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, August 31, 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.

Performance Dispersion Among Momentum Based Portfolios

As we mentioned in our previous newsletter July 13, 2015: Pain in Tactical Portfolios, our momentum Tactical Asset Allocation(TAA) based portfolios have lagged behind popular domestic stock index (VFINX (Vanguard (S&P 500) Index) for several years now. However, as we detailed in several newsletters: 

there are several levels of momentum driven strategies. The taxonomy of these portfolios is as follows: 

  • m1: A group of individual stocks such as Dow Jones 30 or Nasdaq 100 etc. — Can be Effective, but volatile. 
  • m2: A group of industrial stock funds such as Fidelity’s famous Fidelity Select funds. – Can be Effective, but volatile. 
  • m3: A group of stock sector funds such as SPDR’s S&P sector ETFs such as SPDR Select Energy (XLE) etc. – Can be Effective, but volatile. 
  • m4: A group of stock style funds such as Russell large, mid and small cap stock ETFs. – Effective and comparable risk. 
  • m5: single stock index (fund) buy/sell decision. – Fickle though might be on par with buy and hold. 
  • m6: A group of diversified and somewhat uncorrelated asset classes such as stocks, bonds, real estates (REITs) and their minor asset classes such as long term bonds, international bonds, gold etc. – Effective and lower risk.

At MyPlanIQ, we always advocate the momentum driven strategy at asset allocation level, or m6 in the above categories. This is what our  Tactical Asset Allocation(TAA) strategy is based on.

However, while our TAA portfolios has lagged behind the performance of US stocks, the best performing asset among major asset classes, many momentum driven portfolios at lower levels have done well. This is not surprising as portfolios lower than m6 are working within a single asset class such as US stocks, thus their performance is depending on internal trend in that single asset class instead of macro or asset level trends (among other assets). 

It is thus interesting for us to take a look at the recent YTD (Year To Date) and 5 year performance of these portfolios, compared with their benchmarks. 

m1: Individual stock based momentum funds performance

There are various stock funds that are momentum based. Let’s again look at the performance so far (all the following tables are using the same funds/portfolios that were used in previous newsletters such as the September 8, 2014 one): 

Portfolio Performance Comparison (as of 7/27/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR
PIE (PowerShares DWA Emerging Markets Mom ETF) -2.1% -9.1% 2.4% 3.1% 0.17  
EEM (iShares MSCI Emerging Markets) -6.8% -17.0% 0.8% -0.5% -0.01 5.6%
AMOMX (AQR Momentum L) 4.2% 6.8% 17.7% 15.8% 0.87  
PDP (PowerShares DWA Momentum ETF) 5.3% 10.5% 18.6% 17.3% 1  
SPY (SPDR S&P 500 ETF) 1.6% 6.6% 17.6% 15.7% 1.06 7.5%
AIMOX (AQR International Momentum L) 5.4% -4.1% 10.1% 6.6% 0.38  
EFA (iShares MSCI EAFE) 6.8% -3.9% 13.6% 7.6% 0.39 4.8%
ASMOX (AQR Small Cap Momentum L) 3.4% 8.8% 19.0% 16.8% 0.72  
IWM (iShares Russell 2000) 1.5% 7.6% 17.6% 14.9% 0.74 7.6%

More detailed year by year comparison >> 

Other than in international developed market stocks (AIMOX (AQR International Momentum L) vs. EFA (iShares MSCI EAFE)), all other funds have out performed their respective benchmarks YTD or for the past 5 years. For example, both DWA momentum ETFs such as PIE and PDP have bettered S&P 500 SPY or EEM by some large margins for the past 5 years. Noticeably, PIE has even had a positive return in the 5 year period while its benchmark index EEM has lost money. 

Some momentum stock portfolios maintained internally at MyPlanIQ also confirm the above out performance. 

The above performance difference is very similar to that in a similar comparison in the September 8, 2014 newsletter.  

What this tells us is that within an individual asset class, the momentum of its elements (in this case individual stocks) can be strong enough to make these portfolios out perform. 

m2-m4: Industries, sectors and styles momentum based rotation

We use Fidelity Select Funds to represent individual industries while using SPDR S&P sector funds for sectors. 

