04/20/2011

The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

We continue to examine luminary portfolios to see what we can learn and use to further our investment portfolios.

Ted Aronson and his AJO Partners manage about $25 billion of institutional assets. Aronson puts his family's taxable money in this well-diversified portfolio of no-load index funds.

Fund	Weight	Ticker	ETF
US Equities	40%	VFINX, VEXMX, VISGX, VTSMX, VISXX	VTI, TMW, VBK, VBR
International Equity	20%	VPACX, VEURX	VEA
Emerging Markets	10%	VEIEX	EEM
US Bonds	30%	VIPSX, VUSTX, VWEHX	TIP, LQD, HYG

This is a well diversified four asset class portfolio with an aggressive profile. The US equities are broadly diversified. Asia Pacific is put above Europe for developed markets. There is a diversified set of fixed income with VWEHX and VUSTX being relatively high risk. The long term treasury bond has proved to be a good diversifier in recent history -- today all bonds are under pressure so this may be less true.

The US component is possibly over-weighted and emerging markets could be increased or, even better, some real estate assets could be added.

This portfolio was last reviewed at the end of the year and we now re-examine performance over the last three months as we see markets changing and inflation becoming more of a present reality.

This lazy portfolio will be compared with six asset class SIB to examine the returns of four and six asset class portfolios

Portfolio Performance Comparison

Portfolio/Fund Name	1Yr AR	1Yr Sharpe	3Yr AR	3Yr Sharpe	5Yr AR	5Yr Sharpe
Aronson Original	6%	74%	2%	14%	3%	16%
Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate	10%	71%	9%	73%	13%	91%
Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate	13%	103%	3%	20%	7%	35%

full comparison

The Aronson portfolio has four asset classes missing out on REIT and commodities. The performance over the last five years has not been exceptional with the Simple SIB able to beat it across the board.

Over the last three months, REIT and commodities have been in favor and having neither has had an impact on the Aronson returns.

Takeaways

• The Aronson lazy portfolio has moderate returns that can be beaten
• Having broader diversification pays off as market conditions change
• ETFs can readily be used to implement these portfolios with good performance
• A 10% spread over five years means that it’s worth looking at alternatives

comments(0) 

04/19/2011

The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

We continue to examine luminary portfolios to see what we can learn and use to further our investment portfolios.

Ted Aronson and his AJO Partners manage about $25 billion of institutional assets. Aronson puts his family's taxable money in this well-diversified portfolio of no-load index funds.

Fund	Weight	Ticker	ETF
US Equities	40%	VFINX, VEXMX, VISGX, VTSMX, VISXX	VTI, TMW, VBK, VBR
International Equity	20%	VPACX, VEURX	VEA
Emerging Markets	10%	VEIEX	EEM
US Bonds	30%	VIPSX, VUSTX, VWEHX	TIP, LQD, HYG

This is a well diversified four asset class portfolio with an aggressive profile. The US equities are broadly diversified. Asia Pacific is put above Europe for developed markets. There is a diversified set of fixed income with VWEHX and VUSTX being relatively high risk. The long term treasury bond has proved to be a good diversifier in recent history -- today all bonds are under pressure so this may be less true.

The US component is possibly over-weighted and emerging markets could be increased or, even better, some real estate assets could be added.

This portfolio was last reviewed at the end of the year and we now re-examine performance over the last three months as we see markets changing and inflation becoming more of a present reality.

This lazy portfolio will be compared with six asset class SIB to examine the returns of four and six asset class portfolios

Portfolio Performance Comparison

Portfolio/Fund Name	1Yr AR	1Yr Sharpe	3Yr AR	3Yr Sharpe	5Yr AR	5Yr Sharpe
Aronson Original	6%	74%	2%	14%	3%	16%
Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate	10%	71%	9%	73%	13%	91%
Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate	13%	103%	3%	20%	7%	35%

full comparison

The Aronson portfolio has four asset classes missing out on REIT and commodities. The performance over the last five years has not been exceptional with the Simple SIB able to beat it across the board.

