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, May 2, 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.
Asset Class Trend Review
Since the low on February 11, stock markets have staged a fast and furious rally that has made S&P 500 approach its all time high. In fact, its total return (dividend reinvested) just made a historically all time high. The following is the asset class return trend listed on MyPlanIQ 360° Market Overview page:
Major Asset Classes Trend
04/18/2016 (sorted based on 13 weeks returns)
Description | Symbol | 1 Week | 4 Weeks | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
---|---|---|---|---|---|---|---|
Emerging Market Stks | VWO | 2.65% | 2.0% | 22.71% | -1.49% | -16.35% | 1.9% |
Frontier Market Stks | FRN | 2.5% | 1.0% | 16.74% | -0.59% | -19.33% | 0.06% |
International REITs | RWX | 1.59% | 2.08% | 16.54% | 2.29% | -2.86% | 3.93% |
Gold | GLD | -1.91% | -1.03% | 13.12% | 5.11% | 2.63% | 3.59% |
Commodities | DBC | 1.95% | 0.0% | 12.89% | -10.04% | -23.74% | -3.79% |
US Stocks | VTI | 2.75% | 2.44% | 12.37% | 3.1% | -0.06% | 4.12% |
US Equity REITs | VNQ | 0.95% | 4.14% | 12.12% | 5.88% | 6.96% | 6.01% |
International Developed Stks | VEA | 3.89% | 2.56% | 11.08% | -1.9% | -7.76% | 1.57% |
International Treasury Bonds | BWX | -0.46% | 1.89% | 8.79% | 5.43% | 5.12% | 4.15% |
Emerging Mkt Bonds | PCY | 1.07% | 1.61% | 8.75% | 4.15% | 5.73% | 4.26% |
US High Yield Bonds | JNK | 1.75% | 1.33% | 8.07% | -1.58% | -6.37% | 0.64% |
Intermediate Treasuries | IEF | -0.36% | 1.46% | 2.73% | 3.22% | 3.41% | 2.09% |
Total US Bonds | BND | 0.01% | 1.18% | 2.65% | 2.53% | 1.97% | 1.67% |
US Credit Bonds | CIU | 0.18% | 1.27% | 2.64% | 2.15% | 1.72% | 1.59% |
Municipal Bonds | MUB | 0.14% | 1.27% | 1.41% | 3.71% | 4.39% | 2.19% |
Mortgage Back Bonds | MBB | -0.02% | 0.5% | 0.94% | 1.37% | 1.78% | 0.91% |
Treasury Bills | SHV | 0.03% | 0.05% | 0.13% | 0.11% | 0.15% | 0.09% |
The following table shows the year to date and 1 year returns of major asset classes:
Ticker/Portfolio Name | YTD Return** |
1Yr AR |
---|---|---|
VNQ (Vanguard REIT ETF) | 5.8% | 6.1% |
GLD (SPDR Gold Shares) | 16.2% | 2.5% |
BND (Vanguard Total Bond Market ETF) | 3.5% | 1.9% |
VTI (Vanguard Total Stock Market ETF) | 2.2% | -1.1% |
VEA (Vanguard FTSE Developed Markets ETF) | 0.9% | -7.6% |
VWO (Vanguard FTSE Emerging Markets ETF) | 7.9% | -16.6% |
DBC (PowerShares DB Commodity Tracking ETF) | 1.5% | -24.6% |
Gold, emerging market stocks and REITs have done best year to date.
Emerging market stock strength
Both of the above two tables are indicating that Mr. Market is at least tilted to a belief that global markets, especially emerging markets, are now turning a corner. The best performing assets year to date and in the last 13 weeks include gold, emerging market stocks, REITs and bonds. Furthermore, bonds have done well. In fact, BND has a higher year to date return than S&P 500 year to date.
One can deduce investors’ current beliefs:
- Global economy is turning a corner, especially emerging markets. Is this really true? One of the major factors is whether China is and will be experiencing a hard landing or much slower growth. Without a long period of adjustment, it’s almost impossible for China to shake off its enormous debt and become a healthier balanced investment and consumption economy.
- Interest rates will stay low (the strength of gold, REITs and bonds). Perhaps the Federal Reserve’s decision to slow down its rate hike has sparked the current rally, giving a hope that rates will stay low for a long period of time while allowing other economies to have time adjust. However, even if this is true, the currency devaluation from major currencies such as Euro and Yen and conflict among major countries will not go away. Year to date, US dollar has lost over 4.5% against other major currencies:
Currency ETFs | YTD Return** |
1Yr AR |
---|---|---|
UUP (PowerShares DB US Dollar Bullish ETF) | -4.5% | -4.4% |
FXE (CurrencyShares Euro ETF) | 3.6% | 4.1% |
FXY (CurrencyShares Japanese Yen ETF) | 10.4% | 9.1% |
CNY (Market Vectors Chinese Renminbi/USD ETN) | 2.6% | -2.7% |
Earnings continue to go down
However, fundamental is still not boding well with the markets. In fact, based on the latest Factset report (on 4/15/2016):
- Q1 2016 will mark the fourth consecutive negative earnings growth quarter. The blended earnings (reported and projected combined) is -9.3%.
- Q1 earnings expectation has been revised downward continuously.
- The forward 12-month P/E is much higher than the past 5 year and 10 year average, let alone right now, Shiller CAPE10 is over 40% overvalued (i.e. the average 10 year PEs is way above its 10 year long term average). It’s an expensive market.
- Even though earnings are more impacted by US dollar weakness, companies that have less than 50% sales outside of the US are still predicted to have their earnings declined by -3.5%. Thus, the weakness is not just currency related. Domestic companies are also slowing down.
- Excluding energy sector (which obviously has been weak), earnings of other companies are still down by -4.2%.
Finally, from the following chart:
It’s clear that S&P 500 price is essentially tracking the 12-month EPS for the past one year. With earnings being down for the whole year, S&P 500 can only break out its historically high by expanding its P/E multiple, that means more expensive.
To summarize, the current rally is more induced by weak dollar and/or Federal Reserve’s dovish rate policy than company fundamentals. If economy fundamental can break out from current range and grow again, stock prices can certainly go higher. That seems to be what Mr. Market is banking on.
Market Overview
As discussed above, stocks are now back to their old high range. It’s becoming more important to see whether the current strength is a broad base or not. At the moment, large cap stocks are still outperforming small cap stocks, even though the picture has improved: for example, S&P equal weight ETF RSP (Guggenheim S&P 500 Equal Weight ETF) has returned 3.9% year to date, better than SPY’s 3.2%. We are cautiously optimistic short term but remain more leery long term.
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 6 years. Since the financial crisis in 2008-2009, we have not seen substantial structural change in the U.S., European and emerging market economies. Even though U.S. stocks have had a recent correction, their valuation is still at a historical high level. It is thus not a good time to take excessive risk.
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
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
- February 15, 2016: Bond ETF Portfolios
- 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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