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.

Total Return Bond Fund Review

Fixed income or bond investments are crucial building blocks for portfolios. In general, investing in a intermediate term bond fund such as VBMFX (Vanguard Total Bond Market Index Inv) would be a good choice. However, there are several reasons that one would like to improve over it:

  • First, even though an intermediate term broad base index fund such as VBMFX is relatively safe, it is still not safe enough. For example, since 1990, VBMFX has negative returns in 3 out of the 25 years. What’s more, when interest rates begin to rise, such a fund may encounter more difficulty. See  May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment for a discussion in this subject.
  • Second, some actively managed bond funds have consistently outperformed an index bond fund. This is more so in fixed income area, compared with stock investing. Furthermore, bond funds tend to be more trendy: when a fund begins to out perform, it will last for a while. Thus, it is possible to devise a portfolio that can out perform an index fund. 

MyPlanIQ has maintained portfolios that invest in one of the top performing mutual funds managed by managers who have won Morningstar’s Managers of the Year award in fixed income. These mutual funds are either total return bond funds or multi-sector bond funds. Managers of such funds have flexibility to invest in any bond sectors including high yield and emerging market bonds. On Brokerage Investors page, you can find a list of portfolios that are tailored to major brokerages. Notice these portfolios use the low minimum share classes of total return bond funds that have no load and no transaction fees. If your account size can accommodate a higher minimum, you should try to invest in another share class fund that has lower expense ratio. 

You can read more on these portfolios from our newsletter archive or newsletter collection

Total Return Bond Portfolio Performance

As of 10/23/2015, the portfolios have the following performance:

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
Schwab Total Return Bond 0.2% 0.0% 2.9% 4.7% 6.9%
Fidelity Total Return Bond 0.2% 0.0% 2.4% 4.0% 6.2%
TDAmeritrade Total Return Bond 0.9% 1.1% 3.9% 4.6% 7.1%
FolioInvesting Total Return Bond 0.2% 0.0% 2.9% 4.7% 6.9%
Etrade Total Return Bond 0.2% 0.0% 2.9% 4.9% 6.9%
Merrill Edge Total Return Bond 1.8% 2.5% 5.0% 7.3% 8.4%
Vanguard Brokerage Total Return Bond -0.1% -0.7% 4.0% 6.0% 8.8%
PTTRX (PIMCO Total Return Instl) 1.1% 1.9% 1.7% 3.3% 5.9%
VBMFX (Vanguard Total Bond Market Index Inv) 1.1% 1.8% 1.6% 2.9% 4.6%

**YTD: Year to Date

All of the portfolios have our performed VBMFX for the past 3, 5 and 10 years. Unfortunately, in the last one year or specifically year to date, these portfolios have under performed. The key reason is that the portfolios switched to PIMCO income fund PONDX at the end of July, which has lagged VBMFX since: 

We will discuss this in more details shortly. However, what we would like to point out is that such a short term under performance is unavoidable. We expect this will be a blip in a longer term period.  

Review of total return bond funds

Before we go on to review some individual funds, let’s first take a look at how bond market segments has performed: 

Fixed Income Assets Trend


Description Symbol 1 Week 4 Weeks 13 Weeks 26 Weeks 52 Weeks Trend Score
Emerging Mkt Bonds PCY -0.18% 3.77% 3.88% -0.06% 2.63% 2.01%
20+ Year Treasury TLT 0.35% 0.53% 2.27% -2.67% 6.09% 1.31%
10-20Year Treasury TLH -0.31% 0.19% 1.5% -0.01% 5.07% 1.29%
Intermediate Treasury IEF -0.2% 0.41% 1.99% 0.28% 3.92% 1.28%
New York Muni NYF 0.28% 0.87% 1.24% 0.83% 2.29% 1.1%
California Muni CMF 0.05% 0.29% 1.06% 1.1% 2.64% 1.03%
National Muni MUB 0.07% 0.43% 1.06% 0.94% 2.28% 0.96%
MBS Bond MBB -0.01% 0.38% 1.02% 0.3% 2.39% 0.82%
Long Term Credit LQD 0.33% 1.51% 2.16% -1.79% 1.22% 0.69%
US Total Bond BND 0.05% 0.69% 1.11% -0.28% 1.81% 0.67%
Intermediate Term Credit CIU 0.07% 0.85% 1.05% -0.42% 1.52% 0.61%
Short Term Credit CSJ 0.05% 0.4% 0.57% 0.32% 0.97% 0.46%
Short Term Treasury SHY -0.07% 0.09% 0.28% 0.34% 0.67% 0.26%
Treasury Bills SHV -0.02% -0.02% 0.01% 0.02% 0.01% 0.0%
Inflation Protected TIP 0.12% 1.03% -0.65% -2.99% -1.39% -0.78%
High Yield JNK 0.14% 3.27% -1.07% -4.93% -3.88% -1.29%
International Treasury BWX -1.41% 0.58% 0.84% -2.56% -8.99% -2.31%
International Inflation Protected WIP -1.03% 2.01% -2.22% -6.28% -10.02% -3.51%

