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, July 27, 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.

Secular Asset Trends 

MyPlanIQ advocates a hybrid approach in portfolio construction. It is our view that one should adopt a core-satellite structure in the overall asset allocation. We have discussed this approach in several newsletters such as July 15, 2013: Portfolio of Portfolios & Core Satellite Portfolios. You can find more discussion on this topic in our Newsletter Collection

The core satellite approach is to invest in both a core Strategic Asset Allocation (SAA) portfolio and a satellite Tactical Asset Allocation(TAA) portfolio. The approach is based on our belief that both strategies are sound long term investing strategies. Furthermore, they complement with each other in different market cycles such as bear market and bull market. 

In a strategic portfolio, asset allocation is based on long term secular outlook of major asset classes and their correlation, in addition to personal risk profile. By long term or secular we mean 10 years or even longer (preferably twenty years or longer). Thus, asset allocation is rarely changed. It will be changed only when there is a secular asset trend shift. 

In this newsletter, we review asset trends from a secular long term angle. 

Stock Asset Classes

We generally divide stock asset classes into US stocks, international developed market stocks and emerging market stocks. Since stock markets are ultimately driven by fundamental economic development in the long term, we should focus on how economies in these markets are heading. 

Since 2011, we have adopted a secular view that favors US stocks over other developed country stocks and emerging market stocks. This is reflected with our overweight in US stocks in our Strategic Asset Allocation – Optimal based portfolios. So far, this view has been proven to be correct. The following table shows how the three major stock asset classes have fared: 

As of 6/22/2015:

Assets YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
SPY (SPDR S&P 500 ETF) 3.4% 9.8% 18.1% 15.8% 7.8%
EFA (iShares MSCI EAFE) 8.6% -3.3% 13.2% 8.8% 5.1%
EEM (iShares MSCI Emerging Markets) 2.0% -6.2% 2.4% 2.0% 7.0%

For the past five years, both emerging market stocks and international developed country stocks have lagged way behind US stocks. It is also true that now, US stocks is overtaking the other two in the 10 year time frame. However, it was only recently that the US stocks started to out perform emerging market stocks in the 10 year period. In fact, both emerging market stocks and international stocks had done better before 2011. This again shows the benefit of diversification. 

In the following, we comments on these asset classes. 

US stocks

We still believe that as the world is slowly recovering from the financial crisis in 2008-2009, US economy is still the brightest spot among the three major economic market categories. This by no means implies US economy is doing well. It is just in a relative term, the US economy benefits most from the deleveraging process. The US has the most resilient political and financial system. It still maintains open and innovative policies in technology, markets and economy. Even though it is still burdened with heavy debts, with its world currency reserve status, it has the best option to deleverage and recover, compared with other developed economies and emerging markets.

It is also not inconceivable that US economy can sustain its growth in the long term (it might experience a recession or two but here we are really on the long term secular trend). With many  new technology advancement and a somewhat outdated infrastructure waiting for upgrade, it is possible that the US can experience a leap frog type economy renaissance. 

Furthermore, major US corporations are increasingly becoming global conglomerates. These companies benefit from global economic development and derive more and more from international sales: depending on how it is accounted for, over one third to close to one half revenues of S&P 500 companies are derived from international sales. 

Valuation wise, we are concerned that US stocks are overvalued. They are not cheap based on many long term stock metrics such as Shiller PEs, Tobin’s Q etc. (the best source on this topic is Hussman’s weekly commentaries). However, since in strategic allocation, we focus on long term trends, we believe US stocks are still the best among others for now. 

International developed country stocks

Compared with the US, European economies have been slower to recover because of their loosely integrated economic union and similarly over leveraged economies. We are cautious on whether Euro zone can survive from its peripheral countries’ debt resolution. These peripheral countries such as Greece, Spain and Italy have over borrowed and over consumed. Because of the arbitrary single currency restriction, these countries have trade imbalance with other advanced countries namely Germany. If the Euro zone can sustain from the current Greek crisis and further resolve the debt issues, the Euro economy can have a similar future as the US as they share many similarities in terms of advanced economic, technological and infrastructure bases. 

Valuation wise, Euro stocks are cheaper than the US. But because of the long term uncertainty in the Euro structure, we view the valuation gap is justified as of now. 

