July 2, 2012: Half Year Review
07/03/2012 0 comments
Re-balance Cycle Reminder
We had a re-balance today. Based on our monthly re-balance calendar, the next re-balance time will be on Monday, August 6, 2012. You can also find the re-balance calendar of 2012 on 'My Portfolios' page.
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.
Also please note that we now list the next re-balance date on every portfolio page.
Half Year Review
Portfolio Performance
Let's first review how our portfolios have been doing.
Lazy, Strategic and Tactical Portfolios
The following table shows the performance of several typical lazy portfolios, stratgic and tactical asset allocation portfolios:
Portfolio Performance Comparison (as of 7/2/2012)
| Portfolio/Fund Name | 1 Week Return* | YTD Return** | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe | Since 2001 AR |
|---|---|---|---|---|---|---|---|---|---|
| Harry Browne Permanent Portfolio | 1.2% | 4.1% | 10.9% | 150.5% | 12.9% | 189.5% | 8.7% | 101.2% | 7.7% |
| P David Swensen Yale Individual Investor Portfolio Annual Rebalancing | 3.4% | 8.0% | 6.5% | 50.6% | 17.7% | 120.2% | 4.2% | 19.6% | 7.6% |
| Permanent Income Portfolio | 1.0% | 5.3% | 12.0% | 240.5% | 13.5% | 234.5% | 7.2% | 94.3% | 7.4% |
| Six Core Asset ETFs Strategic Asset Allocation Moderate | 3.1% | 4.5% | -0.1% | 4.2% | 12.1% | 91.9% | 3.6% | 19.5% | 6.1% |
| Six Core Asset ETFs Tactical Asset Allocation Moderate | 1.7% | 4.3% | -0.1% | -2.4% | 8.9% | 74.0% | 7.7% | 61.7% | 8.9% |
| VBINX | 2.1% | 6.3% | 4.7% | 41.4% | 13.3% | 104.0% | 3.2% | 15.7% | 4.6% |
*: NOT annualized
We also show longer term performance (since 12/31/2012).
YTD (Year To Date), David Swensen's lazy portfolio has the highest return as both REITs and long term treasury bonds have had strong performance. Vanguard Balance Fund (VBINX), a 60% US stock and 40% US bond index fund, has also had strong performance, thanks to US stocks' strength. All other portfolios have respectable returns. It should be noted that our Six Core TAA portfolio has done very well, considering how range bound the markets have been. It is mostly due to its year long exposure in REITs.
401K Plan Portfolios
The following shows performance for some largest 401k plans' model portfolios
Portfolio Performance Comparison (as of 7/2/2012)
| Portfolio/Fund Name | 1 Week Return* | YTD Return** | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|---|
| The Bank of America 401(k) Plan Tactical Asset Allocation Moderate | 1.6% | 4.4% | 4.1% | 56.8% | 16.3% | 137.3% | 11.1% | 104.7% |
| VBINX | 2.1% | 6.3% | 4.7% | 41.4% | 13.3% | 104.0% | 3.2% | 15.7% |
| Hewlett Packard 401K Tactical Asset Allocation Moderate | 1.7% | 4.6% | 7.7% | 112.1% | 16.0% | 160.4% | 10.4% | 104.1% |
| Ford Motors 401K Tactical Asset Allocation Moderate | 1.5% | 2.9% | 0.4% | 22.9% | 9.3% | 96.1% | 5.7% | 61.5% |
| Wal-Mart Profit Sharing and 401(k) Plan Tactical Asset Allocation Moderate | 0.8% | 2.5% | 0.8% | 31.7% | 11.0% | 131.9% | 6.9% | 82.5% |
*: NOT annualized
**YTD: Year to Date
Overall, the portfolios are performing as expected.
