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, March 24, 2014. 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.

Fidelity Portfolios Review

As stated previously, this newsletter is the first in a series to review brokerage specific investment plans.

MyPlanIQ organizes our services based on what our users need: for brokerage based taxable or IRA investments, we try to provide ready to use brokerage specific portfolios for users to follow. From Brokerage Investors page, we now support top six brokerages including Fidelity, Schwab, TDAmeritrade, ETrade, Vanguard and FolioInvesting. We plan to support more as time goes. Please send us email or write on our forum for other brokerages. If there is enough interest, we will work on others.

For a brokerage, we generally provide ETF, mutual fund based portfolios. In Fidelity case, we also provide Fidelity advisor share based portfolios. These are general purpose portfolios that can be customized for any risk profile.

The Fidelity advisor share based funds are not only used by a financial advisor, but they are also used in many SEP IRA, SIMPLE and other small business based plans. They are sold by advisors but investors generally need to manage them on their own.

In addition, we also offer two types of special purpose portfolios. Our total return bond fund based portfolios are for fixed income investors such as retirees. But they can be used as a fixed income portion in a balanced general purpose portfolio. See a discussion in our recent newsletter February 17, 2014: Versatile Portfolios Review.

Fidelity Commission Free ETF Portfolios

Fidelity was one of the first brokerages that offered commission free ETFs. The first batch of commission free ETFs offered were iShares ETFs that are very liquid and mostly broad based. Since the expansion last year, the current lineup of commission ETFs consist of many non-essential narrow sector ETFs. These ETFs are too volatile and our algorithm will automatically filter them out. Even for those ETFs that cover core major asset classes, we find them too new and less liquid. This is especially the case for emerging market and international stock ETFs.  Based on our own experience, however, we find they are good enough for a portfolio up to $200k size. 

The current commission ETFs cover all of the major asset classes we like to cover: US stocks, international stocks, emerging market stocks, US and international REITs, bonds. In the US stocks, in addition to the major 9 stock styles (large, mid and small with value, blend and growth), it also provides one dividend ETF (DVY) and one low volatility ETF (USMV). In the international stocks, it covers foreign large cap styles (growth, blend and value), foreign small/mid cap stocks (SCZ),  as well as one dividend ETF (IDV).  In emerging market stocks, it does provide a dividend ETF DVYE, which we find has to low volume to be useful as the moment. 

The ETFs have plenty to cover in fixed income side, as iShares ETFs do. All major bond asset classes including short, intermediate and long corporate bonds, short, intermediate and long Treasury bonds, high yield bonds, emerging market and international bonds and floating rate bonds are covered. 

Overall, we think Fidelity Commission Free ETFs is a solid plan for small and mid-size portfolios. 

Fidelity Mutual Fund Portfolios

Like other major brokerages, Fidelity provides a free service to pick a list of no load and no transaction fee (NTF) mutual funds. They call the list Fund Picks. MyPlanIQ uses these mutual funds as candidate funds to form an investment plan Fidelity Extended Fund Picks. Up to now, we have maintained all of these funds in the plan (though they are not necessarily used as our algorithm will filter out many of them). In the future, we plan to further limit the size of the list: we will further choose a subset of funds from Fidelity Fund Picks for this plan. 

Fidelity requires holding at least for 2 months to avoid the $49.95 short term trading fee, regardless of the short term redemption period imposed by a fund. 

In general, we find the funds in Fund Picks are solid enough. They offer plenty of diversification and most of the funds (not all of them) have good past performance. However, one frustrating problem we encounter in this plan is that Fidelity frequently removes some funds from the list. Some mutual funds are closed to new investors. All of these create various problems for new and existing followers of the model portfolios for this plan. 

In addition to Fidelity Extended Fund Picks, we also support Fidelity Advisor Funds Select Class A Plan. We find many SEP, IRA and SIMPLE plan investors are using Fidelity Advisor Funds. These plans are usually sold by advisors but investors have to manage their portfolios themselves. 

