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, April 13, 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.

Brokerage Specific Core Mutual Fund Portfolios

We have featured brokerage specific mutual fund portfolios for over five years now. You can find these plans and portfolios on Brokerage Investors page or Brokerage Mutual Fund Portfolios. Most of these plans are based on brokerage suggested no load and no transaction fee funds. For example, Schwab OneSource Select List Funds  is constructed using Schwab suggested OneSource Select List funds. These funds are available in Schwab without transaction fees. The list is updated quarterly. Similarly, Fidelity Extended Fund Picks  is based on Fidelity suggested Fund Picks list. Again the list is updated every now and then. 

There are several problems with the portfolios that are based on such dynamic list:

  • First, the list is constructed not entirely based on fund performance and expense merits, but also on the relationship between the brokerage and mutual fund companies. These funds can come and go as the business relationship changes, subjecting investors to totally unnecessary burdens to buy and sell a fund that can incur performance loss and/or tax issues. 
  • Second, some of these funds are ‘hot’ active managed funds. Every now and then, they are closed to new investors. This creates issues for new investors/users who want to start to follow these portfolios. Furthermore, it also creates issues for existing investors who would like to continue to hold these funds but the model portfolios/plan have been changed due to eliminating the closed fund. 
  • Third, again, these funds are not even necessarily the best in terms of performance and cost. 

What we want are

  • A list of candidate funds that are no load, no transaction fees and low cost. If it is possible, they should be index funds. 
  • The list should be relatively stable, not subject to business relationship or fund close. Buying or selling a fund should be solely based on the underlying strategy, not on other non technical issues. 
  • Fixed income funds in the list should be index bond funds and total return bond funds available to this brokerage. These total return bond funds are those on Fixed Income Bond Fund Portfolios

We would like to again emphasize why we would like to choose excellent total return bonds instead of other basic bond funds. Even though we have devoted several newsletters on this subject, we would like to bring readers’ attention to the following observation: 

Active total return bond mutual funds can out perform a total bond market index consistently, more than in stocks. For example, the following table shows all of the total return bond mutual funds whose managers have won at least one time the Morningstar fixed income manager of the year award. 

 Fund Performance Comparison (as of 3/16/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
DLTNX (DoubleLine Total Return Bond N) 0.8% 4.5% 4.3%      
TGMNX (TCW Total Return Bond N) 0.5% 4.1% 5.4% 6.1% 6.7% 1.56
MWTRX (Metropolitan West Total Return Bond M) 0.4% 4.3% 5.1% 5.9% 6.3% 1.35
PONDX (PIMCO Income D) 0.9% 5.4% 9.6% 10.9%    
LSBRX (Loomis Sayles Bond Retail) -1.8% 0.2% 5.4% 6.8% 6.7% 1.1
PBDDX (PIMCO Investment Grade Corp Bd D) 1.6% 7.2% 6.1% 7.0% 7.0% 1.14
PTTDX (PIMCO Total Return D) 1.3% 4.0% 3.4% 4.6% 5.8% 1.17
WABRX (Western Asset Core Bond R) 0.7% 5.0%        
VBMFX (Vanguard Total Bond Market Index Inv) 0.6% 4.2% 2.6% 4.0% 4.7% 0.94

See year by year detailed comparison >>

In fact, for all of the funds above (if there is data), each of them did better in the last 3, 5 or 10 years period than Vanguard total bond market index fund (VBMFX). This is hard to find in stock mutual funds. 

Bond index funds such as VBMFX uses weighs using debt amount, making less sense than total stock market index such as S&P 500 index. 

Several academic research also indicates it is easier for active bond funds to out perform index bond funds. 

So it has a clear evidence to use actively managed total return bond funds instead of just index funds or sector bond funds. However, in stocks, the opposite is mostly true: it is extremely hard for an active manged stock fund to out perform its index benchmark. We should mostly use index funds instead. 

Using the above rules, we construct the following plans. 

Schwab Core Mutual Funds Plan

We use ‘core’ to refer to a list that is more essential and stable. In Schwab Core Mutual Funds, it consists of 26 candidate funds that covers all 6 major asset classes. These funds are either Schwab diversified or index funds, or other index or very diversified funds from other mutual fund companies. 

The following table compares the portfolio performance with those in Schwab OneSource Select List Funds:

Portfolio Performance Comparison

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Schwab Core Mutual Funds Tactical Asset Allocation Moderate 1.1% 5.4% 10.6% 9.7% 12.2% 1.1
Schwab OneSource Select List Funds Tactical Asset Allocation Moderate 1.6% 4.0% 6.2% 6.0% 9.3% 0.86
Schwab Core Mutual Funds Strategic Asset Allocation – Optimal Moderate 0.9% 5.8% 9.1% 9.8% 8.3% 0.59
Schwab OneSource Select List Funds Strategic Asset Allocation – Optimal Moderate 1.6% 4.4% 5.0% 7.2% 7.7% 0.59
VBINX (Vanguard Balanced Index Inv) 1.5% 10.2% 11.3% 10.8% 7.1% 0.51

See year by year comparison >>

Both strategic and tactical portfolios have done better than their OneSource List’s counterparts. Note that the portfolios from Schwab Core Mutual Funds are less subject to data snooping or bias issue as the funds in the plan are more close to index funds than those dynamically selected funds from Schwab OneSource Select List Funds: certainly Schwab will not pick too lousy funds to the OurSource Select list (but that does not guarantee them to choose mediocre ones, however). 

Fidelity Core Mutual Funds

Similar to Schwab Core Mutual FundsFidelity Core Mutual Funds consists of 25 funds. Other than those total return bond funds that are also used as candidate funds for Fidelity Total Return Bond, we use mostly Fidelity’s index funds in other asset classes. 

The following table compares these portfolios’ performance with those in Fidelity Extended Fund Picks

Portfolio Performance Comparison (as of 3/16/2015): 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Fidelity Core Mutual Funds Tactical Asset Allocation Moderate 1.9% 5.6% 11.2% 9.2% 11.4% 1.13
Fidelity Extended Fund Picks Tactical Asset Allocation Moderate 1.6% 5.9% 9.2% 8.8% 11.8% 1.18
Fidelity Core Mutual Funds Strategic Asset Allocation – Optimal Moderate 1.0% 5.9% 9.0% 9.8% 7.7% 0.55
Fidelity Extended Fund Picks Strategic Asset Allocation – Optimal Moderate 0.7% 1.4% 5.6% 7.7% 8.6% 0.69
VBINX (Vanguard Balanced Index Inv) 1.5% 10.2% 11.3% 10.8% 7.1% 0.51

See year by year comparison >>

Other than the Strategic portfolio in the 10 year time frame, the Core Mutual Funds portfolios did better than the Extended Fund Picks’ counterparts in the last 3, 5 and 10 years. We actually suspect the 10 year under performance for the Strategic portfolio is due to a combination of short fund history (as in emerging market stock funds) and Extended Fund Picks fund bias (i.e. the recently selected good funds were used for back testing many years ago). 

We are satisfied with the results. 

What’s Next

Our goal is to use Core Mutual Funds plans to replace all of brokerage plans that are using brokerage suggested list of funds.


We would like to solicit our readers’ opinions on this. Please tell us your concerns, suggestions and whatever thoughts by replying to Brokerage Specific Core Mutual Funds Plans: Suggestions & Opinions on our forum.  


Market Overview

Both stocks and long term bonds have recovered some from last week’s substantial weakness. However, we are seeing a continuing high yield bond weakness. At the moment, we will let markets sort out their issues and respond accordingly. 

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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