Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, June 17, 2013. You can also find the re-balance calendar for 2013 on ‘Dashboard‘ page once you log in.

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.

Please note that we now list the next re-balance date on every portfolio page.

Risk Managed Strategic Asset Allocation Portfolios

We have been asked by many users who would like to use strategic asset allocation portfolios but are concerned with their risks, especially when markets start to experience severe loss. Before we jump into this topic, we would like to point out again our investment philosophy:

Both SAA (Strategic Asset Allocation) and TAA (Tactical Asset Allocation) have their own up and down cycles. They complement with each other. Refer to the following newsletters for more detailed discussion: 

The simplest way to add a ‘guard’ to a risk asset such as US stocks (SPY) is to use moving average. This is exemplified by a so called global tactical asset allocation (GTAA) endowment model portfolio proposed by Mebane Faber, the portfolio is monitored on Advanced Strategies page: 

Strategy Name Portfolio 1 year’s AR 3 year’s AR 5 year’s AR
Diversified Timing On Endowment Asset Allocation Model P Diversified Timing On Endowment Asset Allocation Model SMA 10 Months With Long Treasury 8.2 6.1 4.8

 Click on the above links for more information. The portfolio essentially allocates 20% each into US stocks, Intl stocks,  US REITs, Commodities and Long Term Treasury Bonds. For each of these 5 components, if the total return of any one of them is under its 10 month simple moving average, the asset is sold and goes to cash. The following compares with two index funds: 

Inception Date: 12/31/1998

Name 1Wk
P Diversified Timing On Endowment Asset Allocation Model SMA 10 Months With Long Treasury -0.4% 4.4% 8.2% 6.1% 4.8% 7.7%
VFINX (Vanguard (S&P 500) Index) 0.2% 16.2% 27.6% 18.0% 6.1% 7.2%
VBINX (Vanguard Balance (60% stocks/40% bonds) -0.1% 9.0% 16.5% 12.6% 6.4% 6.9%

*   YTD: Year to Date
**  AR: Annualized Return

Even though the portfolio lagged in the past 3 and 5 years, it achieved slightly better performance in the past 10 years. What is more, its maximum drawdown is only 11.5% in the past 10 years, compared with 55% of VFINX (S&P 500). Its standard deviation is only 8.7%, compared with VFINX’s 20.7%, only about 0.4 of VFINX. 

The risk reduction should not be understated. This is even more important in today’s environment, as more and more investors started to crowd into risk assets (stocks),  ignoring the potential great risk in the current market environment. 

In the following, we show how to utilize MyPlanIQ’s portfolio of portfolios feature (or so called composite portfolio) to help an expert user to construct a ‘guarded’ strategic asset allocation portfolio. We will also examine its back tested performance. 

1. Portfolio as a fund ‘symbol’

Basically, a portfolio in can be also treated as a ‘fund’ or ‘security’. Its symbol is constructed as P_xxxxx where xxxxx is its portfolio ID which can be found in two ways: 

1). If you click on a portfolio link on a Dashboard and see a popup window, you will see P_xxxxx below its portfolio name, as shown here: 

2). The other way is that on a portfolio page, you can find its URL like:,908

47908 is its portfolio ID. 

You can now use P_47908 as a ‘fund’ symbol in your portfolio. 

Now, we are ready to construct a risk managed or guarded SAA portfolio using this feature: 

2. Construct a stock or risk asset portfolio

There are many ways to construct a pure stock or risk asset portfolio. For example, you can use risk profile 0 to construct a portfolio out of a plan that consists of only US stock funds, a portfolio out of another plan that consists of only international stock funds etc..  Or you can simply construct a portfolio that consists of many risk assets such as P_41433 (MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Risk Profile 0).

Another way is to use some advanced strategies such as Momentum Scoring to construct a US stock portfolio such as P Momentum Scoring Style ETFs (mentioned in our previous newsletter April 1, 2013: Momentum Over Stocks, Sector And Style Funds. This portfolio’s symbol is P_48019. 

3. Construct a guarded stock or risk asset portfolio

Now you can use a strategy such as Moving Average with Signal that allows you to enter parameters as follows: 

In this case, we construct a composite portfolio using P_48019 as the underlying security that uses VFINX (S&P 500) as the simple moving average (SMA, you can specify using EMA by setting the parameter boolean SMA to false) of 200 days. This portfolios is called P US Stocks Style Rotation SMA200 and its symbol is P_48018. The portfolio goes to cash when VFINX is under its 200 moving average. 

4. Construct a composite SAA portfolio

Now, you can use P_48018 to represent your US stock asset class to construct a SAA portfolio using static portfolio feature. 

