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  • Aflac 401K Retirement Plan Review

    12/04/2010

    This report reviews Aflac Incorporated 401(k) Savings and Profit Sharing 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 participants in Aflac Incorporated 401(k) Savings and Profit Sharing Plan can achieve reasonable investment results using asset allocation strategies.

     

    Plan Review and Rating

    AFLAC Inc (Ticker:AFL) has the "Aflac Incorporated 401(k) Savings and Profit Sharing Plan".

    Aflac Incorporated 401(k) Savings and Profit Sharing Plan's 401K plan consists of 11 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income. The list of minor asset classes covered:

    Foreign Large Blend: EFA, VEU, GWL, PFA 
    Intermediate-term Bond: AGG, CIU, BIV, BND 
    Large Blend: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX 
    Large Growth: IVW, IWZ, JKE, VUG, ELG, QQQQ, RPG, SCHG 
    Large Value: IVE, IWW, JKF, VTV, ELV, PWV, RPV, SCHV 
    Mid-cap Growth: IJK, IWP, VOT, EMG, PWJ, RFG, UKW 
    Moderate Allocation: AOM 
    Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK

    As of Dec 2, 2010, this plan investment choice is rated as 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 (35%) 
    Fund Quality -- Rated as (33%) 
    Portfolio Building -- Rated as (36%) 
    Overall Rating: (35%)

     

    Current Economic and Market Conditions

    We have experienced an uncertain 2010: plenty of worries on whether the US economy will climb out of the great recession and recover.

    • The Federal Reserve embarked on Quantitative Easing II (QE2) to stimulate the economy.
    • The housing market is still at its low but largely stabilized.
    • The unemployment rate is stuck at 9%.

     

    Americans continue to face an uncertain future, given (among others) the high unemployment rate, large federal and local government debts and global trade imbalance. With such an economic backdrop, the stock and debt markets are going to be volatile. Despite this, markets have been resilient and appear positioned to rebound.

    In this market it is even more critical to properly diversify and respond market changes. MyPlanIQ offers two asset allocation strategies: strategic and tactical asset allocation strategies ( SAA and TAA for participants in Aflac Incorporated 401(k) Savings and Profit Sharing Plan).

    Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.

    Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.

     

    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 3 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) 
    Fixed Income: (AGG or BND) 

    Performance chart (as of Dec 2, 2010)

    Performance table (as of Dec 2, 2010)

     

    Portfolio Name1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
    Aflac Incorporated 401(k) Savings and Profit Sharing Plan Tactical Asset Allocation Moderate 4% 34% 5% 64% 8% 81%
    Aflac Incorporated 401(k) Savings and Profit Sharing Plan Strategic Asset Allocation Moderate 10% 100% 2% 8% 6% 31%
    Three Core Asset ETF Index Funds Tactical Asset Allocation Moderate -4% -35% 1% 9% 4% 27%
    Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate 9% 60% -0% -3% 4% 13%

    Currently, asset classes in US Equity (SPY,VTI), Foreign Equity (EFA,VEU) and Fixed Income (AGG,BND) are doing relatively well. These asset classes are available to Aflac Incorporated 401(k) Savings and Profit Sharing Plan participants.

    To summarize, Aflac Incorporated 401(k) Savings and Profit Sharing Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.

     

     

    labels:investment,

    Symbols:AFL,SPY,VTI,EFA,VEU,AGG,BND,AOM,CIU,BIV,GWL,PFA,IVE,IWW,JKF,VTV,ELV,PWV,RPV,SCHV,IVV,IYY,IWV,VV,DLN,RSP,SCHX,IVW,IWZ,JKE,VUG,ELG,QQQQ,RPG,SCHG,IJK,IWP,VOT,EMG,PWJ,RFG,UKW,IJT,IWO,JKK,VBK,DSG,PWT,RZG,UKK,

     

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  • Can Warren Buffet and John Hussman Ratios be Used to Trigger ETF Asset Movement

    12/04/2010

    In a previous article we looked at how the CAPE can be used as a signal to drive selection of assets. We created five regions based on the ratio f the current CAPE10 to the long term average CAPE10:

    • Significantly Overvalued (SO): when the ratio >= 150%
    • Modestly Overvalued (MO): when 117% <=  ratio < 150%
    • Fairly Valued (FV):when 83% <= ratio < 117%
    • Modestly Undervalued (MU): when 67% <= ratio < 83%
    • Significantly Undervalued (SU): when the ratio < 67%

    We then had two alternative strategies that either blended stock and cash or swapped between stock and cash. Stock market exposure is through Wilshire 5000 total return index (^DWC). This could easily be replaced with and ETF such as VTI -- we use DWC to give a long history.