Portfolio Performance Comparison (as of 7/27/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
P Sector Rotation Fidelity Select Funds Top 2 Monthly Adjust with Cash 5.4% 9.9% 20.3% 16.6% 0.82 12.1% 0.49
P Momentum Scoring Sector ETFs 3.4% 7.0% 12.2% 11.7% 0.76 6.5% 0.29
P Momentum Scoring Style ETFs and Treasuries -4.2% -0.6% 15.2% 11.5% 0.77 9.8% 0.59
SPY (SPDR S&P 500 ETF) 1.6% 6.6% 17.6% 15.7% 1.06 7.5% 0.33

More detailed year by year comparison >> 

Year to date, the lower level Fidelity Select Funds based industry rotation portfolio and sector fund based portfolio has done better than SPY. In the 5 year period, only the industry based or the lowest level in this batch has done better than SPY. It is telling that when you move up to sector or style level, momentum loses its out performance in the 5 year period. 

To some extent, the above performance is consistent with what we observed so far: the lower level a momentum portfolio is at, the better performance in the last five years. Another way to explain this is that since 2009,  the S&P 500 performance has been largely influenced by a subset of stocks, in fact, most of them are in some  technology industries (internet stocks, for example, have done exceptionally better than semiconductor stocks). 

Again, in a market that has been supported by the Federal Reserve monetary policies, working at a higher level is not quite as profitable as just chasing some high performance individual stocks or industries. 

m5: all in/all out market timing on a single stock index

It turns out that if one just sticks with US stocks, doing all in/all out market timing on S&P 500 isn’t bad at all: 

Portfolio Performance Comparison (as of 7/27/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
P SMA 200d VFINX Monthly 1.5% 6.5% 16.5% 13.9% 11.2% 0.83
VFINX (Vanguard 500 Index Investor) 1.5% 6.5% 17.5% 15.6% 7.5% 0.32

More detailed year by year comparison >> 

Yes, the moving average based portfolio is still lagging behind VFINX in 3 and 5 year periods, but it actually has done better than the global based TAA portfolio (see below). Furthermore, for the past 5 years, there have been only two sell and buy pairs of transactions, one in 2010 and one in 2011. Since 2012, the portfolio has remained fully invested!

m6: trend based multi core assets rotation 

Just for the comparison purpose, let’s pull up the latest TAA portfolio that has been mentioned multiple times in our recent newsletters. 

Portfolio Performance Comparison (as of 7/27/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
P Relative Strength Trend Following Six Assets -2.6% -2.8% 10.2% 9.7% 10.0% 0.7
VFINX (Vanguard 500 Index Investor) 1.5% 6.5% 17.5% 15.6% 7.5% 0.32

Again, the pain here is that this portfolio is supposed to be the ‘best’, but it hasn’t done better than practically all of the US stock portfolios at lower levels. 


The performance in this period serves as a good reminder that no strategy or fund can always be a consistent winner at any time. Even under the same ‘momentum’ strategy umbrella, there are differences. Furthermore, those strategies which are supposedly to be more volatile have suddenly performed better and smoother.

However, investors should remember that we should always examine a portfolio or a strategy in at least one full market cycle. For us, we still believe that for most average investors, in a long term, the (relative) momentum based asset allocation strategy at major core asset level is still the best, both in terms of risk adjusted returns or even just returns.  Recent under performance does not give rise to the doubt about its long term benefit. 

The above performance dispersion also reminds us the benefits of using multiple strategies, as what we outlined several times in newsletters such as November 12, 2012: Multiple Portfolios As Another Diversification Dimension

Market Overview

Markets are again at a seemingly turning point: though one can attribute the world wide stock market weakness to the Chinese stock market debacle, the yet ongoing drama in the Greek debt implementation or the upcoming interest rate hike, we are more inclined to see that such a phenomenon is inevitable in a highly over-valued elevated stock market. When a market reaches an over valued and over bought state with many complacent investors, it reaches a highly unstable state that will  resolve itself one way or the other. Since it is hard to predict, we resort to following market trends. 

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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