (Vanguard Balanced Index Inv) 0.5% 13.9% 9.9% 14.4% 1.29 6.7% 0.47

**YTD: Year to Date

See detailed year by year comparison >> 

This portfolio is matching or better than the standard balance fund currently in a short term such as 1 year time frame. However, if one includes the bear market in 2008, it did much better than the standard balance index in the last 10 years or since its start date 12/31/2000. 

Global Balanced Portfolios

Similarly, for a global diversified portfolio that invests not only in U.S. stocks, but in international stocks and REITs, we can use most aggressive + total return bond fund portfolio to replace a portfolio with ‘moderate’ or any risk profile. 

Portfolio Risk Managed Global Stocks and Fidelity Total Return Bonds Moderate Portfolio invests 60% in P_53770 (Fidelity Commission Free ETFs Tactical Asset Allocation Most Aggressive) and 40% in P_48596 (Fidelity Total Return Bond)

Portfolio Performance Comparison

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Risk Managed Global Stocks and Fidelity Total Return Bonds Moderate Portfolio -1.2% 6.8% 5.4% 13.9% 1.44 11.3% 1.07
Fidelity Commission Free ETFs Tactical Asset Allocation Moderate 0.2% 9.2% 8.7% 11.2% 1.19 9.7% 0.84

See detailed year by year comparison >> 

Performance chart:

It again shows that using composite portfolios could improve risk adjusted returns with the benefits from total return bond fund portfolios. 

Portfolios with Mix of MyPlanIQ Portfolios and Funds

In the previous newsletter February 3, 2014: Alternative Investment Funds & Diversified Portfolios, we discussed several types of alternative mutual funds. We mentioned My Alternative Hedge Fund in the previous newsletter December 2, 2013: Versatile Multiple Portfolio Construction. This portfolios has the following investment mix: 

Asset Fund in this portfolio Percentage
stocks P_51098 (MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Most Aggressive) 42%
bonds P_46880 (Schwab Total Return Bond) 28%
balanced PRWCX (T. Rowe Price Capital Appreciation) 10%
permanent PRPFX (Permanent Portfolio) 10%
risk_parity ABRRX (Invesco Balanced-Risk Allc R) 5%
conservative BERIX (Berwyn Income) 5%

This portfolio has annualized standard deviation 7.7%, compared with Vanguard Balanced Fund VBINX’s 9.9%. It is an array of solid ‘alternative’ funds in addition to risk managed tactical portfolios can form a good ‘hedged’ portfolio as these alternative investments are loosely correlated. 

Portfolio Performance Comparison (as of 2/14/2014):
Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
My Alternative Hedge Fund 1.3% 10.6% 8.3%        
PRWCX (T. Rowe Price Capital Appreciation) 1.5% 18.2% 12.2% 17.9% 1.45 8.9% 0.55
PRPFX (Permanent Portfolio) 3.0% -0.8% 3.0% 9.9% 0.92 8.0% 0.64
BERIX (Berwyn Income) 0.7% 13.9% 8.4% 12.7% 2.05 7.7% 1.13
ABRRX (Invesco Balanced-Risk Allc R) 0.7% 1.3% 7.8%        
VFINX (Vanguard 500 Index Investor) -0.3% 23.2% 13.6% 19.8% 1.05 6.9% 0.29
VBINX (Vanguard Balanced Index Inv) 0.5% 13.9% 9.9% 14.4% 1.29 6.7% 0.47

**YTD: Year to Date

See detailed comparison >> 

We will devote some more space in discussing these types of composite portfolios in future newsletters. 

To summarize, there are many ways to form composite portfolios. With careful selection of portfolios and funds, we can improve a straightforward moderate portfolio that uses a single strategy such as Tactical Asset Allocation or Strategic Asset Allocation – Optimal

Market Overview

Market has recovered strongly and now S&P 500 is almost back to its level at the beginning of the year (though it still loses 0.3% year to date). However, we are still very cautious as this ‘correction’ is a very shallow correction. This correction will only be over if the stocks can overcome their previous highs. We are also encouraged to see that bond markets are now back in an up trend. 

However, we would like to remind our readers of the currently elevated stock valuation and price level. Caution is still called for. 

For more detailed asset trend scores, please refer to 360° Market Overview.

We would like to remind our readers that markets are more precarious now than other times in the last 5 years. It is a good time and imperative to adjust to a risk level you are comfortable with right now.  However, recognizing our deficiency to predict the markets, we will stay on course. 

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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