    We summarized the results:

    Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    Shiller Stock OR Cash 12% 65% 18% 101% 12% 77%
    Shiller Stock and Cash 5% 87% 2% 12% 2% 9%


    We noted

    • The results show the more aggressive approach (all stock or all cash) delivers higher returns but is more volatile.
    • Probably the ideal is somewhere between these two approaches.


    We will now apply the same approach to Warren Buffet's Stock Market Valuation to GNP ratio John Hussman's peak PE to long term PE ratio.

    We will take the Stock or Cash strategy -- i.e. the portfolio either includes all stock or all cash. Remember that we are looking at how effective the trigger point is rather than optimizing a portfolio.


    The ratio trigger points are:

    Buffet -- go to cash when the ratio is above 115%
    Hussman -- go to cash when the ratio is above 150%



    Portfolio Performance Comparison

    Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy 13% 71% 23% 136% 15% 102%
    P Hussman Peak PE SO SU Market Timing Strategy Weekly 13% 71% 18% 82% 12% 62%


    Clearly as both portfolios have the same funds, once the triggers switched over, performance was identical. However, the delay in switching over to stocks by the Buffet trigger gives better returns.

    Finally, we can add the Shiller strategy and make a final comparison.

    Portfolio Performance Comparison
    Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly 13% 71% 19% 104% 12% 79%
    P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy 13% 71% 23% 136% 15% 102%
    P Hussman Peak PE SO SU Market Timing Strategy Weekly 13% 71% 18% 82% 12% 62%


    This shows how important it is to get the signals right! Remember that this is an all or nothing approach and if we used all of the five regions, the results would be different. It is certainly an area for further analysis.

    We have demonstrated that each of these ratios can be used as trigger points to shift a portfolio. This can be very useful in building an ETF portfolio that has some dynamic properties.

    In the next article, we will construct an ETF portfolio that uses an index to build a tactical portfolio.

     

    labels:investment,

    Symbols:SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,DBC,DBA,USO,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB,

     

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  • Using Shiller's CAPE Index to Trigger ETF Asset Movement

    12/03/2010

    In a previous article we looked at Yale Professor Robert Shiller's Cyclically Adjusted Price Earning’ ratio (CAPE10). CAPE10 is defined as the ratio of price to the average of last 10 year trailing S&P 500 annual earnings.

    This ratio can be tracked and can be used as a signal to drive selection of assets.

    We will take two examples of how the signal can be used.

    We create five regions based on the ratio f the current CAPE10 to the long term average CAPE10:

    • Significantly Overvalued (SO): such as if the ratio >= 150%
    • Modestly Overvalued (MO): such as if   117% <=  ratio < 150%
    • Fairly Valued (FV): such as if 83% <= ratio < 117%
    • Modestly Undervalued (MU): such as if 67% <= ratio < 83%
    • Significantly Undervalued (SU): such as if ratio < 67%

    At each rebalancing period (such as weekly or monthly), the we select two sets of actions -- different strategies -- that drive asset movement:

    1. Mixed stock and cash assets
    • SO: 0% in stock, 100% in cash.
    • MO: 25% in stock, 75% in cash.
    • FV: 50% in stock, 50% in cash
    • MU: 75% in stock, 25% in cash
    • SU: 100% in stock, 0% in cash
    1. Either stock or cash assets
    • SO: 100% in cash.
    • MO: 100% in cash.
    • FV: 100% in cash.
    • MU: 100% in stock
    • SU: 100% in stock

    In this case the stock market exposure is through Wilshire 5000 total return index (^DWC). This could easily be replaced with and ETF such as VTI -- we use DWC to give a long history.