An important trend is that credit spread has widened for the past 3 or more months. High yield (junk) bonds (JNK) has suffered for the past 3, 6 and 12 months. Credit bonds fared better but are still weak. 

On every portfolio page such as Schwab Total Return Bond, we list its candidate funds. The following are the list of total return bond funds most often used in these portfolios: 

Portfolio Performance Comparison (as of 10/23/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
DLTNX (DoubleLine Total Return Bond N) 2.7% 3.3% 3.2% 5.0%    
PTTDX (PIMCO Total Return D) 0.9% 1.6% 1.4% 3.0% 5.6% 1.14
PBDDX (PIMCO Investment Grade Corp Bd D) 1.2% 1.8% 3.0% 5.2% 6.9% 1.14
PONDX (PIMCO Income D) 2.9% 2.7% 6.0% 8.2%    
TGMNX (TCW Total Return Bond N) 1.4% 2.0% 3.1% 4.8% 6.6% 1.55
WABRX (Western Asset Core Bond R) 1.6% 2.4% 2.0%      
MWTRX (Metropolitan West Total Return Bond M) 0.7% 1.5% 2.7% 4.4% 6.2% 1.34
LSBRX (Loomis Sayles Bond Retail) -3.5% -4.0% 2.9% 4.9% 6.4% 1.05
VBMFX (Vanguard Total Bond Market Index Inv) 1.2% 1.9% 1.7% 2.9% 4.6% 0.92

See detailed year by year comparison >>

For the past 3 years, only PTTDX (PIMCO Total Return D) didn’t beat VBMFX in terms of returns. For all the funds that have data, they are beat VBMFX for the past 5 and 10 years. 

A glaring outlier among these funds is LSBRX (Loomis Sayles Bond Retail) that has lost -3.5% year to date. Here are some analysis for these funds: 

  • DoubleLine total return bond invests heavily in mortgage back securities (MBS). Based on Morningstar, in its latest holdings, it has over 83% in MBS. Manager Jeffrey Gundlach has made a right bet on these housing (residential and commercial) related mortgages. It has been proven to be very profitable so far. 
  • PIMCO total return bond fund has suffered from Bill Gross’ exit and other missteps. It has an oversized allocation in cash (42% in the latest holding filing). However, it bets on long term Treasury bonds to amortize out the duration. This has affected its latest returns. 
  • PIMCO investment grade corporate bond fund has tilted heavily towards lower end quality of corporate bonds (45% BBB rating or lower). Recent weakness on corporate bonds have affected its performance. 
  • Similarly, PIMCO income fund has been affected (especially in the last 3 months) as it tends to invest in lower quality bonds to derive higher yield (income). This fund has done very well since its inception. But investors should monitor its performance closely as market trends change. 
  • TCW total return bond fund has done relatively well, thanks to its exposure in MBSs (73% allocation). 
  • Loomis Sayles Bonds suffered greatly as its heavy bet on lower quality bonds (close 60%) has gone bad recently. We discussed this fund several times before. Investors should be aware that manager Dan Fuss has been more aggressive to use lower quality bonds (even junk bonds) to achieve higher returns. This approach has done well for a longer term but it has created much higher volatility and can suffer from severe loss (the fund lost -22% in 2008). 
  • Metropolitan West total return bond fund has been a steady performer. It has a balanced allocation: 27% in Treasuries, 14% in corporate bonds and 43% in MBSs. 

To summarize, in general, the total return bond funds we monitor have done reasonably well. However, some of them have had a divergent performance because of their different allocations. We expect this type of volatility will continue and might be even higher in the coming years as markets are alternating from deflation to inflation (lower rates or higher rates). It is thus important to have a systematic way to invest in them. 

Market Overview

Even though earnings in S&P 500 companies have been mixed as expected, some dominant technology companies such as Google, Amazon and Microsoft have delivered outsized earning surprise. Markets are now fully back to a risk on mode. 

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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