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, April 28, 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.
Referral Program Update
We would like to bring to your attention that in our customer referral program, if you refer your friend to subscribe to our annual plan, not only you will get $40 reward, your friend will also get a $40 discount in the annual subscription plan forever so long your friend stays in the program. Please click on the above link to make a referral.
Quarter End Asset Class Review
The following table shows how the major asset classes have fared in the first quarter (sorted on 13 weeks return):
| Asset Class | 1 Weeks | 4 Weeks | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
|---|---|---|---|---|---|---|
| US REITs | 1.8% | -0.2% | 8.7% | 8.5% | 3.4% | 4.4% |
| Gold | -2.0% | -5.1% | 7.1% | -3.6% | -20.1% | -4.7% |
| Long Term Treasuries | 0.0% | -0.3% | 6.3% | 3.4% | -5.2% | 0.8% |
| High Yield Bonds | 0.0% | -0.2% | 2.8% | 5.5% | 5.1% | 2.7% |
| Intl Bonds | -0.1% | -0.3% | 2.2% | 1.2% | 0.9% | 0.8% |
| US Stocks | 0.7% | 0.8% | 2.0% | 11.8% | 22.8% | 7.6% |
| US Bonds | 0.1% | -0.7% | 1.7% | 1.5% | -0.5% | 0.4% |
| Commodities | 1.4% | -1.4% | 1.6% | 1.4% | -4.4% | -0.3% |
| Intl Stocks | 3.1% | 1.7% | 0.3% | 5.0% | 12.9% | 4.6% |
| Cash | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| Global Real Estate | 2.9% | 2.1% | -0.3% | -1.3% | -0.5% | 0.6% |
| Emerging Mkt Stocks | 4.6% | 5.7% | -0.4% | 1.0% | -2.5% | 1.7% |
For more details, see Asset Trends & Correlation.
Year to date (or roughly in the last 13 weeks), the best performing asset class is US REITs. We also see long term bonds, high yield bonds and international bonds all did well, in fact better than other major stock classes. Among stocks, US stocks is still the best, followed by international stocks and finally emerging market stocks.
The asset class performance in the first quarter can be summarized as bonds (and somewhat gold) have recovered due to investors’ recognition of the fact that the economic recovery is still sluggish and the Federal Reserve will still maintain its supportive loose monetary policy for quite some time.
We are also encouraged to see that other than commodities, all other risk assets including emerging market stocks have positive trend scores now.
Strategic Asset Allocation Portfolio Review
We maintain two strategic asset allocation strategies: Strategic Asset Allocation – Equal Weight and Strategic Asset Allocation – Optimal. The key difference between these two strategies is that the former has equal allocation among risk asset classes while the latter adopts a more calculated allocation scheme that is based on asset class returns and risks in the past and our subjective outlook on these asset classes in the long term.
The following shows how our featured ETF portfolios using these two strategies have performed:
Portfolio Performance Comparison (as of 3/31/2014):
| Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 5Yr Sharpe | 10Yr AR | 10Yr Sharpe |
|---|---|---|---|---|---|---|---|
| Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate | 1.9% | 6.9% | 5.9% | 13.0% | 1.13 | 6.0% | 0.38 |
| Six Core Asset ETFs Strategic Asset Allocation – Equal Weight Moderate | 1.6% | 4.1% | 4.1% | 12.1% | 1.04 | 6.4% | 0.4 |
| MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation – Optimal Moderate | 1.2% | 5.6% | 6.2% | 13.3% | 1.2 | 7.9% | 0.55 |
| MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation – Equal Weight Moderate | 1.2% | 3.0% | 5.0% | 12.2% | 1.23 | 7.4% | 0.56 |
| Retirement Income ETFs Strategic Asset Allocation – Optimal Moderate | 0.9% | 5.1% | 7.3% | 13.9% | 1.35 | 7.2% | 0.5 |
| Retirement Income ETFs Strategic Asset Allocation – Equal Weight Moderate | 1.8% | 3.5% | 6.0% | 13.1% | 1.15 | 6.8% | 0.44 |
| VBINX (Vanguard Balanced Index Inv) | 0.9% | 11.7% | 10.2% | 14.5% | 1.4 | 6.8% | 0.48 |
**YTD: Year to Date
See year by year detailed comparison >>
Notice since in Six Core Asset ETFs plan, some of Vanguard ETFs have shorter than 10 year history, the performance of its two portfolios in the 10 year period should be discounted.
What we can see is that the equal weight portfolios all under performed its optimal counter parts in 1, 3, 5 and 10 year time frames (other than 10 year six core asset ETFs that are not very meaningful). This is because of the strength of US stocks in the past 3 to 5 years. However, as one can see from the asset class trend table in the above, emerging market stocks and international stocks all started to out perform in the recent 1 and 4 week time frame. This has had some material effect on the equal weight portfolios, which, until a couple of weeks ago, still lagged behind the optimal ones by some big margin (in the past 1 and 3 years).
What we can conclude from the above is that assets out perform and under perform each other in various time periods, the diversification of strategic portfolios enables one to capture the out performance and alleviate the under performance of certain asset classes. This is exactly the purpose of a strategic asset allocation strategy.
With regard to other types of strategic allocation portfolios, risk parity and permanent portfolios have done well year to date, thanks to the strength of long term bonds (and other bond segments) and precious metals. Interested readers can refer to the link mentioned in the previous newsletter February 3, 2014: Alternative Investment Funds & Diversified Portfolios to see how these portfolios have performed.
NOTE: for many performance comparison tables quoted in our newsletters, we try to include a detailed comparison link. Readers can click on these links to get the latest performance comparison numbers, instead of just those at the time of publication.
Strategic Asset Allocation Outlook
We would like take this opportunity to stress several key positions:
- Strategic portfolios should have a long term (preferably over 10 years) investment time horizon. We believe allocating some portion of one’s capital can be very useful so long it is recognized that this portion of money is for a long term, really a long term.
- Equal weight allocation is as effective as many other allocations, especially in a long period of time. This has been observed and studied in practice and in academic research. We encourage you to look at some of our newsletter collections on this topic.
- However, in the coming 5 to 7 years, we believe emerging market economies, compared with those in developed countries, especially U.S., will have to go through more volatile and painful adjustment. This does not mean that we think the economies in the U.S. will not need to adjust, it is just that the U.S. can have easier time to adjust because of its role in the global financial and economic relationship. As a result, we believe one should overweight U.S. equities in the coming years.
- Unfortunately, almost all of asset classes are at a elevated valuation level (see March 10, 2014: Where Are We Now In Valuation And Momentum Phases? and January 27, 2014: What To Do In A Low Return Environment), this means that in the coming 7 years or so, one has to prepare for a low return environment for strategic allocation portfolios.
Market Overview
As mentioned above, emerging market stocks started to crawl out of the negative territory and now they have a positive trend ranking. Meanwhile, we note that treasury yield curve has flattened quite a bit: this can be seen from the recent performance of TLT (20+ year Treasuries), TLH (10 years), IEF (7-10 years) and SHY (1-3 years) (for details, see the Fixed Income Trend Table in 360° Market Overview). The flattening yield curve indicates that investors are now prepared for the interest rate rise in the short term but still anticipate an anemic or subdue economic development in the long term.
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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Diversified Asset Allocation Portfolios For Your Plans