Japan is currently at the cross road. It is still murky whether it can shake off its secular stagnated economic malaise to become a fully growth economy again any time soon. 

Emerging market stocks

Emerging market economies have undergone a long term adjustment process. This will continue in the coming decade. In particular, we believe China’s economy will continue to slow down and readjust. This process will take a long time as China needs to absorb its over investments and deleverage (which is still not happening). It needs to continue to develop its domestic consumption market. The implication is huge: it will affect many commodity rich countries’ economy, as well as those global conglomerates that have benefited from China’s growth. We believe there will be many difficulties ahead.

One of the possible bright spots is Indian’s economy. With its new government now focusing on infrastructure building and financial system reform, it is possible that India can become another China that spurs another wave of global economic demand as its economy develops rapidly.

Overall, we are cautiously optimistic on emerging market stocks.  

To summarize, we believe the current thesis to overweight US stocks is still intact. However, based on the above discussions, as time goes, some secular trends will develop and emerge. These include Euro zone development, India economic activities and even China’s readjustment. When such a secular trend change occurs, we will revisit our allocation. 


Longer term, we still believe US REITs can help to deliver inflation beating returns. It is also a good asset for portfolio diversification. As we pointed out previously, REIT companies have taken the recent ultra low rate environment to refinance and they are in a relatively good position. As long as Federal Reserve is supportive in monetary policies and economy is in a growth mode, REIT companies can continue to benefit from the hard asset demand and their cash flow should be stable enough. Even though recent run up in the stock valuation in these companies as well as the upcoming interest rate hike might have given a pause to these stocks, in the long term, this asset class is still essential. 


Even though we believe commodities are a good portfolio diversifier, we nevertheless believe the commodities are still in a secular unfavorable period as the world deleverages and readjusts. However, commodities can be invaluable when inflation becomes a serious issue. For now, we believe a small allocation in commodities is good enough. 

Fixed Income Asset Trends

We discussed in the previous newsletter June 15, 2015: Giving Up Bonds?, We believe that a secular trend change is happening (or will happen soon) in fixed income assets. Interest rates are at the bottom and pose to rise in a long term. 

The following should be the emphasis in fixed income investing in the coming years:

  • Focus on short term to intermediate term bonds to counter the upcoming rate hike. Again, we don’t believe one should be scared to abandon bond altogether. Short term and intermediate term bonds can deliver better returns than cash, even in a rising rate environment. Of course, we are talking about the secular long rising rate environment here. In a short period of time, intermediate term bonds or even short term bonds can experience loss. 
  • Favor inflation protected bonds (TIPS) when rate hike starts to happen. These securities are directly linked with inflation and thus, when inflation rises, TIPS can help to preserve earning power. 
  • Favor adopting an active approach in fixed income investing, even in a strategic allocation portfolio. Again, in our view, the best way to cope with upcoming secular bond trend shift (from a secular declining rate to a secular rising rate) is to invest in a total bond fund upgrade portfolio (see Fixed Income Bond Fund Portfolios or Brokerage portfoliopage). Its tactical or dynamic filtering process will ensure our investments in the right hands of good bond managers. We will discuss how to integrate such total bond fund approach into a strategic portfolio in a future newsletter. 


From the above discussion, we are comfortable with our current allocation mix in Strategic Asset Allocation – Optimal based portfolios. 

We should emphasize that the above discussion is on secular (or a long term) asset trend. Near terms, there might be many ups and downs. Furthermore, some asset valuation might appear overvalued or undervalued. However, in a strategic portfolio, the allocation does not change based on near or even intermediate term outlook. A strategic portfolio relies on diversification in many asset classes to remedy the inherent difficulty to predict market directions. Furthermore, even when we deem there is a major secular trend shift, the allocation change should not be dramatic. The reason is that strategic allocation views diversification is the most essential element in a portfolio and thus does not encourage any radical portfolio change. 

Market Overview

Markets again are driven by the never ending Greek debt news. Other than US stocks, both international and emerging market stocks have been bouncing up and down. In fact, they have been above and below bonds in our trend measurement table many times in the last several weeks. Risk assets again are taking the top positions in the trend table. Rate sensitive REITs and long term bonds continue to languish. 

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.