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, September 15, 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.

Momentum Based Portfolios Review

We advocate using both Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA) strategies for portfolios in 401k plans, IRAs or taxable brokerage accounts. Our TAA is based on so called cross-asset momentum or trend following strategy. Since momentum method has been widely used and quoted in stock trading, we always want our users to understand the differences among momentum based methods used at different levels of portfolio construction. 

We have written several newsletters to cover this topic. We strongly recommend readers who are interested in our portfolios to read the following newsletters: 

In this newsletter, we would like to review again how portfolios or funds at these levels have performed. First, let’s look at the taxonomy we classify these applications: 

  • m1: A group of individual stocks such as Dow Jones 30 or Nasdaq 100 etc. — Can be Effective, but volatile. 
  • m2: A group of industrial stock funds such as Fidelity’s famous Fidelity Select funds. – Can be Effective, but volatile. 
  • m3: A group of stock sector funds such as SPDR’s S&P sector ETFs such as SPDR Select Energy (XLE) etc. – Can be Effective, but volatile. 
  • m4: A group of stock style funds such as Russell large, mid and small cap stock ETFs. – Effective and comparable risk. 
  • m5: single stock index (fund) buy/sell decision. – Fickle though might be on par with buy and hold. 
  • m6: A group of diversified and somewhat uncorrelated asset classes such as stocks, bonds, real estates (REITs) and their minor asset classes such as long term bonds, international bonds, gold etc. – Effective and lower risk.

m1: Individual stock based momentum funds performance

There are various stock funds that are momentum based. 

Momentum funds Performance Comparison (as of 9/8/2014):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR
PIE (PowerShares DWA Em Mkts Technical Ldrs) 10.7% 20.1% 5.3% 10.2% 0.44  
EEM (iShares MSCI Emerging Markets Index) 10.6% 18.3% 5.3% 6.6% 0.28 11.1%
AMOMX (AQR Momentum L) 9.0% 23.7% 22.3% 17.6% 0.92  
PDP (PowerShares DWA Technical Leaders) 10.3% 24.2% 20.9% 20.1% 1.01  
SPY (SPDR S&P 500) 9.9% 23.6% 22.0% 16.9% 1.05 8.2%
AIMOX (AQR International Momentum L) -0.8% 9.4% 10.9% 8.4% 0.41  
EFA (iShares MSCI EAFE Index) 2.3% 13.9% 12.6% 8.3% 0.39 6.5%
ASMOX (AQR Small Cap Momentum L) -0.0% 14.7% 23.9% 18.0% 0.72  
IWM (iShares Russell 2000 Index) 1.5% 15.5% 21.3% 17.0% 0.77 9.0%

More detailed year by year comparison >> 

It is clear that these funds’ performance is in par with their benchmarks. In general, for a long period of time, momentum based stock investments can be effective (more details from Fama-French dataset). We should also note that based on our internal studies, individual stock momentum based portfolios exhibit wide ranges of results in a given period, even though in a long period of time (more than 10 years), they tend to exhibit reasonable returns. These portfolios are also very sensitive to parameters used to calculate momentum scores and other factors. Simply put, they can be out of sync with markets and with each other. 

m2-m4: Industries, sectors and styles momentum based rotation

Portfolio Performance Comparison (as of 9/8/2014):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
(m2) P Sector Rotation Fidelity Select Funds Top 2 Monthly Adjust with Cash 11.9% 20.9% 22.9% 17.4% 15.0% 0.61
(m3) P Momentum Scoring Sector ETFs 1.4% 16.3% 14.1% 11.6% 9.1% 0.41
(m4) P Momentum Scoring Style ETFs and Treasuries 6.4% 20.5% 17.3% 13.0% 12.2% 0.74
SPY (SPDR S&P 500) 9.9% 23.6% 22.0% 16.9% 8.2% 0.35

More detailed year by year comparison >> 

We can see that these portfolios all performed well in a 10 year period of time. However, we note that the sector based portfolio has a very dismal YTD (Year To Date) performance. Furthermore, if looking more closely in the detailed link, readers will find out that the Sector (industry) Fidelity Select Funds based portfolio is much more volatile: it lost 16% in 2011, for example. 

m5: all in/all out market timing on a single stock index

As a reference, we show the following portfolio that is based 200 day simple moving average over S&P 500 index (using Vanguard 500 Index fund VFINX). The portfolio buys/sells VFINX if VFINX’s price is above or below its 200 day simple moving average. It performs such checkings monthly. 

Portfolio Performance Comparison (as of 9/8/2014): 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR Since 3/31/1988 AR
P SMA 200d VFINX Monthly 9.7% 23.2% 18.9% 14.5% 12.0% 11.2%
VFINX (Vanguard 500 Index Investor) 9.7% 23.2% 21.9% 17.1% 8.1% 10.3%

More detailed year by year comparison >> 

It is very clear that a simple timing such as 200 days moving average based method can out perform a buy and hold index with much reduced risk. Though we do not advocate such an all in and all out methodology, we do believe that the past 26 year record is not accident: in a long run, a rational and simple method such as this or our TAA can be useful. Notice, however, in a short term (can be as long as 5 years, as evident from the above table for the last 5 years), the method can under perform. 

m6: trend based multi core assets rotation 

Portfolio Performance Comparison (as of 9/8/2014):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR Since 6/28/1991 AR
P Relative Strength Trend Following Six Assets 7.0% 18.3% 11.5% 12.8% 11.7% 11.1%
VFINX (Vanguard 500 Index Investor) 9.7% 23.2% 21.9% 17.1% 8.1% 9.7%

More detailed year by year comparison >> 

The above portfolio is our benchmark portfolio for our TAA. Even though it has lagged behind S&P 5000 for the past 1, 3, 5 years, it has done much better since its inception and for the past 10 years. We have no doubt its long term strength will be fully revealed in a full market cycle that includes bull and bear markets. 


To summarize, again and again, we can see that momentum based method, implemented with discipline, can be effective. However, as always, it is our belief that multiple major asset based TAA is best suited for average investors. It is too much work, too error prone and too fickle to implement other momentum based investing method. Interested readers can read more on


Market Overview

Stocks continue to hang on in record territories. However, we do see some uneasy signs in high yield bond markets. Although emerging market stocks have done well, they are still not showing considerable breakout as there have been many uneven developments in these economies. We still believe at the moment, investors should be more vigilant: a persistently overstretched and expensive stock market is usually in an unstable state that can change its course drastically. It is not the time to take extra risk. 

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. 

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.