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, November 28, 2016. You can also find the re-balance calendar for 2016 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.
Rising Rate And Current Bond Trend
Currently, bond markets have experienced a possible trend change: it all comes down to the possible interest rate hike by Federal Reserve in December. Based on Fed Funds Futures trading, traders are expecting an over 70% probability that the Fed will raise interest rate by 25 bps (or basis points, i.e. 0.25%) in December:
Courtesy of CME FedWatch tool.
Inflation has picked up noticeably, now it’s hoovering around the 2% rate that the Federal Reserve is targeting:
This has created some reasonable change in various bond segments:
Fixed Income Assets Trend
As of 11/07/2016
Description | Symbol | 1 Week | 4 Weeks | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
---|---|---|---|---|---|---|---|
Emerging Mkt Bonds | PCY | 0.51% | -1.72% | -0.43% | 7.11% | 13.08% | 3.71% |
High Yield | JNK | 0.6% | -0.93% | 1.17% | 7.41% | 6.99% | 3.05% |
International Inflation Protected | WIP | 0.27% | -0.32% | -0.66% | 2.56% | 8.88% | 2.14% |
Long Term Credit | LQD | 0.06% | -0.87% | -0.7% | 2.47% | 8.92% | 1.97% |
Inflation Protected | TIP | -0.03% | 0.29% | 0.4% | 2.21% | 6.87% | 1.95% |
20+ Year Treasury | TLT | -0.29% | -1.7% | -5.0% | 0.94% | 12.99% | 1.39% |
Intermediate Term Credit | CIU | 0.07% | 0.01% | -0.17% | 1.37% | 4.8% | 1.21% |
US Total Bond | BND | 0.05% | -0.22% | -0.54% | 1.16% | 5.36% | 1.16% |
Intermediate Treasury | IEF | 0.13% | -0.13% | -1.18% | 0.33% | 6.46% | 1.12% |
10-20Year Treasury | TLH | -0.02% | -0.55% | -2.44% | 0.43% | 7.95% | 1.07% |
International Treasury | BWX | 0.69% | -1.38% | -2.81% | -0.75% | 9.46% | 1.04% |
MBS Bond | MBB | 0.03% | -0.04% | 0.21% | 0.91% | 3.37% | 0.9% |
California Muni | CMF | 0.26% | -0.04% | -1.1% | 0.06% | 4.72% | 0.78% |
National Muni | MUB | 0.11% | -0.25% | -1.22% | -0.06% | 4.43% | 0.6% |
Short Term Credit | CSJ | 0.02% | 0.06% | 0.03% | 0.53% | 1.9% | 0.51% |
New York Muni | NYF | 0.1% | -0.45% | -1.37% | -0.29% | 3.93% | 0.38% |
Short Term Treasury | SHY | 0.07% | 0.19% | 0.08% | 0.24% | 1.18% | 0.35% |
Treasury Bills | SHV | -0.03% | 0.04% | 0.07% | 0.11% | 0.34% | 0.11% |
Specifically, long term bonds (TLT, TLH) and Municipal bonds (MBB,MUB, CMF, NYF) have been hit hard. Inflation protected securities TIP, on the other hand, has been a bright spot.
Last week’s risk asset decline (mostly caused by the presidential election?) also affected high yield bonds and emerging market bonds, both of which are considered risky among all bond segments. However, they recovered somewhat today in sync with the general stock market recovery.
Regardless of whom will be elected as the US president tomorrow, we believe the fixed income market will experience a short term uncertainty. Bonds are indeed on the cusp of a major trend change.
Total return bond fund performance
Total return bond funds have also been affected since October:
Ticker/Portfolio Name | 1 Week Return* |
YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR |
---|---|---|---|---|---|---|
PBDDX (PIMCO Investment Grade Corp Bd D) | -0.1% | 8.3% | 7.0% | 5.2% | 5.7% | 7.2% |
LSBRX (Loomis Sayles Bond Retail) | -0.5% | 7.9% | 4.4% | 1.7% | 4.6% | 5.6% |
PONDX (PIMCO Income D) | -0.2% | 6.7% | 5.6% | 5.4% | 8.4% | |
WABRX (Western Asset Core Bond R) | 0.2% | 5.6% | 5.0% | 4.0% | ||
MWTRX (Metropolitan West Total Return Bond M) | 0.0% | 4.3% | 4.5% | 3.2% | 4.4% | 6.1% |
PTTDX (PIMCO Total Return D) | 0.2% | 4.2% | 4.2% | 2.7% | 3.4% | 5.6% |
TGMNX (TCW Total Return Bond N) | 0.1% | 3.9% | 3.7% | 3.2% | 4.7% | 6.4% |
DLTNX (DoubleLine Total Return Bond N) | 0.0% | 3.1% | 3.0% | 3.6% | 4.1% |
It’s not surprising that LSBRX (Loomis Sayles Bond Retail) has been affected mostly last week: it has the most exposure to low quality or high yield bonds. The two PIMCO income funds (PONDX and PBDDX) have most exposure in corporate bonds, which were again hit harder last week.
It should be noted that DLTNX (DoubleLine Total Return Bond N) has been ranked at the bottom for its YTD and last 1 year returns. This is the first noticeable under performance in the recent years for this fund. This is because the fund had become more concerned about inflation and it has more exposure to short duration or short term high quality bonds. Whether its bet will pan out in the intermediate term or not is still to be seen. This again proves there is no a single (fund manager) investor who can always have a hot hand and outperform indefinitely. We have to adopt a more realistic way to select funds with good intermediate term momentum to achieve a long term superior performance. So far, our total return bond fund portfolios listed on Brokerage Investors page have proved to be just like that: effective in the long term.
Market Overview
As of last Friday, Factset again reports that the blended (combined with 85% already reported and 15% expected) earnings growth rate for the S&P 500 is 2.7%, compared with the expected -2.2% year over year decline on September 30. It now looks very likely that Q3 will be the first positive earnings growth since 2015. Furthermore, the blended revenue growth rate for Q3 2016 is 2.6%. The earnings recession is most likely over for now.
We also would like to point out that from the same report, one can see that the S&P 500 companies derived about 31% of their revenue from oversea. This is significant: the newly elected president, regardless of whom that will be, will surely enact policies that place more trade barriers under the voters’ pressure. This will in turn greatly affect the US large companies’ earnings, at least in the coming years.
As always, we will stay on course and respond based on our strategies.
For more detailed asset trend scores, please refer to 360° Market Overview.
The current nasty presidential election is a reflection to the long standing reality facing Americans and others: since the financial crisis in 2008-2009, not much substantial structural change in the U.S., European and emerging market economies has taken place. Economies have heavily relied on low interest debts. Capital might be misallocated to unproductive investments and consumption. In terms of investments, U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic on U.S. economy in the long term and believe much better investment opportunities will arise in the future.
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.
Latest Articles
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- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
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- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
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- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
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- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
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- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
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- June 29, 2015: Core ETF Commission Free Portfolios
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- June 15, 2015: Giving Up Bonds?
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- March 2, 2015: Total Return Bond ETFs
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- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
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- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
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- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
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- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
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- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment
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