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.
Momentum Based Investments Review
Recent stock market correction has been brutal too high flying stocks, especially biotech and some hot internet stocks:
Hot stocks reversal (as of 4/14/2014):
| Ticker/Portfolio Name | 1 Week Return* |
YTD Return** |
1Yr AR | 3Yr AR |
|---|---|---|---|---|
| SPY (SPDR S&P 500) | -0.8% | -0.5% | 17.5% | 13.6% |
| IBB (iShares Nasdaq Biotechnology) | -4.4% | -5.1% | 28.7% | 28.4% |
| AMZN (Amazon.com Inc) | -3.5% | -21.8% | 15.5% | 19.2% |
| NFLX (Netflix, Inc.) | -3.1% | -11.3% | 88.8% | 12.7% |
It is a good time to review how momentum based investing has done so far.
Recall that previously in April 1, 2013: Momentum Over Stocks, Sector And Style Funds we classified momentum investing into several groups. We further made assessment for these groups:
- m1: A group of individual stocks such as Dow Jones 30 or Nasdaq 100 etc. — Can be Effective, but volatile.
- m2: A group of industrial stock funds such as Fidelity’s famous Fidelity Select funds. – Can be Effective, but volatile.
- m3: A group of stock sector funds such as SPDR’s S&P sector ETFs such as SPDR Select Energy (XLE) etc. – Can be Effective, but volatile.
- m4: A group of stock style funds such as Russell large, mid and small cap stock ETFs. – Effective and comparable risk.
- m5: single stock index (fund) buy/sell decision. – Fickle though might be on par with buy and hold.
- m6: A group of diversified and somewhat uncorrelated asset classes such as stocks, bonds, real estates (REITs) and their minor asset classes such as long term bonds, international bonds, gold etc. – Effective and lower risk.
So let’s review these groups of portfolios again and see how they have done.
Momentum based individual stock funds and portfolios
Individual stock momentum funds performance (as of 4/14/2014):
| Ticker/Portfolio Name | 1 Week Return* |
YTD Return** |
1Yr AR | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|
| PIE (PowerShares DWA Em Mkts Technical Ldrs) | 0.2% | -2.3% | -11.6% | -0.9% | -0.04 | 13.7% | 0.55 |
| EEM (iShares MSCI Emerging Markets Index) | 1.3% | 0.1% | 0.5% | -3.5% | -0.15 | 10.4% | 0.4 |
| AMOMX (AQR Momentum L) | -3.9% | -4.0% | 16.5% | 12.1% | 0.64 | ||
| PDP (PowerShares DWA Technical Leaders) | -3.3% | -3.2% | 13.8% | 12.6% | 0.67 | 21.4% | 1.04 |
| SPY (SPDR S&P 500) | -0.8% | -0.5% | 17.5% | 13.6% | 0.81 | 18.7% | 1.08 |
| AIMOX (AQR International Momentum L) | -3.9% | -5.5% | 4.5% | 3.5% | 0.18 | ||
| EFA (iShares MSCI EAFE Index) | -1.6% | -1.2% | 12.6% | 6.0% | 0.27 | 13.9% | 0.61 |
| ASMOX (AQR Small Cap Momentum L) | -4.6% | -5.8% | 20.0% | 13.8% | 0.56 | ||
| IWM (iShares Russell 2000 Index) | -3.6% | -4.0% | 19.0% | 11.7% | 0.51 | 20.6% | 0.88 |
All of the momentum based funds have under performed year to date. This is again consistent with the style or momentum reversal we observed recently. Furthermore, in the past 3 years, both US and international momentum based funds under performed their benchmarks. This again validates our ‘effective but volatile” assessment.
Industry, sector and style rotation
The following table shows how portfolios in m2, m3, and m4 have fared recently:
Portfolio Performance Comparison (as of 4/14/2014):
| Ticker/Portfolio Name | 1 Week Return* |
YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
|---|---|---|---|---|---|---|---|
| Fidelity Select Funds Rotation | -7.9% | -4.8% | 19.5% | 12.5% | 11.6% | 14.6% | 0.67 |
| P Momentum Scoring Sector ETFs | -2.1% | -4.6% | 6.9% | 8.1% | 12.4% | 9.3% | 0.41 |
| P Momentum Scoring Style ETFs and Treasuries | -0.9% | -1.9% | 20.0% | 11.1% | 13.3% | 11.1% | 0.66 |
| SPY (SPDR S&P 500) | -0.8% | -0.5% | 17.5% | 13.6% | 18.7% | 6.9% | 0.29 |
See latest detailed year by year comparison >>
Among the above, Fidelity Select Funds Rotation is a new portfolio that falls in category M2, industry rotation. This portfolio selects top two ranked Fidelity Select funds each month to invest. It has so called ‘absolute momentum’ built in: when none or only one fund is ranked above CASH, 100% or 50% of the portfolio will be in CASH. Fidelity Select funds are industry based funds. This portfolio uses Tactical Asset Allocation on 41 Fidelity Select funds (along with CASH).
It has a whopping 41.6% return in 2013. But this year, it has bee hurt badly because of its exposure in the biotech fund.
Similarly the sector based P Momentum Scoring Sector ETFs hasn’t done well either this year. On the other hand, even though style based P Momentum Scoring Style ETFs and Treasuries did worse than SPY year to date, it didn’t under perform by a big margin.
The above is consistent with our assessment previously.
Momentum based asset allocation
Portfolio Performance Comparison (as of 4/14/2014):
| Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 5Yr Sharpe | 10Yr AR | 10Yr Sharpe |
|---|---|---|---|---|---|---|---|
| Six Core Asset ETFs Tactical Asset Allocation Moderate | 0.9% | 8.8% | 5.7% | 10.0% | 0.97 | 10.3% | 0.9 |
| MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate | 1.0% | 7.2% | 6.3% | 11.2% | 1.07 | 10.3% | 0.91 |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 0.7% | 5.7% | 8.1% | 11.6% | 1.22 | 10.6% | 0.98 |
| VBINX (Vanguard Balanced Index Inv) | 0.6% | 10.4% | 9.8% | 13.7% | 1.33 | 6.7% | 0.46 |
See latest brokerage portfolio performance >>
Year to date, the portfolios have done better than the famed VBINX.
To summarize, momentum based tactical asset allocation has been the most reliable performer among all of the momentum based investment methods. Recent big reversal of momentum based stocks should not surprise anyone. Investors should be fully aware of the good and the bad of these various momentum based methods (see also July 22, 2013: Tactical Asset Allocation: The Good, The Bad And The Ugly). We notice that in other momentum based website(s), some investors have ditched steadier methods or got carried away by the red hot momentum stock portfolios. We believe chasing a red hot investment strategy is a fool’s game. Furthermore, as what we repeatedly pointed out, investors should understand fully a strategy before taking a plunge. There is no sure thing in investments. In fact, the only thing that is sure is that any strategy will stumble sometime. Furthermore, one should be extremely skeptical for anything that is above 20% annualized return.
Market Overview
Stocks continued their correction last week. However, emerging market stocks and high yield (junk) bonds withstood the correction well. So up to now, the correction has not developed into a full blown broad base downturn.
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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