    Of course the trigger points and asset splits can be adjusted -- limited thought has gone into the regions. We can allow the results to provide insight into the effectiveness of this approach.


    Stock OR Cash



    Stock AND Cash








    Portfolio Performance Comparison

    Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    Shiller Stock OR Cash 12% 65% 18% 101% 12% 77%
    Shiller Stock and Cash 5% 87% 2% 12% 2% 9%


    The results show the more aggressive approach (all stock or all cash) delivers higher returns but is more volatile.

    Also there are fewer transactions with the more aggressive approach which makes it easier to manage.

    Probably the ideal is somewhere between these two approaches.

    This is a very simple method of creating triggers to move assets. 

    In the next article we will look at other luminaries measures to create a strategy and compare the results.

     

    labels:investment,

    Symbols:SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,DBC,DBA,USO,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB,VTI,

     

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  • Major Asset Trends: Emerging Market Stocks Had a Bigger Drop while U.S. REIT Held Up Well

    11/30/2010

    Asset trends provide insights into underlying economic and market segments and are critical to tactical asset allocation strategies. We use ETFs that represent the asset class indices.

    Last week, as the European debt situation started to unfold, risk assets continued their downtrend while fixed income recovered somewhat (especially in safer bonds such as investment grade credit bonds), reflecting a reduced risk appetite. It is another watchful week. Given the uncertainty in world economics, investors should be in a heightened alert state on the markets.

    Assets Class

    Symbols

    11/26
    Trend
    Score

    11/19
    Trend
    Score

    Direction

    Frontier Market Stks

    (FRN)

    14.18%

    16.78%

    v

    US Equity REITs

    (VNQ)

    10.71%

    8.76%

    ^

    Emerging Market Stks

    (VWO)

    7.85%

    11.59%

    v

    Gold

    (GLD)

    7.74%

    8.55%

    v

    US Stocks

    (VTI)

    7.64%

    8.28%

    v

    International REITs

    (RWX)

    7.15%

    9.99%

    v

    Commodities

    (GSG)

    4.61%

    3.12%

    ^

    US High Yield Bonds

    (JNK)

    4.05%

    6.13%

    v

    International Developed Stks

    (EFA)

    3.67%

    8.08%

    v

    Emerging Mkt Bonds

    (PCY)

    3.45%

    3.64%

    v

    Intermediate Treasuries

    (IEF)

    2.34%

    2.15%

    ^

    US Credit Bonds

    (CFT)

    2.06%

    1.97%

    ^

    Mortgage Back Bonds

    (MBB)

    1.55%

    1.57%

    v

    Total US Bonds

    (BND)

    1.05%

    1.04%

    ^

    Treasury Bills

    (SHV)

    0.02%

    0.03%

    v

    International Treasury Bonds

    (BWX)

    -0.15%

    2.01%

    v

    Municipal Bonds

    (MUB)

    -1.1%

    -1.68%

    ^

    click to enlarge

    The riskiest asset, frontier market stocks, remains in the top spot while emerging market stocks had a much bigger drop than the U.S REITs.

    Inflation in China, the Korean peninsula tension and the Irish debt problem were some major reasons behind the drops of emerging market stocks and international developed stocks.

    Municipal bonds recovered a bit while international treasury bonds had another decrease mostly due to the debt situation and dollar's strength. Treasury bills remained unchanged, which is expected. Emerging market bonds had a little drop, but are still pointing to an up trend.

    In conclusion, the market continued its gyrations, trying to figure out the next trend. It might or might not be a trend turning point. Since the world economics is not out of the woods yet, it pays to keep monitoring events closely.

     

    labels:investment,

    Symbols:AGG,BND,BWX,CFT,DBA,DBC,EEM,EFA,EMB,FRN,GLD,GSG,HYG,ICF,IEF,IWM,IYR,JNK,MBB,MUB,PCY,PHB,RWX,SHV,SPY,TLT,VEU,VNQ,VTI,VWO,

     

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  • Countries Nov 29

    11/30/2010

    MyPlanIQ tracks detailed weekly country economic trend movement. We use ETFs that represent each geographic region and present the results here.

