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, February 22, 2016. 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.
Bond ETF Portfolios
As more bond ETFs have been created, it is increasingly possible to construct a more sensible bond ETFs based portfolio. Let’s first look at total return bond ETFs.
Total Return Bond ETFs
We reviewed two important total return bond ETFs in a previous newsletter March 2, 2015: Total Return Bond ETFs. As we stated in the newsletter, we are excited to see that more actively managed bond ETFs are coming to market. We are especially interested in those ETFs that are managed by same or similar fund managers who manage one of our total return bond candidate mutual funds (to qualify, the managers should be a recipient of Morningstar Fixed Income Manager of the Year award at least once). As stated, these ETFs, if perform right, can be very useful to construct a total return bond ETFs portfolio that is free of mutual fund restriction (such as minimum holding periods imposed by brokerages and mutual funds themselves). Furthermore, in general, these ETFs have lower expense ratios for smaller amount investments (refer to the previous newsletter).
The two ETFs performance (as of 2/12/2016):
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 3Yr Sharpe |
Since ETF Inception BOND: 3/2/2012 TOTL: 2/25/2015 |
---|---|---|---|---|---|
BOND (PIMCO Total Return Active ETF) | -0.1% | -1.1% | 1.9% | 0.47 | 4.3% |
PTTRX (PIMCO Total Return Instl) | -0.1% | -0.5% | 1.2% | 0.33 | 2.6% |
TOTL (SPDR® DoubleLine Total Return Tact ETF) | 1.1% | 0.6% | |||
DLTNX (DoubleLine Total Return Bond N) | 1.6% | 2.9% | 3.1% | 1.13 | 2.7% |
BND (Vanguard Total Bond Market ETF) | 1.8% | 1.3% | 2.1% | 0.61 |
BOND (PIMCO Total Return Active ETF) has outperformed its mutual fund counterpart since its inception. However, in the past one year or so, it lagged the mutual fund by some meaningful margin (-1.1% vs. -0.5%). So far, this underperformance is still acceptable.
However, with almost one year in the market, TOTL (SPDR® DoubleLine Total Return Tact ETF) has been more disappointing: since 2/25/2015 (almost one year ago), it has lagged DLTNX by some big margin (0.6% vs. 2.7%):
What’s worse, this underperformance is based on TOTL’s current 0.23% price premium. Its performance would have been even lower if this price premium is taken away.
Total Return Bond ETFs Portfolios
In the following table, we compare portfolios using the two ETFs with a portfolio that uses bond mutual funds:
Ticker/Portfolio Name | YTD Return** |
Since 2/25/2015 |
---|---|---|
PIMCO DoubleLine Total Return Bond | 1.7% | 1.3% |
PIMCO DoubleLine Total Return Bond ETFs Benchmark Based | 1.1% | -0.1% |
Schwab Total Return Bond | 1.6% | -0.42% |
VBMFX (Vanguard Total Bond Market Index Inv) | 1.8% | 1.02% |
Note PIMCO DoubleLine Total Return Bond uses PTTRX and DLTNX with no 3 month minimum holding period restriction. PIMCO DoubleLine Total Return Bond ETFs Benchmark Based uses PTTRX and DLTNX as benchmarks to select their corresponding ETFs. Schwab Total Return Bond uses no load no transaction fee total return bond mutual funds with 3 month holding period restriction (see Brokerage Investors page).
The difference between the first two portfolios is solely caused by the ETF underperformance (both BOND and TOTL lagged since 2/25/2015). One can also see the 3 month holding period did affect Schwab portfolio (see also the performance of P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly on Advanced Strategies page).
The take away from the above discussion is that unfortunately, total return bond ETFs have not performed as well as their mutual fund counterparts. We might have to wait for a while to observe and gain more confidence in these portfolios.
Bond ETF Rotation (Momentum) Portfolios
We have long argued that a bond fund momentum portfolio with its candidate funds covering many segments in interest rate risk (i.e. short, intermediate or long term bonds) and credit risk (i.e. investment grade vs. high yield) can yield some benchmark beating performance:
Portfolio Performance Comparison (as of 2/12/2016):
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 5Yr Sharpe |
---|---|---|---|---|---|
P Bond ETFs Rotation | 2.2% | 0.3% | 1.7% | 5.0% | 0.87 |
VBMFX (Vanguard Total Bond Market Index Inv) | 1.8% | 1.3% | 2.1% | 3.6% | 1.02 |
In the above table, P Bond ETFs Rotation is constructed by removing all risk asset ETFs in P Goldman Sachs Global Tactical Benchmarks Based Include Emerging Market Diversified Bonds ETFs that is listed on Advanced Strategies page. Even though it outperformed VBMFX in the last 5 years, its volatility is just too great to our liking. As a result, we don’t advocate using it as a stand alone portfolio. For stand alone fixed income portfolios, so far, we still believe the total return bond mutual fund based portfolios on Brokerage Investors page are still the most appropriate.
Conclusions
Bond ETFs are getting more mature. However, even though both PIMCO and DoubleLine have introduced their total return bond ETFs for more than a year, we are still looking for more data and evidence to use them to construct fixed income portfolios. At this moment, we are still leaning to bond mutual fund based portfolios.
Market Overview
At this writing, global stock markets have staged a strong rebound. Investors should be aware that such a strong short term rebound is frequently present in a downtrend market that is eventually proved to be a bear market. For example, from October 10, 2007 to November 26, 2007, S&P 500 dropped more than 10% and then recovered back 7.8% in December and January 2008, only to drop further in February 2008. A similar decline, recover and further decline process happened in September, October and November 2000, the start of the tech induced bear market. Many analysts are arguing that this time is not 2008 or 2000. Whatever it is, we believe that markets are increasingly driven by the underlying economy conditions. It will take a while for fundamentals to further deteriorate or recover. For now, stocks are still in a downtrend and the best action is to ignore all the noises and stick to our strategies.
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
- February 8, 2016: Newsletter Collection Update
- February 1, 2016: Total Return Bond Fund Portfolios In A Volatile Period
- January 25, 2016: Alternative Portfolios Review
- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- 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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