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, November 4, 2013. You can also find the re-balance calendar for 2013 on ‘Dashboard‘ page once you log in.

Today is also the end of month rebalance day for several advanced portfolios. 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.

New Feature

Some of you might have noticed that we have improved our portfolio/fund comparison tool to allow you to pick and choose from a list of portfolios and funds to compare their historical performance. This feature is extremely popular. Furthermore, you can bookmark the URL so that later on you can review the latest performance comparison. 

Quarter End Review

Asset Trends

Year to date, we see the continued strength in U.S. stocks since 2012. Earlier this year, REITs had had a strong strength since 2010 but it then started to fall out of favor in May/June as the rising rate worries started to surface. In the meantime, international stocks continued their 2012 strength, though much more volatile than the US stocks.  Emerging market stocks have been weak all year long. 

It is noticeable that commodities have been weak since 2010. It is a clear indication that inflation pressure is very subdue. In fact, one wonder whether we are still at a deflationary period. 

US bonds finally started a serious crack beginning June. It has recovered somewhat. 

Six Asset Class Returns

Ticker/Portfolio YTD*(2013) 2012 2011 2010
US Stocks (VTI) 21.3 16.5 1.0 17.4
International Dev Stocks (VEA) 16.0 18.6 -12.3 8.3
Emerging Mkt Stocks (VWO) -7.7 19.2 -18.8 19.5
REITs (VNQ) 3.2 17.6 8.6 28.4
Commodities (DBC) -6.9 3.5 -2.6 11.9
Total US Bond Index (BND) -2.0 2.9 7.2 6.2

Fundamentally, we are a worrier as all of these major asset classes are not cheap. As for US stocks, it is worthwhile to mention again that Shiller’s Cyclically Adjusted Price Earnings Ratio (CAPE 10) breached 1.5x ratio over its long term average, a significant event that usually would indicate very expensiveness of US stocks from a long term perspective. In fact, our rule of thumb based P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly portfolio went into cash last month, a very rare change. 

We would like to devote a few more words on bonds. As what we discussed in September 16, 2013: Fixed Income No More? newsletter, fixed income is facing an increasingly hostile environment, not only because of current low yield (thus high price) but also because of current deleveraging process that attributes to debts as the main source. However, we would like to emphasize that we are not advocating the useless of fixed income or bonds in a portfolio, even in the current and coming years. Fixed income should be always an integral part of a portfolio for diversification and risk reduction purpose. As an added bonus, bonds exhibit an important property called convexity that clearly skews to investor’s favor. For example, assuming 10 year Treasury yield rises 0.5% (or 50 basis points) from current 2.6% level in one year, investors would incur about -1.3% loss, compared with 6.7% gain if the yield declines 0.5% instead in a year.  

Such an asymmetric gain/risk property is what investors should look for.  

Again, we emphasize that one shouldn’t simply abandon the very fundamental risk profile concept and go all in to equity. This is even true in using a Tactical Asset Allocation portfolio as a tactical strategy, however adaptive it might be, can not escape from a sudden disaster such as the stock market crash of 1987 Black Monday.  Furthermore, tactical strategies, as we discussed several times, can also suffer from whipsaw loss that can be only amplified if you are completely abandoning risk profile concept and go for risk profile zero (0). 

401k plan portfolios

The following table shows how some 401k portfolios have performed recently

Portfolio Performance Comparison (as of 9/30/2013)

