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, March 9, 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.

How Have Asset Allocation Funds Done?

We are open to investing in many great asset allocation funds as long as they can deliver good returns with reasonable cost. Investing in these funds can also diversify our portfolio holdings, further reducing risks. An example of such a portfolio is My Alternative Hedge Fund that was introduced in  December 2, 2013: Versatile Multiple Portfolio Construction. Not only it holds some of our Tactical Asset Allocation (TAA) (an all equity tactical and a total return bond fund portfolio), it also holds several mutual funds including a conventional one, a risk parity one, a permanent portfolio and a conventional conservative fund. 

In May 5, 2014: Asset Allocation Funds Review, we reviewed several prominent funds. Let’s first look at some of these portfolios: 

Portfolio Performance Comparison (as of 2/6/2015):

Ticker/Portfolio Name YTD
2014 Return 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR
P Goldman Sachs Global Tactical Asset Allocation ETFs Include Emerging Mkt 1.2% 8.0% 10.8% 11.3% 0.96  
BRAVX (Braver Tactical Opportunity N) -1.3% -0.1%        
GHUAX (Good Harbor Tactical Core US A) -1.7% -20.6%        
VAISX (Virtus Allocator Premium AlphaSector I) -0.6% -1.1% 5.1%      
CLTCX (Catalyst/Lyons Tactical Allocation C) 0.2% 11.1%        
DWTFX (Arrow DWA Tactical A) 1.0% 6.6% 12.1% 10.6% 0.71  
AMOMX (AQR Momentum L) 0.9% 9.8% 18.6% 16.9% 0.84  
GBMFX (GMO Benchmark-Free Allocation III) 2.2% 1.2% 7.0% 7.1% 1.01 7.8%
ABRRX (Invesco Balanced-Risk Allc R) 1.7% 5.3% 5.0% 9.2% 1.39  
GDAFX (Goldman Sachs Dynamic Allocation A) 0.0% 2.5% 3.7% 5.3% 0.69  
MALOX (BlackRock Global Allocation Instl) 1.2% 2.2% 7.0% 7.6% 0.75 7.6%
PASDX (PIMCO All Asset D) 1.1% 0.5% 3.5% 6.0% 1.16 5.2%
LCORX (Leuthold Core Investment Retail) -0.1% 8.6% 9.7% 8.0% 0.74 7.4%
VBINX (Vanguard Balanced Index Inv) 0.6% 9.8% 11.3% 11.7% 1.25 7.0%
VFINX (Vanguard 500 Index Investor) 0.0% 13.5% 17.5% 16.3% 1.01 7.6%

See detailed year by year comparison >>

Similar Tactical Funds

In the above comparison, we see several funds that employ similar strategies as MyPlanIQ’s Tactical Asset Allocation(TAA). Among them, BRAVX (Braver Tactical Opportunity N) is a global oriented fund (similar to MyPlanIQ’s portfolios such as P Goldman Sachs Global Tactical Asset Allocation ETFs Include Emerging Mkt or Six Core Asset ETFs Tactical Asset Allocation Moderate. Others are: 

We can see their performance varies widely. In general, US stock based tactical funds have done well but sector or style rotation funds and global funds have performed poorly. For the US stock based funds that performed well last year, their performance all lagged behind S&P 500 (VFINX), indicating a difficult year for individual stock momentum based funds. In general, the performance among these funds again reminds us that it is important to have a risk management mechanism in place before taking a plunge in these funds. 