The Fidelity Advisor Funds are all Fidelity funds. We generally find that Fidelity funds, especially the essential broad base funds, are good for asset allocation portfolio building.  The following shows how the portfolios are compared with those from Fidelity Extended Fund Picks

Fidelity Mutual Fund Portfolio Performance Comparison (as of 2/24/2014):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Fidelity Extended Fund Picks Tactical Asset Allocation Moderate 0.8% 9.1% 7.7% 15.1% 1.55 12.2% 1.16
Fidelity Advisor Funds Select Class A Plan Tactical Asset Allocation Moderate 2.1% 12.7% 9.4% 14.8% 1.68 12.8% 1.31
Fidelity Extended Fund Picks Strategic Asset Allocation – Optimal Moderate 1.4% 6.6% 7.8% 16.8% 1.66 9.7% 0.77
Fidelity Advisor Funds Select Class A Plan Strategic Asset Allocation – Optimal Moderate 0.6% 10.4% 7.2% 15.1% 1.22 7.0% 0.46

**YTD: Year to Date


See year by year detailed comparison >> 

Fidelity Special Purpose Portfolios

We also maintain two special purpose portfolios for Fidelity brokerage customers: Fidelity Total Return Bond for fixed income investors and Fidelity Conservative Fund Upgrade for conservative investors. 

Other than Dodge & Cox Income (DODIX) and FPA New Income (FPNIX), Fidelity has all other total return bond funds whose managers have won Morningstar’s Fixed Income Manager of The Year award. In addition, we add Fidelity Total Bond (FTBFX)  and Janus Flexible Bond (JAFIX) to the list.  The Fidelity Total Return Bond chooses one bond fund a month but obeys Fidelity’s 2 month minimum holding period restriction. It has done reasonably well, better than PIMCO Total Return Bond Instl (PTTRX) in 1, 3, 5 and 10 year periods. 

Even though the following shows that a risk profile 100 (i.e.  all bonds) portfolio constructed out of Fidelity Extended Fund Picks has similar performance as  Fidelity Total Return Bond, we still prefer  Fidelity Total Return Bond as it has lower volatility or higher Sharpe ratio: 

Portfolio Performance Comparison

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Fidelity Extended Fund Picks Bond Trend Following 0.9% -0.1% 5.7% 9.0% 2.22 6.2% 1.16
Fidelity Total Return Bond 0.8% 0.9% 5.4% 9.0% 2.49 6.2% 1.42

**YTD: Year to Date

Fidelity Conservative Fund Upgrade is  a little bit more problematic as Fidelity does not have many excellent conservative allocation funds available as NTF (No Transaction Fee) funds. There are only a limited number of NTF conservative funds we can find. 

Fidelity Composite Portfolios

For those who can access to Fidelity commission free ETFs or Fidelity no load NTF mutual funds as well as total return bond mutual funds, we would like to suggest using a most aggressive portfolio from ETFs or Extended Fund Picks mutual funds for the equity portion (or risk asset portion) and using total return bond mutual fund portfolio as the fixed income portion. We have demonstrated many times that such a composite portfolio can achieve higher returns with slightly lower risk. We encourage readers to construct such composite portfolios to validate our claim. 

Market Overview

S&P 500 is now hoovering around its all time high. It has become clear that investors are ditching emerging market stocks. US stocks, developed country stocks and REITs are now back to the top on our trend score table. Bonds are in a up trend. The shallow ‘correction’ seems to be behind us. 

However, we would like to remind our readers of the currently elevated stock valuation and price level. Caution is still called for. This is especially true for those we just begin to put money into stock markets. 

For more detailed asset trend scores, please refer to 360° Market Overview.

We would like to remind our readers that markets are more precarious now than other times in the last 5 years. It is a good time and imperative to adjust to a risk level you are comfortable with right now.  However, recognizing our deficiency to predict the markets, we will stay on course. 

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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