09/08/2011

Two defensive investment strategies useful in current stressful times are compared. The first is based on selecting the best bond fund every month or every quarter from a list of bond funds managed by Morningstar's 'Manager of the Year' P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly. These funds include PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX.

The second is Retirement Income ETFs that consists of a list of candidate dividend stock and bond ETFs including DVY, EMB, HYG, ICF, IDV, TIP, VIG, VWO.

The conclusion: the Fixed Income Managers of the Year is solid and has lower volatility, a good defensive strategy one should consider. Both of them are better alternatives than a broad based index such as S&P 500 (SPX) or total bond market index (AGG)

Read more from our SeekingAlpha's article:

Defensive Strategies In Stressful Times: The Best Of Fixed Income

Symbols: SPX, DVY, EMB, HYG, ICF, IDV, TIP, VIG, VWO, PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX, Retirement Investing, Dividend Stock, Retirement Income, Portfolio Management

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04/29/2011

Many working people put off their retirement investing -- just one more year until it has becomes a "hair on fire" problem. The problem is that we can easily be overwhelmed and shut down. The way to solve this is to focus on what works in the long term -- that is what long term investing is all about -- and allow that to filter out what may work in the short term but won't stand the test of time.

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

This article reviews the best of bond strategy that we first published in November of last year. This outlined a strategy based on bond funds only It was simple: out of the seven top bond managers (according to Morningstar) own the top performing bond fund which you review on a monthly basis (or quarterly if you prefer). Every year we review the list of top performers and you update your list of funds to maintain only the top performers in your list. We will call this Best of Bonds (BoB).

Currently, the top seven we use are:

Bond Fund	Ticker
PIMCO Total Return	PTTRX
TCW Total Return Bond	TGLMX
Western Asset Core Bond	WATFX
Metropolitan West Total Return Bond	MWTRX
Loomis Sayles Bond	LSBDX
Dodge & Cox Income	DODIX
FPA New Income	FPNIX

In a previous set of articles we tried to compete using bind ETFs such as BND, BWX, CIU, CMF, CSJ, IEF, JNK, LQD, MBB, MUB, NYF, PCY, SHV, SHY, TIP, TLH, TLT, WIP but we were unable match the returns of these managed bond funds. With PIMCO recently announcing a managed ETF bond fund, it will be interesting to see whether this gap will be filled.

Bonds have had a torrid time since the turn of the year with many tactical strategies moving to cash rather than staying in bond funds. With interest rates sticking to their lows and with QEII still in operation, there has been little joy for bond owners.

We compare this against a portfolio of dividend bearing ETF's that we have reviewed and use as a recommended plan for those looking to invest for income.

The comparison is

• Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly
• Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year Quarterly
• Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
• Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)

 

Portfolio Performance Comparison

Portfolio/Fund Name	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 Quarterly	5%	85%	11%	194%	10%	164%
P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly	6%	110%	12%	219%	11%	172%
Retirement Income ETFs Strategic Asset Allocation Moderate	13%	96%	4%	16%	5%	23%
Retirement Income ETFs Tactical Asset Allocation Moderate	7%	52%	10%	76%	10%	66%

Full details with drawdown and other parameters -- you can also add other portfolios for comparison

Three Month Chart (Blue is Quarterly)

One Year Chart  (Blue is Quarterly)

Three Year Chart  (Blue is Quarterly)

Five Year Chart  (Blue is Quarterly)

Takeaways

• Despite the challenging conditions, the Bond funds continue to deliver reasonable results in the short term and still look good over the longer time horizon
• The retirement income ETF tactical asset allocation has a similar long term performance but with more trading activity
• The strategic asset allocation has been doing well in the short term but suffered in the big downturn

The best of bonds is still a solid approach and with the advent of managed bond ETFs, it may be possible to have an ETF equivalent plan.

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.


Symbols: PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX, BND, BWX, CIU, CMF, CSJ, IEF, JNK, LQD, MBB, MUB, NYF, PCY, SHV, SHY, TIP, TLH, TLT, WIP

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04/04/2011

We all read about the story that, at the beginning of March,  Bill Gross at PIMCO dumped all of his U.S. treasury holdings in PIMCO Total Return Fund (PTTRX). With $237 billion dollar of assets, PIMCO Total Return Fund is the largest bond fund in the U.S., in fact, the largest fund in the world.

Based on a recent analysis by MyPlanIQ.com, all 12 intermediate bond and total return bond funds tracked by MyPlanIQ SmartMoneyIQ, have liquidated and now hold virtually none or little in long term U.S. treasury bonds in their portfolios. These funds are managed by some of the best fixed income managers. They include Loomis Sayles fund (LSBDX), managed by Dan Fuss, TCW Total Return Bond (TGLMX), Western Asset Cord Bond (WATFX) and Templeton Global Bond (TGBAX). For more detailed fund portfolio asset allocation analysis, please refer to MyPlanIQ Smart Money Allocation Manager page.

If all the smart money managers dumped treasury bonds, it begs the question:  who are holding the bag now?

The following are possible candidates:

1. Federal Reserve: As of Dec. 31, 2010, the Fed held $1.2 trillion treasury debt, more than $892 billion treasury bond held by China, the largest foreign country treasury holder.
2. Foreign countries: Foreign countries including China, Japan and oil producer middle east coutries are the largest debt creditors to the U.S. They bought U.S. treasury bonds due to their largest foreign reserve accrued from their trade surplus to the U.S. As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion
3. Insurance companies: These include large insurance companies that have to use long term bonds to match their long term liabilities.
4. Speculators: They hold opinions that currently the long term treasury bonds can not go that low, otherwise, the economic recovery will be derailed. But they will be the first ones to dump these bonds when the inflation presure heats up.
5. 'Dumb' money: These include fund managers who are buy and hold and certainly some individual investors.

One possible cause for treasury bonds' free fall is that Fed stops buying and foreign countries can no longer absorb the treasury bonds anymore (due to trade surplus reduction or reducing the U.S. treasury and buying other countries' debts or both). By that time, speculators will flee and who will hold the bag?

Exchange Tickers (TLT), (IEF), (SHY), (SHV), (PTTRX), (LSBDX), (TGLMX), (WATFX), (MWTRX), (TGBAX), (NSTTX), (AGDIX), (FSRRX), (PRSNX), (DPGIX)

Symbols:TLT, IEF, SHY, SHV, PTTRX, LSBDX, TGLMX, WATFX, MWTRX, TGBAX, NSTTX, AGDIX, FSRRX, PRSNX, DPGIX

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