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
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
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
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. 


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. 

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