    This is the third week of coverage. Major indices around the globe have rebounded as concerns over the Irish debt crisis have eased following Irish monetary officials agreeing to accept aid and China’s lower than expected increase in interest rate. 

    Description

    Symbol

    Nov 22 Trend Score

    Direction

    Nov 15 Trend Score

    South Africa

    EZA

    18%

    ^

    14%

    Mexico

    EWW

    16%

    ^

    12%

    Hong Kong

    EWH

    14%

    v

    16%

    South Korea

    EWY

    14%

    ^

    10%

    Malaysia

    EWM

    13%

    ^

    11%

    Singapore

    EWS

    13%

    ^

    13%

    Germany

    EWG

    12%

    ^

    8%

    Taiwan

    EWT

    11%

    ^

    8%

    Australia

    EWA

    11%

    ^

    7%

    Russia

    RSX

    10%

    ^

    7%

    Canada

    EWC

    10%

    ^

    7%

    India

    INP

    9%

    v

    12%

    Austria

    EWO

    9%

    ^

    5%

    Brazil

    EWZ

    9%

    ^

    5%

    Switzerland

    EWL

    9%

    ^

    6%

    United Kingdom

    EWU

    9%

    ^

    8%

    Belgium

    EWK

    8%

    ^

    5%

    The Netherlands

    EWN

    8%

    ^

    4%

    Japan

    EWJ

    7%

    ^

    4%

    France

    EWQ

    7%

    ^

    4%

    China

    FXI

    5%

    v

    6%

    Italy

    EWI

    3%

    ^

    1%

    Spain

    EWP

    0%

    ^

    -1%



    Top Five

    Global rebalancing, with the world recovery being led by emerging economies, strong growth momentum is seen in export-driven countries with substantial exposure to China and the rest of emerging markets.

    Despite struggling domestic manufacturing and fragile recovery, Africa’s biggest economy continues to see its shares increase in value. Economist predict that if the outcome for third quarter GDP is lower than expectation, this wouldsupport a rate cut.

    At the same time, the IMF warned that it sees growing risks of a property bubble in Hong Kong. The IMF is concerned that if property prices continue to rise at around 20% a year, it would create a disruptive scenario when the economy slows down. As a result, Hong Kong shares declined on likely government measures to cool real estate prices.


    Bottom Five

    The countries at the bottom of the list reacted in a cluster, as investor seemed more confident that an agreement between EU and Ireland is imminent, with the exception of China. The mainland Chinese benchmark  finished with a loss of 3 per cent for a week characterized by fretting over any ham-handed government interference and attempts to cool activity in China.

    In conclusion, although Ireland agreed to accept a rescue package, there still remains skepticism regarding the containment of the crisis. The full results of the Irish debt crisis still remain to be seen in the weeks ahead.

     

    labels:investment,

    Symbols:INP,EZA,EWS,EWH,EWW,EWM,EWY,RSX,EWA,EWT,EWC,EWZ,EWL,EWG,EWU,FXI,EWK,EWN,EWJ,EWQ,EWO,EWI,EWP,SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,DBC,DBA,USO,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB,


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  • Commodities Nov 29

    11/30/2010

  • US Sectors Nov 29

    11/30/2010

  • ETF's for Income Nov 29

    11/29/2010

  • Smart Money Nov 29

    11/29/2010

  • John Hussman's Index: Stocks Are 13% Overvalued

    11/26/2010

  • Warren Buffett Total Stock Market Value to GNP Ratio Reviewed

    11/26/2010

  • Can we Beat Morningstar Bond Managers with ETF's

    11/26/2010

  • Smart Money Going to Equities

    11/23/2010

  • ETF's for Income Rebound Well

    11/23/2010

  • US Sectors Up Across the Board

    11/23/2010

  • Commodities Mixed -- Some up, Some down

    11/23/2010

  • Most Countries Rebound Some Do Not

    11/23/2010

  • Commodity ETFs Show Muted Downturn This Week

    11/20/2010

  • Top US Sectors Weather the week well -- bottom half feels the pain

    11/19/2010

  • Commodity Indicators for Week of November 15th

    11/17/2010

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