For example, let’s say you want to construct a 60% US stocks and 40% US total bonds using P_48018 as the stock fund and Vanguard Total Bond Index VBMFX as the bond fund, you can use static portfolio to create US Balance Style Rotation Portfolio SMA200

The following compares this with VBINX, Vanguard standard 60% US stocks and 40% bonds index fund: 

Portfolio Performance Comparison (as of 6/10/2013)

Ticker/Portfolio Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
US Balance Style Rotation Portfolio SMA200 -0.1% 9.9% 15.9% 2.13 7.7% 0.97 8.1% 0.94 7.0% 0.7
VBINX -0.1% 9.0% 16.5% 2.35 12.6% 1.25 6.4% 0.41 6.9% 0.48
VFINX 0.2% 16.2% 27.6% 2.24 18.0% 1.05 6.1% 0.23 7.2% 0.3

*: NOT annualized

**YTD: Year to Date

The year by year more detailed comparison reveals that even though the portfolio achieves similar performance result in the past 10 years, it has improved its Sharpe ratio greatly. In fact, it didn’t lose money in 2008 and its maximum drawdown is 14% compared with 36% of VBINX!

Further note: VBINX annual return is only 5.4% since 1/2/2001, the beginning of the technology bear market, compared with 7.1% of US Balance Style Rotation Portfolio SMA200 since 1/2/2001! So even though VBINX is in par with US Balance Style Rotation Portfolio SMA200 for the past 10 years (i.e. right after the technology/internet bubble induced bear market), it did much worse than the risk managed portfolio if one looks at this from the beginning of that bear market instead. 

To summarize, 

  • One can use MyPlanIQ’s portfolio of portfolios (or portfolio as a fund symbol) feature to construct many powerful and interesting composite portfolios. 
  • Risk managed or guarded SAA portfolios can improve risk significantly while achieving similar or even better long term returns. 

Portfolio Performance Review

We compared some strategic asset allocation portfolios that were mentioned in our last year’s newsletter July 30, 2012: Strategic Asset Allocation & Lazy Portfolios Review . The following shows how they have performed: 

Portfolio Performance Comparison (as of 6/10/2013)

Ticker/Portfolio Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Wealthfront Moderate Portfolio -0.7% 2.7% 9.9% 1.4 8.6% 0.85 3.7% 0.22    
AssetBuilder Model Portfolio 09 -0.9% 4.4% 12.0% 1.7 7.9% 0.75 2.6% 0.17    
MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation – Optimal Moderate -0.8% 2.5% 10.7% 1.56 10.4% 1.01 5.6% 0.36 8.5% 0.6
VBINX -0.1% 9.0% 16.5% 2.35 12.6% 1.25 6.4% 0.41 6.9% 0.48
Morningstar Ibbotson Balanced ETF Portfolio -0.3% 5.3% 12.8% 1.71 10.2% 0.95 4.4% 0.27    
Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate -0.6% 3.2% 12.3% 1.74 9.9% 0.95 4.0% 0.24 6.4% 0.41

*: NOT annualized

**YTD: Year to Date

Detailed comparison >>

Notice that Ibbotson’s allocation is really risk profile 36 as 4% is allocated to high yield bonds. 

Market Overview

Even though broad base stock market index such as VTI or S&P 500 (SPY) somewhat stabilized last week, long term bonds, inflation protected treasury bonds (TIPS) and REITs (both domestic and international) continued their loss. We believe current state is a transient state: either rate sensitive securities will stabilize or a much broader base market decline will follow. 

For other detailed ranking, see 360° Market Overview or Asset Trends & Correlations.

We again copy our position statements (from previous newsletters): 

Our position has not changed: We still maintain our cautious attitude to the recent stock market strength. Again, we have not seen any meaningful or substantial structural change in the U.S., European and emerging market economies. However, we will let markets sort this out and will try to take advantage over its irrational behavior if it is possible. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

Latest Articles

Enjoy Newsletter

How can we improve this newsletter? Please take our survey 

–Thanks to those who have already contributed — we appreciate it.

Any investment in securities including mutual funds, ETFs, closed end funds, stocks and any other securities could lose money over any period of time. All investments involve risk. Losses may exceed the principal invested. Past performance is not an indicator of future performance. There is no guarantee for future results in your investment and any other actions based on the information provided on the website including, but not limited to, strategies, portfolios, articles, performance data and results of any tools. All rights are reserved and enforced. By accessing the website, you agree not to copy and redistribute the information provided herein without the explicit consent from MyPlanIQ.