Some Advanced Portfolios
Portfolio Performance Comparison
| Portfolio/Fund Name | 1 Week Return* | YTD Return** | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|---|
| P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly | 0.4% | 3.4% | 3.6% | 91.9% | 12.1% | 276.4% | 9.6% | 187.1% |
| P No Load Conservative Mutual Funds Upgrading Quarterly | 0.9% | 2.3% | -1.5% | -29.2% | 8.6% | 156.2% | 7.8% | 122.5% |
| P Diversified Timing On Endowment Asset Allocation Model SMA 10 Months With Long Treasury | 2.0% | 2.2% | -1.8% | -17.4% | 9.5% | 76.9% | 4.9% | 45.0% |
| P Doug Roberts Follow the Fed Add Treasury Note One Month Simple Indicator Moving Average 64 Days | 2.3% | 4.6% | 4.1% | 30.8% | 14.5% | 126.1% | 9.8% | 76.8% |
| P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs | 0.1% | 0.0% | -2.4% | -12.6% | 11.8% | 70.7% | 9.5% | 59.8% |
| P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds | -0.2% | 3.6% | 4.6% | 51.8% | 14.5% | 94.5% | 10.3% | 70.4% |
*: NOT annualized
**YTD: Year to Date
We note that the P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs has not done well. However, it's index fund one P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds has fared much better. The reason behind this is that the portfolios rank the underlying funds. The one with using ETFs has been affected by more volatile ETF behavior. This also tells us it is important to use more accurate index mutual funds to construct strategy signals instead of using ETFs.
Current Markets
As what we repeatedly pointed out in the past, we believe that since the financial crisis in 2008-2009, many fundamental structural problems have not been addressed. Year to date, there have been full of surprises and bad news, mostly from Europe, but not much less from the US and emerging markets. Recent ISM manufacturing index (released today on 7/2/2012) clearly indicated that even the most resilient (or the least bad) US economy is on the verge of slipping back to recession. Globally, we see continuing European economic recession and sovereign debt deteriorating and possible hard landing for many emerging market economies.
Our investment principle is always 'be skeptical and conservative, but follow the strategy consistently'. For strategic asset allocation, this would mean properly allocating capital conservatively. For tactical asset allocation (such as the MyPlanIQ's cross asset trend following), this would mean following the major asset trend while keeping a cool head for rising assets. For example, many TAA portfolios have exposure to long term treasury bonds, which are clearly in a state that is either bubbly or is forming a bubble. The key here is to be vigilant, consistent and not over allocate capital to these bubbling assets. In the meantime, selecting rising assets to follow (in a conservative capital allocation) has proved to be an effective to capture upside while avoiding downside risk.
Overall, we are very skeptical on most asset prices right now. We don't see any substantially undervalued major asset class that has margin of safety to invest. However, this is just our subjective opinion which should not be directly translated into portfolio positioning, as explained above.
As can be seen on 360° Market Overview, after today's persistent strength in stock markets (even after a string of bad global PMI news), both US REITs, US stocks and high yield bonds have better trend scores than that of total bond market index. However, there are several under currents:
- Investors favor defensive sectors over cyclical sectors. Also, large cap and quality stocks are doing better than small cap and low quality stocks. See Defensive Sectors In Favor Amid Global Slowdown
- Volume has been extremely low.
- Long term bonds and municipal bonds have considerable strength up to now.
In the current fundamental backdrop, we will just need to stick to our strategy rigorously.
Features & Improvements
We would just like to bring your attention to some new and existing features on our website that we feel they are useful. In particular:
- We recently upgraded our server and software. Now our server and simulation speed has been improved noticeably.
- On a plan page, you now can find the list of candidate funds and their categories and fund ratings easily. This will help you to search for a replacement fund, for example.
- Furthermore, we have a much improved fund quote page: on a fund page, not only you can easily find its historical total returns and other statistics such as standard deviation and Sharpe ratios, you can also find 10 best funds in that fund's category for mutual funds, ETFs and Closed End Funds (CEFs).
- We would like again to remind our users that on a portfolio page, you can find
- Historical Transactions and Holdings. Look for a button with this label. We have been asked many times by users on how to find such information.
- More Performance Analytics. Again, to find the year by year performance, look for this label on a portfolio page.
- Finally, you can use Portfolio Compare and Flash Chart for a portfolio too.
Watch our website for more exciting new contents, new features and new services in the near future.
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