Conventional Asset Allocation Funds

All of global allocation funds last year struggled. Among them, 

  • GBMFX (GMO Benchmark-Free Allocation III) (or WARDX (Wells Fargo Advantage Absolute Ret Adm) that is essentially the same fund with higher expense): the fund’s performance was largely affected by developed countries’ stocks, emerging market stocks and emerging market debts, all of which the fund believed undervalued. 
  • GDAFX (Goldman Sachs Dynamic Allocation A): this fund uses Goldman Sachs’ proprietary Market Sentiment Indicator to increase and reduce risk asset allocations. We have followed this fund since its inception in 2010. Unfortunately, using more sophisticated techniques does not automatically guarantee better risk adjusted returns, as evident from its last 5 year performance. However, we are giving this fund a benefit of doubt as it is still early to have a conclusion. 
  • MALOX (BlackRock Global Allocation Instl): one of the best ‘conventional’ tactical funds, it delivered a 2.2% last year. This fund usually performed well in a bright global market condition but it can still suffer from a large loss such as the -20% loss in 2008. 
  • PASDX (PIMCO All Asset D): another solid global allocation fund we admire. It too did poorly last year (0.5% return) as it had more exposure in international stocks. 
  • LCORX (Leuthold Core Investment Retail): the more technical driven fund did better last year, returning 8.6%. To some extent, the fund did the ‘right’ thing to have more exposure in US stocks last year. 

Overall, 2014 was the second year in a row that US centric investing did better than anything else. However, one should not read too much into a single year as the tide can always make a turn at some point to favor other asset classes. This is the cost of diversification one has to pay. 


So what do the funds think about this year?

From Ben Inker and Sam Wilderman at GMO who manage GBMFX: 

The investment environment remains challenging. In our view, valuations remain stretched across many asset classes. As a result, our return expectations are relatively low compared with historical experience, although we do see pockets of modest value. In the U.S., we believe that rich stock valuations and historically high profit margins make the broad market expensive. Small-cap stock valuations are particularly high…. 

Outside the U.S., developed markets value stocks remain attractive, particularly in Europe. Growth stocks appear overvalued. In our view, emerging markets valuations are attractive, especially in cyclical sectors, but significant fundamental risks remain.

U.S. bond yields remain low and therefore, in our view, do not provide an attractive alternative to stocks. However, the yield curve does afford some investment opportunities, particularly as bond prices, yields, and maturities shift along the curve’s slope. Our outlook for many foreign government bonds is particularly negative, but there are pockets of opportunity in global interest-rate markets. In currency markets, we believe the dollar is relatively attractive versus several major currencies, most notably the euro.

In credit sectors, we believe floating-rate asset-backed securities are attractive, but many other credit sectors are overvalued. After the recent spread-widening, we see some value in the BB-rated segment of the high-yield market. We also see value in hard-currency emerging markets debt.

We continue to hold dry powder in cash and cash-plus strategies.

For Rob Arnott, manager of PIMCO All Asset Fund (PASDX)

  • PIMCO envisions growing dispersion in global growth and policy trends over the next 12 months
  • The U.S. economy will remain a bright spot as consumption and government spending rise, driving GDP growth
  • As the threat of deflation looms over the eurozone, the ECB is likely to expand easing measures in the next quarter
  • In Japan, growth-supportive reflationary policies are in place as the spotlight focus shifts to structural reforms. In China, policymaker comfort with a gradual moderation of growth suggests only modest additional easing to come
  • Differentiation among EM economies may become more pronounced as a result of the oil price decline and normalization of U.S. Federal Reserve policy
  • Basically, PIMCO is optimistic about US stocks and US dollar. The latter thesis is widely held. 

Getting insights from good investment managers can broaden our view and give us a sense on the current investment environment. However, we always remind ourselves that no prediction is failure proof and a plan B should be in place in case such predictions fail to manage risk and avoid being stuck in poorly performing funds. For us, a systematic regular performance review and rotation is a simple yet effective way to do so. 

Market Overview

Markets again are experiencing higher volatility. Last Friday’s job report was good enough to promptly increase Treasury interest rates across the board and force many rate sensitive assets such as REITs and utilities to have a large decline. For now, US stocks and REITs are again on the top of the trend table and foreign stocks are just not strong enough to exhibit an overall positive strength (as we stated in our previous email, in local currencies, many country stocks actually rose but since US dollar has risen against other local currencies, dollar denominated foreign stocks still have a hard time to be a in positive rising trend (based on US dollar). At the moment, we are cautious but wait for markets to decide in what direction they want to do. 

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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