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Wal-Mart Profit Sharing and 401(k) Plan Tactical Asset Allocation Moderate 9.9% 10.9% 9.3% 10.4% 1.43 9.4% 1.11
Wal-Mart Profit Sharing and 401(k) Plan Strategic Asset Allocation – Optimal Moderate 10.2% 11.8% 10.5% 9.9% 0.66 8.3% 0.59
The Bank of America 401(k) Plan Tactical Asset Allocation Moderate 7.9% 8.8% 8.5% 13.0% 1.33 11.4% 1.16
The Bank of America 401(k) Plan Strategic Asset Allocation – Optimal Moderate 8.3% 9.8% 9.4% 9.4% 0.62 8.2% 0.58
Ford Motors 401K Tactical Asset Allocation Moderate 5.4% 7.4% 6.6% 8.3% 0.97 9.2% 1
Ford Motor 401K Strategic Asset Allocation – Optimal Moderate 7.7% 9.2% 9.4% 8.1% 0.52 7.5% 0.5
Hewlett-Packard Company 401(k) Plan Tactical Asset Allocation Moderate 5.1% 8.5% 8.7% 13.4% 1.55 12.6% 1.35
Hewlett-Packard Company 401(k) Plan Strategic Asset Allocation – Optimal Moderate 7.1% 10.1% 9.2% 9.8% 0.62 9.0% 0.62
VBINX (Vanguard Balanced Index Inv) 10.9% 11.4% 10.7% 8.2% 0.56 6.9% 0.49

**YTD: Year to Date

See detailed comparison >>

2013 is a year that favors strategic asset allocation portfolios, especially for those that are only focused on US stocks and international stocks. For example, Wal-Mart Profit Sharing and 401(k) Plan consists of only funds in US stocks, international stocks and bonds. Its Strategic Asset Allocation model portfolio had the best YTD performance.  The other noticeable phenomenon is that the TAA portfolios perform better than SAA portfolios this year (other than the Wal-Mart ones). 

It is also clear that our  Strategic Asset Allocation – Optimal  does its job: for example, for most 401k plans that have only three major asset classes such as the Wal-Mart plan, these model portfolios’ performance is closely matched with that of VBINX (Vanguard Balanced Index Inv), which is really a two asset portfolio (60% US stocks and 40% bonds). 

Lazy, Strategic and Tactical Portfolios

The following table summarizes the performance for some selected portfolios listed on Lazy Portfolios

Portfolio Performance Comparison (as of 9/30/2013)

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Wasik`s Nano 4.3% 5.4% 6.6% 5.5% 0.32    
Wasik Nano Plan Strategic Asset Allocation – Optimal Moderate 8.3% 10.3% 9.6% 8.0% 0.49 7.0% 0.45
Wasik Nano Plan Tactical Asset Allocation Moderate 8.8% 9.2% 9.0% 7.9% 0.81 8.4% 0.82
P David Swensen Yale Individual Investor Portfolio Annual Rebalancing 5.0% 6.9% 9.4% 8.4% 0.46 8.8% 0.52
David Swensen Six ETF Asset Individual Investor Plan Strategic Asset Allocation – Optimal Moderate 3.0% 5.4% 7.4% 7.4% 0.45 6.6% 0.41
David Swensen Six ETF Asset Individual Investor Plan Tactical Asset Allocation Moderate 6.2% 7.8% 9.6% 8.7% 0.86 10.0% 0.85
Permanent Portfolio ETF Plan Strategic Asset Allocation – Optimal Moderate 7.4% 7.4% 9.0% 7.5% 0.53 6.4% 0.47
Permanent Portfolio ETF Plan Tactical Asset Allocation Moderate 2.3% 1.5% 6.7% 6.9% 0.71 7.4% 0.69
Harry Browne Permanent Portfolio -3.7% -6.2% 4.7% 6.9% 0.86 7.4% 0.88
Permanent Income Portfolio -2.8% -4.1% 4.6% 6.1% 0.87 6.0% 0.81
PRPFX (Permanent Portfolio) -2.0% -2.8% 5.0% 6.8% 0.53 8.8% 0.7

**YTD: Year to Date

See detailed comparison >> 

We note that both Wasik Nano and Permanent Portfolio ETF Plan’s TAA portfolios were affected by the presence of US REITs funds (VNQ). These portfolios did well earlier this year. This again indicates the virtue of offering a wide array of diversified choices. 

