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, May 18, 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.
Pain in Fixed Income?
Right after (or in the process of ) publishing two previous newsletters on long term Treasury bonds (T-Bonds):
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
T-Bonds and other long term sovereign bonds (notably German Bunds and other European bonds) have experienced a fast and furious dump. The following shows how various fixed income assets have fared recently:
Fixed Income Assets Trend
05/11/2015
| Description | Symbol | 1 Week | 4 Weeks | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
|---|---|---|---|---|---|---|---|
| Emerging Mkt Bonds | PCY | -0.21% | -0.42% | 1.49% | 2.02% | 4.09% | 1.39% |
| MBS Bond | MBB | -0.37% | -0.75% | -0.01% | 1.37% | 3.81% | 0.81% |
| Intermediate Term Credit | CIU | -0.34% | -0.89% | 0.06% | 1.27% | 2.38% | 0.5% |
| High Yield | JNK | -0.25% | 0.1% | 1.65% | 0.54% | 0.48% | 0.5% |
| Intermediate Treasury | IEF | -0.84% | -2.28% | -1.52% | 1.86% | 5.25% | 0.49% |
| 10-20Year Treasury | TLH | -1.09% | -3.23% | -2.76% | 2.27% | 7.05% | 0.45% |
| Short Term Credit | CSJ | 0.0% | 0.04% | 0.55% | 0.69% | 0.92% | 0.44% |
| New York Muni | NYF | -0.46% | -1.27% | -1.29% | 0.93% | 3.58% | 0.3% |
| US Total Bond | BND | -0.49% | -1.35% | -0.93% | 1.08% | 2.99% | 0.26% |
| Short Term Treasury | SHY | -0.05% | -0.1% | 0.29% | 0.41% | 0.7% | 0.25% |
| California Muni | CMF | -0.65% | -1.39% | -1.14% | 0.64% | 3.29% | 0.15% |
| Treasury Bills | SHV | 0.0% | 0.01% | 0.01% | 0.01% | 0.02% | 0.01% |
| National Muni | MUB | -0.56% | -1.32% | -1.25% | 0.42% | 2.77% | 0.01% |
| Long Term Credit | LQD | -0.64% | -2.85% | -2.04% | 1.05% | 3.16% | -0.26% |
| Inflation Protected | TIP | -1.08% | -1.54% | -1.27% | -0.83% | 0.18% | -0.91% |
| 20+ Year Treasury | TLT | -2.69% | -7.72% | -8.02% | 2.01% | 10.9% | -1.1% |
| International Inflation Protected | WIP | -0.04% | 2.77% | 0.77% | -3.04% | -6.72% | -1.25% |
| International Treasury | BWX | -0.58% | 1.24% | -1.59% | -4.55% | -10.02% | -3.1% |
Almost all bond assets have taken a hit. all the long term bonds have negative trend scores now. Among them, TLT has had a whopping -8% drop in the last 13 weeks:
The recent fast descent is just a mirroring part of the quick ascent from November last year to February this year. In fact, a year ago, TLT’s price was around 112. The chart above again reminds us how volatile T-bonds can be.
We also note that international bonds have not done well. This is mainly because of the recent dollar strength. This again serves as a reminder that a foreign/international bond fund is not only subject to local bonds’ performance but also to currency exchange rates.
Economy wise, US just had a very weak Q1 GDP: 0.2 percent annual rate while euro area does not fare better: its Q1 GDP is expected to be around 0.3%. Furthermore , China, the second largest GDP country, has slowed down persistently, growing its GDP at 7% in Q1 (might be even lower in reality). However, in the US, the unemployment rate has dropped to 5.4%, close to a level that the Federal Reserve feels comfortable to raise short term interest rate. On the other hand, the other important metric to measure whether inflation is picking up, the personal income growth or wage growth, has been anemic, yearly growth in average hourly wages remains stuck at about 2%. Recent job gains have been mostly part-time jobs. In fact, the ratio of full-time vs. part-time is no where near that pre 2008-2009 recession. This indicates the growth is still weak. The following chart, courtesy of dshort.com, illustrates the history:
See this report for more details.
It is thus plausible to attribute the recent severe correction of the long term bonds (and other fixed income) to the re-adjustment of relative long term interest rates in major economic regions, namely, the US and European countries. Before the current correction, German bunds, Swiss bonds and many others had negative yields, a phenomenon prompting both Bill Gross and Jeffrey Gundlach to call a ‘short of life time’.
