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, December 14, 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.
Permanent, Risk Parity And Alternative Portfolios Review
This year so far has not been easy for permanent portfolios and their alike. Major assets such as stocks, gold and bonds are supposed to hedge to each other, instead, so far, we are at a situation that commodities have been in a bear market for almost three years now while bonds are supposed to enter a not so rosy (rising rate) environment. Furthermore, stocks have behaved as they are near a top because of their high valuation.
The following shows how the major asset classes have behaved so far (as of 11/16/2015):
|1Yr AR||3Yr AR||5Yr AR||10Yr AR|
|SPY (SPDR S&P 500 ETF)||1.5%||2.7%||17.2%||13.6%||7.4%|
|GLD (SPDR Gold Shares)||-8.7%||-9.4%||-14.7%||-5.0%||8.4%|
|DBC (PowerShares DB Commodity Tracking ETF)||-22.2%||-33.6%||-19.5%||-10.7%|
|BND (Vanguard Total Bond Market ETF)||0.4%||1.0%||0.9%||2.7%|
|TLT (iShares 20+ Year Treasury Bond)||-3.0%||2.6%||0.9%||7.7%||6.8%|
It is hard to deny that gold and commodities are in a prolonged decline period. Long term bonds and stocks don’t help either. No wonder the alternative portfolios or funds we are tracking are encountering some difficulty so far.
Permanent and Risk Parity Portfolios
The following table shows how the portfolios/funds have fared so far this year.
|1Yr AR||3Yr AR||5Yr AR||10Yr AR||10Yr Sharpe|
|Harry Browne Permanent Portfolio||-3.6%||-2.7%||-0.3%||3.6%||6.1%||0.73|
|Permanent Income Portfolio||-0.7%||1.2%||3.7%||6.4%||6.1%||0.88|
|Bridgewater All Weather Portfolio Risk Parity||-0.7%||-0.9%||0.5%||3.4%||5.3%||1.14|
|Bridgewater All Weather Portfolio||-1.4%||-1.6%||1.0%||4.1%||6.3%||0.96|
|My Alternative Hedge Fund||-2.1%||-1.9%||6.0%||6.4%|
|PRPFX (Permanent Portfolio)||-4.8%||-6.0%||-2.1%||0.9%||5.8%||0.45|
|VFINX (Vanguard 500 Index Investor)||1.4%||2.7%||17.1%||13.6%||7.4%||0.31|
|VBINX (Vanguard Balanced Index Inv)||0.6%||1.7%||10.5%||9.3%||6.7%||0.48|
|ABRRX (Invesco Balanced-Risk Allc R)||-4.8%||-4.1%||1.3%||4.6%|
|AQRNX (AQR Risk Parity N)||-6.0%||-8.0%||1.2%||4.0%|
See detailed year by year comparison >>
Among the permanent portfolios, the standard Harry Browne permanent portfolio has performed much better than PRPFX (Permanent Portfolio). Although PRPFX as a mutual fund has been a de facto fund to go to if one wants to invest in a fund instead of constructing a portfolio (it has also one of the longest running history, since 1982), investors should consider the two factors. The first is that the fund has a different allocation than the Harry Browne portfolio:
Based on its document, among the dollar assets, it invests in both Treasury debts and corporate bonds. It has also invests in natural resource stocks. This year, it has been hurt by the weakness in gold, silver and natural resource stocks. Furthermore, as U.S. dollar strengthens, Swiss Franc assets decline.
Investors should be wary of the fund’s high expense ratio: 0.76%. In contrast, even after counting the index or ETF fund expenses, the Harry Browne portfolio has about 0.19% expense ratio (you can see the expense ratio by visiting Harry Browne Permanent Portfolio page and click on Expense & Dividend tab in the Holdings section).
Permanent Income Portfolio continues to do well. For those who are conservative and not comfortable with (much) commodity exposure, this portfolio can be a starting point. It has the following dividend/interest paying funds:
Dividend-Stocks VDIGX 12.5%
REITs VGSIX 12.5%
TIPS VIPSX 25%
Long-Treasury-Bonds VUSTX 12.5%
Long-Corp-Bonds VWESX 12.5%
Short-Term-Bonds VFSTX 25%
Currently, the portfolio yields 2.96%.