As for permanent portfolios, they all suffer this year. These portfolios took hits in two of its four assets: long term Treasury bonds and gold. However, even with pretty serious loss in gold (GLD lost -21% year to date) and the Treasury bonds (TLT lost -11%), these portfolios’ loss is much smaller. This is just yet another time and another example that a long term portfolio suffers. For those who believe in the diversification four pillar framework (August 6, 2012: Four Pillar Foundation Based Portfolio Review, for example), we believe the framework is still very much sound and alive. 

Some advanced portfolios review

The following table shows how some of advanced portfolios listed on Advanced Strategies have performed

Portfolio Performance Comparison (as of 9/30/2013)

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
P Relative Strength Trend Following Six Assets 13.2% 16.7% 10.6% 9.7% 0.7 11.5% 0.79
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs 7.3% 11.2% 8.0% 11.5% 0.82    
P Doug Roberts Follow the Fed Add Treasury Note One Month Simple Indicator Moving Average 64 Days 3.3% 2.2% 8.5% 7.4% 0.65 7.9% 0.69
P Diversified Timing On Endowment Asset Allocation Model SMA 10 Months With Long Treasury 2.3% 2.7% 3.7% 5.6% 0.57 7.3% 0.71
P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year Quarterly 0.5% 2.7% 3.2% 7.3% 1.49 7.2% 1.23
P No Load Conservative Mutual Funds Upgrading Quarterly 3.4% 5.5% 5.5% 9.0% 1.65 8.4% 1.29

**YTD: Year to Date

See latest detailed comparison >> 

As this is the year not favoring the wide diversification (up to now), P Diversified Timing On Endowment Asset Allocation Model SMA 10 Months With Long Treasury has been affected by emerging market stocks, REITs and long term Treasuries. The Doug Roberts portfolio, which is a tactical version of permanent portfolio, is affected by the loss in both Gold and Treasuries as one third of the portfolio alternates between these two funds. 

For both fixed income portfolios and conservative mutual fund portfolios, we suggest users to visit the following two pages which list brokerage specific portfolios. On these pages, please scroll down to see the latest portfolio performance

The fixed income portfolios have done better than most total return bond funds since they avoided the bond downturn in June.

World allocation funds

Finally, we would like to take a look at several well known portfolios that allocate across global assets (see the list of these funds on SmartMoneyIQ Managers

Portfolio Performance Comparison (as of 9/30/2013)

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
PASDX (PIMCO All Asset D) -1.6% 1.5% 5.2% 7.5% 0.72 6.6% 0.67
PGMAX (PIMCO Global Multi-Asset A) -8.5% -7.8% 0.7%        
GBMFX (GMO Benchmark-Free Allocation III) 7.8% 9.5% 8.3% 7.7% 0.89 10.3% 1.18
LCORX (Leuthold Core Investment Retail) 11.7% 11.5% 6.7% 4.4% 0.25 8.4% 0.49
SGIIX (First Eagle Global I) 10.3% 13.3% 10.6% 9.6% 0.58 11.3% 0.79
MALOX (BlackRock Global Allocation Instl) 9.6% 10.8% 7.4% 7.2% 0.51 9.5% 0.74

**YTD: Year to Date

See latest detailed comparison >> 

PIMCO’s two funds have under performed this year. PIMCO Global Multi-Asset fund does badly. Our speculation is that the fund is overly conservative and positioned with more fixed income exposure and tail hedging using derivatives based on PIMCO’s new normal theory. It again proves how hard it is to invest based on forecasting. You might hit some home runs (example, John Paulson’s 2008 US housing short) but since such investing is based on some subjective forecasting, it is hard to achieve consistency in the long run (example, John Paulson’s recent fund performance). For average investors, a sound and systematic investing method is more reliable (though it will still under perform in a period of time, for sure). 

We would like also point out users that read our previous newsletters for performance reviews. All all of the performance comparison tables should have detailed links below them. You can click on those links to get the latest performance figures. Here are a few latest newsletter reivews

Market Overview

As of this writing, it looks like the US government is officially shut down. Markets have been jittery recently. Emerging market stocks retreated most. For now, the up trends for many risk assets are still intact. 

For more detailed asset class trends, see  360° Market Overview.

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. 

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