To summarize, we offer the following observations:
- Current pain in fixed income is an adjustment, not necessarily the start of a severe downturn in bonds.
- However, just like what we observed in the past, in a rising rate environment, fixed income were not corrected in one short period of time. Instead, it usually experienced a stop and drop periods several times for a long stretched period. It is still possible to have positive returns in such a secular long term trend. It is just harder and also will experience some loss along the way.
- Regardless, fixed income is no longer a safe asset anymore. Equally, it should be treated with risk management strategies.
Total return bond fund portfolios
Our total return bond fund portfolios (on brokerage page) also experienced some performance drag:
| Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR |
|---|---|---|---|---|---|
| Schwab Total Return Bond | -0.3% | 0.9% | 4.4% | 5.6% | 6.8% |
| Fidelity Total Return Bond | -0.3% | 0.9% | 3.9% | 5.2% | 6.3% |
| TDAmeritrade Total Return Bond | 0.6% | 2.2% | 6.2% | 5.9% | 7.1% |
| FolioInvesting Total Return Bond | -0.3% | 0.9% | 4.4% | 5.6% | 6.8% |
| Etrade Total Return Bond | -0.3% | 0.9% | 4.4% | 5.5% | 6.9% |
| PTTRX (PIMCO Total Return Instl) | 0.5% | 2.6% | 2.8% | 4.5% | 5.9% |
| VBMFX (Vanguard Total Bond Market Index Inv) | 0.1% | 2.9% | 1.9% | 3.6% | 4.5% |
The following table shows how these funds are doing:
| Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
|---|---|---|---|---|---|---|
| PONDX (PIMCO Income D) | 2.7% | 4.9% | 9.4% | 10.5% | ||
| PBDDX (PIMCO Investment Grade Corp Bd D) | 2.0% | 5.6% | 5.4% | 6.9% | 7.0% | 1.14 |
| DLTNX (DoubleLine Total Return Bond N) | 1.1% | 4.1% | 4.1% | 6.1% | ||
| WABRX (Western Asset Core Bond R) | 1.1% | 3.6% | 2.8% | |||
| TGMNX (TCW Total Return Bond N) | 0.8% | 3.5% | 5.1% | 5.9% | 6.6% | 1.54 |
| PTTDX (PIMCO Total Return D) | 0.8% | 2.7% | 2.6% | 4.2% | 5.7% | 1.13 |
| MWTRX (Metropolitan West Total Return Bond M) | 0.6% | 3.4% | 4.5% | 5.5% | 6.3% | 1.36 |
| LSBRX (Loomis Sayles Bond Retail) | 0.4% | 0.3% | 5.9% | 7.4% | 7.1% | 1.19 |
| VBMFX (Vanguard Total Bond Market Index Inv) | 0.1% | 2.9% | 1.9% | 3.6% | 4.5% | 0.91 |
The two PIMCO funds are the top two best performers year to date. As always, these funds will experience up and down. The key here is to follow the leaders on a regular basis.
Market Overview
Stocks recovered to the recent high but have had a difficulty to break out. REITs recovered somewhat. Some have speculated this is the topping process for stocks. We understand that stocks (especially US stocks) are fundamentally overvalued. The 7 year bull market has stretched the limit. Even though the recent increased volatility might be a harbinger to a correction, for now, the best way is to stick to our principle while controlling our overall risk exposure to be within our risk tolerance.
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
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
- April 20, 2015: 529 College Savings Plan Rebalance Policy Change
- April 13, 2015: Total Return Bond Funds As Smart Cash
- April 6, 2015: The Low Return Environment
- March 30, 2015: Brokerage Specific Core Mutual Fund Portfolios 2
- March 23, 2015: Investment Arithmetic for Long Term Investments
- March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios
- March 9, 2015: Newsletter Collection Update
- March 2, 2015: Total Return Bond ETFs
- February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?
- February 16, 2015: Where Are Permanent Portfolios Going?
- February 9, 2015: How Have Asset Allocation Funds Done?
- February 2, 2015: Risk Management Everywhere
- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- January 5, 2015: When Forecast Fails
- December 22, 2014: Long Term Asset Returns: How Long Is Long?
- December 15, 2014: Beaten Down Assets
- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
- September 8, 2014: Momentum Based Portfolios Review
- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment
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