The risky parity funds have been greatly affected by the volatility in fixed income this year. When interest rate rises, even though it might not as dire as reported in some articles, these funds may still suffer.
It is thus important to diversify among several strategies. Our My Alternative Hedge Fund invests in several portfolios and funds as follows:
stocks P_51098 (MyPlanIQ Diversified Core Allocation TAA Most Aggressive) 42%
bonds P_46880 (Schwab Total Return Bond) 28%
balanced PRWCX 10%
permanent PRPFX 10%
risk_parity ABRRX 5%
conservative BERIX 5%
So far, PRWCX has compensated other losses from our TAA portfolio. This portfolio is a template. Investors can tweak this using some of other excellent funds or portfolios. For example, another excellent conservative fund VWINX (Vanguard Wellesley Income Inv) could be added or used as a replacement.
Stocks, bonds and gold outlook
Every now and then, we venture to make some educated guess on the outlook of some major assets. As always, we claim no particular strong predictive value on these.
Even though U.S. economy has shown some sign of growth, especially in unemployment side (5% unemployment rate per the latest payroll data), there are several soft spots that are particularly worrisome. These include a persistent manufacturing weakness (or even recession), strong dollar that dampens exports and a potential interest rate raise. US stocks have been at a very overvalued level for some time in this prolonged bull market. At any rate, It is increasingly possible to encounter another bear market (this statement is actually very common sense as the current bull market keeps aging, it is only getting more and more close to a big correction).
The global deflation pressure has been persistent. Now that it is well recognized that not only the US, the European Union and the Japan have engaged a loose monetary policy to stimulate the economy, the emerging market, in particular, China, has also increased its debt burden dramatically. The loose monetary polices around the world are not only used to stimulate internal economies, countries have used as a way for currency devaluation (currency war). This process is likely not going to end well. Interested readers can read the latest The Economist article on this subject in some more details. In our opinion, because of the desperate race to the bottom policy pursued by many countries, US dollar will continue to strengthen in the near future, resulting in further weakness in commodity and gold prices.
In terms of fixed income, we are maintaining our position that even though there have been considerable noises on warning bond weakness, in the intermediate term, we believe it is impossible for interest rates to rise dramatically. The best way is to adopt an continuously active stance on bonds instead of abandoning them altogether.
To summarize, major asset classes have been very volatile this year so far. Given the uncertain future and current market condition, permanent portfolio and other alternative portfolios will encounter more up and down. However, that is precisely why one needs to diversify even among various investment strategies.
The Paris attack proves to be a possible catalyst to propel stocks back from their dangerous levels. However, all risk assets including stocks and REITs are still down to a level that is susceptible to further downside. Time will tell whether or not this is just a blip and these will resume their up trend soon.
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.
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
- October 12, 2015: What About Commodities?
- October 5, 2015: Core Satellite Portfolios In A 401k Account
- September 28, 2015: Risk Managed Strategic Asset Allocation Portfolios Revisited
- September 21, 2015: Quest For The Best Investment Strategy
- September 14, 2015: Core Satellite Portfolios In Market Turmoil
- September 7, 2015: Market Rout Creates An Opportunity to Reposition Your Portfolios
- August 31, 2015: Review of Asset Allocation Funds and Portfolios
- August 24, 2015: Market Rout And Your Portfolios
- August 17, 2015: ETF or Mutual Fund Based Portfolios
- August 10, 2015: Updated Newsletter Collection
- August 3, 2015: Slippery Asset Trends
- July 27, 2015: Performance Dispersion Among Momentum Based Portfolios
- July 20, 2015: Global Balanced Portfolio Benchmarks
- July 13, 2015: Pain in Tactical Portfolios
- July 6, 2015: Fixed Income Total Return Bond Funds In Strategic Asset Allocation Portfolios
- June 29, 2015: Core ETF Commission Free Portfolios
- June 22, 2015: Secular Asset Trends
- June 15, 2015: Giving Up Bonds?
- June 1, 2015: Summer Blues?
- May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment
- May 18, 2015: Portfolio Update
- May 11, 2015: Pain in Fixed Income?
- 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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