 |
Vanguard ETF: |  |
7.4%* |
|
Diversified Core: | |
8.1%* |
|
Six Core Asset ETFs: | |
7.3%* |
Articles on MGC
- Initiating Tracking of US Subclasses
02/22/2011
We are initiating weekly tracking of the nine different styles or subclasses in the US Equity asset class. We use ETFs to represent each sub-class. We track returns over 1, 4, 13, 26, and 52 weeks and aggregate them to get a trend score. We then track the trend score to see the direction of each representative ETF in the subclass. By using an ETF from the same provider, we are attempting to normalize out performance of the ETF over the performance of the subclass.
Assets Class
Symbols
02/18
Trend
Score02/11
Trend
ScoreDirection
Russell Smallcap Growth
IWO
20.85%
19.88%
^
Russell Smallcap Index
IWM
18.7%
17.58%
^
Russell Midcap Growth
IWP
18.3%
18.8%
v
Russell Smallcap Value
IWN
17.28%
16.08%
^
Russell Midcap Index
IWR
16.68%
16.74%
v
Russell Midcap Value
IWS
15.91%
15.66%
^
Russell Largecap Growth
IWF
14.31%
14.08%
^
Russell Largecap Index
IWB
13.44%
13.04%
^
Russell Largecap Value
IWD
13.27%
12.67%
^
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).
We note that most of the of the sub-classes are positive as the US bull market continues. We also note that Midcap is dropping in comparison to Smallcap - Midcap has been at the top of the list but is starting to be replaced by Smallcap. Finally we note that the order within a sub-class is Growth, Index (Blend), Value.
Although the entire top three dropped compared to the prior week, the smalcaps dropped less than the midcap stock. The continuing bull market is moving investors away from the relative safety of large cap to the small cap stocks. The midcap, which had been a nice midway point, is being supplanted by the smallcap options as investors seek to maximize returns.
The large cap stocks are solidly at the bottom of the table as investors look for higher returns. We note that the Largecap Value has the best performance in the short term even though it has had the poorest return over the longer time horizon.
We would expect to see this picture to remain for some time unless the unrest in the Middle East and North Africa causes investors to look for safer US equities.
Symbols:VCR,VDC,VIG,VWO,VDE,VEA,VGK,EDV,VFH,VEU,VSS,VUG,VHT,VYM,VIS,VGT,BIV,VCIT,BLV,VCLT,VGLT,VAW,MGC,MGK,MGV,VO,VOT,VOE,VMBS,VPL,VNQ,BSV,VGSH,VB,VBK,VBR,VOX,BND,VTI,VT,VPU,VTV,IJK,VBK,QQQQ,MDY,IWO,IJT,IJH,VB,VXF,IWP,IJR,VO,VOT,IWR,IJJ,VBR,IJS,IWN,RSP,IWM,IWS,VOE,VTV,IWC,SCHA,VTI,DIA,VUG,IWF,SPY,IWB,SDY,IVW,VIG,IVV,IWD,OEF,IVE,DVY,
Disclosure:
MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
- Morningstar's Conservative Retiree Portfolio Relies Heavily On Bonds -- Needs Management Help
02/18/2011
In a recent article we analyzed Morningstar's aggressive ETF retirement portfolio. This is one of three. In this article, we critique the conservative portfolio. Their retiree plan consists of 10 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, Emerging Market Equity, Fixed Income.Morningstar has prescribed allocation for each of the funds with 75% being allocated to fixed income and 25% allocated to risk assets.ETF
%
Megacap (MGC) 13 Mid Cap (VO) 4 Small Cap (VB) 2 Foreign Equity (EFA) 5 Emerging Market (VWO) 1 TIPs Bond (TIP) 25 Short Term Bond (BSV) 13 Inflation Protected (WIP) 4 MBS Bond (VMBS) 10 Corporate Bonds (LQD) 16 Cash 7
This can be summarized in major asset classes as:Asset ClassOwnershipUS Equities19%International5%Emerging Markets1%Fixed income75%
Points of note:
1. This puts heavy emphasis on fixed income and with recent history being a bad time for bonds, it might be worth considering actively managed bond funds.
2. The risk assets are very heavily weighted towards US Large Cap equities and those have been on the lower end of the returns table over the past five years.3. International and emerging markets will have limited impact on the portfolio.
With MPIQstrategic asset allocation ownership of each risk asset class will remain constant:but will be equally balanced. There will also be rotation of sub-classes to find the best performing fund in the mix.Asset ClassOwnershipUS Equities9%International8%Emerging Markets8%Fixed income75%
MPIQ Tactical asset allocation ownership will be dependent on asset class momentum on a monthly basis. Under most operating conditions, 75% will be fixed income and 12.5% will be designated to each of the top two asset classes -- unless they are underperforming fixed income, in which case it will become fixed income. If fixed income is underperforming cash, fixed income will move to cashAsset ClassOwnershipUS Equities12.5% or 0International12.5% or 0Emerging Markets12.5% or 0Fixed income75, 87.5, 100We are going to compare results of:
1. The portfolio as proposed by Morningstar
2, A strategic asset allocation portfolio using the funds proposed by Morningstar
3, A strategic asset allocation portfolio using the funds proposed by Morningstar
2, A strategic asset allocation portfolio using ETFs to clone the funds proposed by Morningstar for their own 401K plan
3, A strategic asset allocation portfolio using tETFs to clone the funds proposed by Morningstar for their own 401K plan
Portfolio Performance Comparison
Portfolio Performance Comparison
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Morningstar 401K ETF Clone SAA 75 17% 155% 3% 18% 6% 31% Morningstar Retiree Portfolio SAA 75 10% 162% 1% 8% 4% 30% Morningstar 401K ETF Clone TAA 75 9% 152% 4% 67% 6% 81% Morningstar Conservative Retirement Potfolio Original 8% 196% 3% 43% Morningstar Retiree Portfolio TAA 75 6% 114% 2% 29% 4% 49%
We note that WIP was replaced with BND because WIP only has two years of history and we wanted a little more. We don't believe that this will substantially alter the resutls.Takeaways:
A conservative portfolio is either for those who dislike any form of risk or those who have a shorter time horizon. In either case, the reliance on fixed income in a period of time when fixed income is out of favor is not ideal.
Given that so much is given over to fixed income, it would make sense to seek out a managed bond fund such as those offered by PIMCO, even if that means leaving ETF's for that portion.
The alternative to stay in ETF's is to allow the strategy to migrate between bond funds (so use a degree of management) to help limit downside and increase the upside.Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Symbols:BSV,EFA,LQD,MGC,TIP,VB,VMBS,VO,VWO,WIP,BND,PTTRX, First 1 Last
