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, November 9, 2015. You can also find the re-balance calendar for 2015 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.

Advanced Portfolio Review

We feature some advanced portfolios on Advanced Strategies. These portfolios are meant for users with an expert subscription. One of the main reasons we call them ‘advanced’ is that they require expertise to actually implement these portfolios. These include

  • Some of these portfolios use no load mutual funds. However, they are not necessarily available to a specific brokerage. Furthermore, these portfolios do not take the minimum holding period requirement into account. They require users’ discretion and modification to implement in a brokerage. 
  • Some of these portfolios are more for monitoring and reference purposes. For example, the high yield bond portfolio P High Yield Bond Alpha VWEHX is not directly implementable as it might require a very frequent trading of the underlying fund, which is Vanguard high yield fund VWEHX. This portfolio is to illustrate the short term momentum of high yield bonds. It should be really used as a reference or baseline portfolio. To actually implement it, one needs to use either high yield ETFs or even closed end funds (CEFs). 

Furthermore, most of these portfolios are not suitable to be used for all of your investments. Users should only allocate (small) appropriate capital to them based on their overall risk profile. 

We understand that it is sometimes challenging to understand and implement these portfolios. Please send us email or post in our support forum if you have questions regarding these portfolios. 

In the following, we would like to review some of these portfolios. 

Asset allocation strategies

In the first section of Advanced Strategies, we lumped several asset allocation portfolios in the table.

  • P Relative Strength Trend Following Six Assets: this portfolio is intended to keep track of a long term study of momentum based cross major asset rotation strategy. Notice because of historical pricing issue, this portfolio uses geographical diversification in international stocks: European and Asia Pacific stocks as these have a much longer history. Since we view international stocks can be better diversified by classifying them as developed market stocks and emerging market stocks, we do not advocate using this portfolio. Again, this portfolio serves as a reference portfolio to study the effectiveness of momentum based tactical allocation. It is not necessarily the best one to implement. 
  • P Goldman Sachs Global Tactical Benchmarks Based Include Emerging Market Diversified Bonds ETFs: we view this portfolio is a good one to implement as it has both major risk asset representation as well as good sub assets in fixed income (bonds), which we view could be very useful for a tactical portfolio. In August 17, 2015: ETF or Mutual Fund Based Portfolios newsletter, we discussed how to improve a pure ETF based portfolio by using their corresponding index mutual funds are the basis to evaluate their (ETFs) trend scores. There is an index mutual fund based portfolio. To implement this portfolio, however, you might have to find a brokerage that has a one month minimum holding period requirement. The best brokerages to do so are Vanguard brokerage or Interactive Brokers that allow one month minimum holding for Vanguard index mutual funds used in this portfolio. 
  • P Diversified Timing Asset Allocation Portfolio With Total Return Bonds: we have featured this portfolio several times. In general, we believe the simplicity of this portfolio is its biggest advantage. This portfolio uses 10 month simple moving averages on six major asset classes. It has a respectable return and modest risk. 

Equity/stock strategies

We feature several interesting equity/stock timing strategies: There are 3 long term stock valuation based strategies. 

Strategy Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
Momentum Scoring P Momentum Scoring Style ETFs and Treasuries -7.8% 2.2% 12.0% 10.7% 9.9%
Sell in May and Go Away Seasonal Timing STS Seasonal Timing Using VFINX 3.0% 7.4% 10.9% 11.7% 7.2%
Warren Buffett Total Stock Market Value to GNP Ratio Strategy P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy Total Return Bond Funds As Cash -0.0% -0.3% 8.8% 10.6% 12.1%
Shiller Cyclically Adjusted PE 10 Stock Market Timing Strategy P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly Total Return Bond Funds As Cash -0.0% -0.3% 10.4% 11.6% 12.4%
Hussman Peak PE Market Timing Strategy P Hussman Peak PE SO SU Market Timing Strategy WeeklyTotal Return Bond Funds As Cash -0.0% -0.3% 9.2% 10.9% 11.6%
Dow Theory P Dow Theory DJI -3.2% 5.3% 8.9% 7.7% 4.5%
Calendar Based Trading P Calendar Based Trading RUT -3.3% 7.4% 7.4% 4.2% 1.0%

There are 3 long term stock valuation based strategies: Buffett Stock Market Valuation to GNP ratio, Shiller CAPE 10 and Hussman Peak PE. Among these 3, we concur with John Hussman’s opinion (see his weekly commentaries like this one) that the Buffett market valuation over GNP ratio is preferable over his old Peak PE ratio strategy. Thus, one should use Hussman Peak PE as a reference only. 

We believe the long term valuation based strategies can be useful for one’s investments. Though it might be an extreme to just use such a strategy to get in or get out of stock markets all together as it is very challenging to test one’s patience to be out of stock markets for a long time (for example, Buffett strategy has been out of stocks for more than two years now). However, one can use this portfolio in combination with a strategic portfolio. As long as you have a proper allocations between the Buffett portfolio and the strategic portfolio to make sure your risk asset exposure does not exceed your risk tolerance and does not fall below your minimum stock exposure (for example, the strategic portfolio always holds 20% stocks), you can alleviate the problem of under investing in stocks for a long period of time.

We would also comment on the other 3 stock trading strategies:  The Sell in May seasonality strategy, the Dow theory and the Calendar Trading strategy. These strategies are some of the most popular folklores. We keep track of their performance for the purpose of references. Clearly from the performance shown in the above, the seasonality strategy has done the best job among the three. Moreover, its performance has been very reasonable: 

Portfolio Performance Comparison (as of 10/19/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR Since 7/1/1987 Max. Drawdown
STS Seasonal Timing Using VFINX 3.0% 7.4% 11.5% 11.9% 7.2% 8.3 32%
VFINX (Vanguard 500 Index Investor) 0.3% 11.3% 14.0% 13.8% 7.7% 9.1 56%

10 year chart: 

Seasonality is one of the few anomalies in stock markets around the world. It has also a strong intuition backing. Just like the long term stock valuation based strategies mentioned above, we don’t advocate using this strategy only (maybe even more so than the stock valuation based strategies). However, if one is interested, we believe this strategy can still be useful if used with other strategies to diversify. 

P Momentum Scoring Style ETFs and Treasuries is a US style rotation portfolio. It uses the 9 iShares Russell style ETFs and intermediate and short term Treasury ETFs as candidate funds. This year, its performance has been affected by the volatile market trend changing. However, longer term, this portfolio has done better in both returns and risk (maximum drawdown, for example):

Portfolio Performance Comparison

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
P Momentum Scoring Style ETFs and Treasuries -7.8% 1.0% 12.3% 11.1% 9.8% 0.59
VFINX (Vanguard 500 Index Investor) 0.3% 9.9% 14.4% 13.8% 7.8% 0.33

Market Overview

Risk assets continued to rebound. Among them, the strongest is the US REITs. Earnings reported so far have not had a major surprise, though there have been only a fraction of companies reported so far. As it stands right now, markets are approaching so called resistance levels including their long term 200 day moving averages. Whether this will materialize or not is still to be seen. 

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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