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, July 11, 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.
Secular Cycles For Tactical And Strategic Investment Strategies
Recently, a user posted a very pertinent question in our online support forum:
Among tactical professionals there has long been a recognition that one of the most difficult parts of the job is to convince clients to stick with it even through periods of underperformance relative to some benchmark.
With that in mind and considering that tactical methodologies (especially trend and RS) may now be “value” strategies, has MyPlanIQ done any studies showing subsequent performance after multiple rolling periods of underperformance?
for which, we have had a few of studies:
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- December 10, 2012: How Asset Allocation Strategies Performed In Secular Market Trends
Our goal is to revisit this topic regularly, at least once a year. As a firm believer on both Strategic Asset Allocation (SAA) and Tactical Asset Allocation(TAA) investment strategies, we want to maintain this study in a live and long period to gain objective insights into one of the most important and controversial investment topics: the value of tactical and strategic strategies.
Tactical vs. strategic: secular cycles over the last 24 years
The following annotated charts clearly illustrate there exist secular cycles among the two strategies in terms of performance:
Circled years represent S&P 500 outperformance.
The first chart shows year by year performance for both S&P 500 (strategic) and our tactical/relative strength based benchmark portfolio P Relative Strength Trend Following Six Assets. The second chart shows the rolling 5 year annualized returns between the two benchmarks. All of them are total return including dividend reinvested.
It’s very clear that there have been two major cycles where S&P 500 outperformed the tactical portfolio for the rolling 5 year performance: from 1995 to 2000 and from 2013 to 2015 (and ongoing?). In between, there are 12 years where the rolling 5 year returns of the tactical did better than S&P 500.
It is thus very hard for a tactical investor to have patience to withstand a long period of underperformance: from 1991 to 1999 (9 years) and from 2009 to 2015 (and counting? see discussion below).
However, it’s also clear that there will be secular cycle change. The question is when? Unfortunately no one can have a definite answer, and that is why it makes investing so hard.
About the tactical benchmark portfolio P Relative Strength Trend Following Six Assets, we want to emphasize that it’s for benchmarking purpose only. The funds used in the portfolio have longer history than many index funds that were introduced in the last 10 years or so. We are planning to change the above data by switching to recent performance numbers of a more practical and better benchmark portfolio P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds, which will be used as the benchmark portfolio going forward.
Of course, in real life, there are many other important factors to consider when it comes to strategy selection. For this, we strongly suggest readers the following newsletters:
- July 29, 2013: Strategic Asset Allocation: The Good, The Bad And The Ugly
- July 22, 2013: Tactical Asset Allocation: The Good, The Bad And The Ugly
Again, we find both strategies can complement with each other. But understanding their behavior so that one can be truly prepared for a long investment journey is still critical.
The tide is turning?
Since the beginning of this year, markets seemed to have entered a late stage bull top formation period. The following table shows some comparison:
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
---|---|---|---|---|---|---|
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds | 0.3% | -2.6% | 5.7% | 7.3% | 11.5% | 0.88 |
Six Core Asset ETFs Tactical Asset Allocation Moderate | 4.9% | 2.5% | 4.6% | 4.3% | 8.9% | 0.85 |
VFINX (Vanguard 500 Index Investor) | -1.6% | -3.3% | 9.6% | 11.4% | 6.9% | 0.31 |
VBINX (Vanguard Balanced Index Inv) | 1.0% | -0.5% | 7.1% | 8.0% | 6.6% | 0.5 |
The Goldman tactical portfolio outperforms VFINX (S&P 500) so far and the six core moderate TAA portfolio did better than its benchmark VBINX (60 stocks/40 bonds).
Finally, we want to stress that no one knows for sure whether this is the beginning of cycle change. However, the odds of such a change are increasing as global economic, financial and political events are unfolding.
Market Overview
In an unstable market, some major or even minor events can act as a trigger to instigate cascade chaining responses to take the market down quickly. This is precisely what has happened since last Thursday, after UK’s Brexit referendum voting result indicated the majority wanted to exit the European Union. Though the actual political and economic impact will take much longer to materialize, financial markets reacted violently. Major global stock market indexes have all been down substantially. However, we also recognize that market response so far has not been an all out risk off: for example, REITs and even commodities have received much muted treatment. On the other hand, just like in 2008 or 2000, a major bear market can take months or even years to emerge. For now, the best response is to pare down risk to a level one is comfortable with and stay on course in a good investment plan.
For more detailed asset trend scores, please refer to 360° Market Overview.
We would like to remind our readers that since the financial crisis in 2008-2009, we have not seen substantial structural change in the U.S., European and emerging market economies. Economies have heavily relied on low interest debts. Capital might be misallocated to unproductive investments and consumption. U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic on U.S. economy in the long term and believe much better investment opportunities will arise in the future.
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
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- June 6, 2016: Newsletter Summary
- May 30, 2016: Swensen Portfolio And Permanent Portfolios
- May 23, 2016: AAII Article And Some Web Changes
- May 16, 2016: The PIMCO (Dis)Advantages
- May 9, 2016: Boost Your Dull Summer Investments
- May 2, 2016: Low Cost Index Fund Investing
- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- 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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