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

For regular SAA and TAA portfolios, the next re-balance will be on next Monday, February 2, 2015. You can also find the re-balance calendar for 2014 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.

Composite Portfolios Review

We have outlined several composite portfolios in several newsletters. In this newsletter, we are reviewing how these portfolios have performed. 

Equity and total return bond fund composite portfolios

We discussed these portfolios in details in September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios. In these portfolios, risk asset portion is invested in a tactical or strategic portfolio with risk profile 0 (i.e. up to 100% in risk assets such as stocks) while the fixed income portion is in a total return bond portfolio  (Fixed Income Bond Fund Portfolios). 

We are still seeing a consistent out performance by these portfolios, compared with their equivalent tactical or strategic portfolios only (with the same risk profile):

Portfolio Performance Comparison (as of 1/23/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
60 Percent MyPlanIQ Diversified Core 40 Percent Fidelity Total Bonds 3.2% 5.6% 9.9% 9.6% 11.7% 1.05
MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate 3.7% 4.8% 9.1% 8.4% 10.2% 0.92
60 Percent Six Core Asset SAA 40 Percent Fidelity Total Bonds 1.2% 6.9% 9.1% 9.2% 6.7% 0.45
Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate 1.4% 6.2% 7.3% 7.8% 6.1% 0.39
VBINX (Vanguard Balanced Index Inv) 0.5% 10.2% 12.1% 11.4% 7.2% 0.52

See detailed comparison >>

In general, we are seeing 1% plus additional annualized return. This is significant. That is why we call them ‘the best way to use MyPlanIQ tactical portfolios’. Furthermore, implementation wise, it does not add too much more hassle. In fact, you can structure in two different brokerage accounts so that in one account, you implement a (commission free) ETF based aggressive tactical portfolio for the risk allocation and in another account, you implement the total return bond fund portfolio. In this fixed income account, you can find a brokerage that is more lax in terms of mutual fund holding periods. In addition to the five brokerages listed on Fixed Income Bond Fund Portfolios (or you can find them on brokerage investors page too), you can also implement these portfolios in Merrill Edge, Interactive Brokers or even Scottrade etc. 

Total Return Bond Portfolio as Cash Substitute

We discussed how to use total return bond portfolios as cash substitute for some timing portfolios in November 10, 2014: Fixed Income Or Cash. Again, we would like to bring our readers attention that using these portfolios, performance can be improved in a very meaningful way: 

Portfolio Performance Comparison (as of 1/26/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
P Diversified Timing Asset Allocation Portfolio With Total Return Bonds 3.4% 16.0% 7.9% 8.8% 9.6% 0.91
P Diversified Timing On Endowment Asset Allocation Model SMA 10 Months With Long Treasury 3.1% 15.6% 7.3% 6.5% 7.2% 0.74

See year by year comparison >>

P Diversified Timing Asset Allocation Portfolio With Total Return Bonds is in fact a very reasonable portfolio as it is easier to implement (much less frequent rebalancing) and it has a very reasonable annualized return now. For those who are conscious on rebalance hassle, tax issues as well as a peace of mind, this portfolio can be a good substitute for a strategic portfolio as it is similar to that most of times. 

For those who dislike using mutual funds, you can try to use either a bond ETF or a bond ETF upgrade portfolio. For a single bond ETF, we like BOND (PIMCO Total Return ETF) or just BND (Vanguard Total Bond Market ETF)

As of 1/26/2015:
Ticker/Portfolio Name YTD
1Yr AR 1Yr Sharpe 3Yr AR 5Yr AR 10Yr AR
BND (Vanguard Total Bond Market ETF) 1.5% 3.1% 1.23 0.1% 1.0%  
BOND (PIMCO Total Return ETF) 2.3% 7.8% 2.69      
PTTRX (PIMCO Total Return Instl) 2.1% 6.1% 2.18 4.8% 5.2% 6.2%

Notice that PIMCO total return bond ETF BOND has out performed its mutual fund counter part since its inception in 2013.  On the other hand, investors who are worried about using a single ETF (or non systematic way using either BOND or BND) can try to use P Bond ETF Momentum Monthly

My Alternative Hedge Fund

We mentioned My Alternative Hedge Fund in the newsletter December 2, 2013: Versatile Multiple Portfolio Construction. This portfolios invests in a tactical aggressive portfolio (for stock portion), a total return bond upgrade portfolio and a balanced fund, a risk parity fund and a permanent portfolio. 

Portfolio Performance Comparison (as 1/23/2015): 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
My Alternative Hedge Fund 2.8% 5.9% 9.3% 9.6% 1.15    
PRWCX (T. Rowe Price Capital Appreciation) 0.3% 12.0% 15.1% 13.3% 1.29 9.0% 0.56
BERIX (Berwyn Income) 0.7% 4.1% 8.4% 7.9% 1.5 7.4% 1.1
PRPFX (Permanent Portfolio) 4.7% 2.9% 1.4% 5.9% 0.65 7.4% 0.6
ABRRX (Invesco Balanced-Risk Allc R) 1.7% 5.9% 5.7% 8.5% 1.29    

See detailed year by year comparison >>

Its performance has been very reasonable. Since it invests in several other funds, it has also diversified the risk of under performance among our portfolios and other mutual funds. 

Market Overview

US stocks recovered a bit. Year to date, its return is still negative. However, international and emerging market stocks continued to go up, especially emerging market stocks. We also note that foreign stocks actually have gone up more recently in their native currencies. The strength of US dollars actually weakened ETF or mutual fund based index funds as they are priced in US dollars.  The following table shows the difference (hedged ETFs are those that use hedges to remove currency impact, or you can think them as being priced in their own currencies): 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
DBEF (DBX MSCI EAFE Hedged Equity ETF) 4.3% 11.6% 14.9% 0.72    
EFA (iShares MSCI EAFE Index) 0.9% -8.0% 5.6% 0.37 2.6% 0.12
HEDJ (WisdomTree International Hedged Equity) 8.8% 14.0% 16.2% 1.05 9.6% 0.52
VGK (Vanguard MSCI Europe ETF) 0.8% -6.8% 10.2% 0.61 6.7% 0.27

So in a word, local equities have been all stimulated and have gone up. However, many risk factors remain and one should not be complacent, especially considering how far stocks and bonds have gone up. 

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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