Over the last three months, REIT and commodities have been in favor and having neither has had an impact on the Aronson returns.

Takeaways

• The Aronson lazy portfolio has moderate returns that can be beaten
• Having broader diversification pays off as market conditions change
• ETFs can readily be used to implement these portfolios with good performance
• A 10% spread over five years means that it’s worth looking at alternatives

comments(0) 

06/13/2011

Retirement investing is a long term process. This report reviews Hewlett Packard 401K plan. We will discuss the investment choices and present the plan rating by MyPlanIQ. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how investors in Hewlett Packard 401K can achieve reasonable investment results using asset allocation strategies.

Plan Review and Rating

Hewlett Packard (Ticker:HPQ) has the "Hewlett Packard 401K".

Hewlett Packard Company (commonly known as 'HP') (NYSE: HPQ) is one of the largest IT companies. Founded by Bill Hwelett and Dave Packard in Palo Alto, California, HP was the earliest technology company that eventually led the formation of Silicon Valley in the San Francisco bay area. Today Hewlett-Packard has over 300 thousands employees world wide.

HP is renown to be employee friendly. It has been named several times as one of the best companies to work for. Its 401k plan provides a fairly diversified array of high quality funds.

Hewlett Packard 401K's 401K plan consists of 29 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, Emerging Market Equity, REITs, Fixed Income.

As of Jun 13, 2011, this plan investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:

Diversification -- Rated as great (97%)
Fund Quality -- Rated as average (62%)
Portfolio Building -- Rated as above average (65%)
Overall Rating: above average (74%)

Current Economic and Market Conditions

Last week marked the sixth week of losses in the U.S. stock market. Investors are now clearly in a risk off mode. Key observations include

• U.S. stock market index (Vanguard Total Stock Market Index (VTI)), for example, is now ranked below U.S. 7-10 long term treasury bonds (IEF) and just a notch above credit bond index (CFT) in our major trend table. 
• For the time being, commodities (DBC) and Gold (GLD) are still holding first places, with international REITs (RWX) is still strong. 
• On the fixed income side, long bonds (TLT) (LQD) are now trending higher while emerging market bonds (PCY) is still holding a higher place. 

This shows investors' strong risk aversion but it is still not water shed flight to safety moment yet. Again, we are vigilant to monitor how markets are unfolding here.

For more information on how these assets are ranked, please see here. 

Portfolio Discussions

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 5 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Emerging Market Equity: EEM or VWO
REITs: IYR or VNQ or ICF
Fixed Income: AGG or BND

Performance chart (as of Jun 13, 2011)

Performance table (as of Jun 13, 2011)

Currently are doing well. But these asset classes are not available to Hewlett Packard 401K participants.

To summarize, investors adopting Hewlett Packard 401K plan can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.

Symbols:HPQ, CASH, SPY, VTI, VEU, VWO, VNQ, BND, ICAEX, ARTIX, PHIYX, LZEMX, PRRIX, VPMCX, RNWFX, PIGLX, MIDJX, DODFX, DSFRX, FMAGX, FCNTX, FRESX, FLPSX, DODGX, PTRIX, PEBIX, PISIX, PIGIX, PFMIX, PTSHX, PFGCX, VEXMX, CRIMX

Exchange Tickers: (HPQ), (CASH), (SPY), (VTI), (VEU), (VWO), (VNQ), (BND), (ICAEX), (ARTIX), (PHIYX), (LZEMX), (PRRIX), (VPMCX), (RNWFX), (PIGLX), (MIDJX), (DODFX), (DSFRX), (FMAGX), (FCNTX), (FRESX), (FLPSX), (DODGX), (PTRIX), (PEBIX), (PISIX), (PIGIX), (PFMIX), (PTSHX), (PFGCX), (VEXMX), (CRIMX)

06/23/2011