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, September 19, 2016. You can also find the re-balance calendar for 2016 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.


A user pointed out the incorrect year to date return for 60 Percent MyPlanIQ Diversified Core 40 Percent Schwab Total Bonds in the last week’s newsletter. This was caused by a data glitch. It has been fixed in the newsletter August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds. We appreciate this user’s help. 

Risk On: Emerging Market Stocks And Small Cap Stocks

It’s been a strange market: stocks, gold, long term bonds are all showing considerable strength. Normally, these assets have relatively strong negative correlation with others. But for the past several years, especially for the past one year, they have been all rising to their 52 week or all time highs. 

The following table shows the major asset classes returns: 

As of 08/15/2016L


Description Symbol 1 Week 4 Weeks  13 Weeks 26 Weeks 52 Weeks Trend Score
Emerging Market Stks VWO 2.31% 4.66% 16.9% 31.37% 8.85% 12.82%
US Equity REITs VNQ -0.39% -0.23% 6.75% 27.23% 16.97% 10.07%
US Stocks VTI 0.56% 1.43% 7.1% 20.26% 5.38% 6.95%
Gold GLD 0.31% 0.63% 4.96% 8.01% 19.33% 6.65%
International Developed Stks VEA 2.09% 3.56% 5.21% 16.74% -2.74% 4.97%
Commodities DBC 2.49% -0.4% 1.09% 18.4% -3.08% 3.7%
Total US Bonds BND 0.21% 0.33% 2.0% 3.91% 5.68% 2.43%

Or look at year to date 

Ticker/Portfolio Name YTD
1Yr AR
GLD (SPDR Gold Shares) 25.6% 18.2%
TLT (iShares 20+ Year Treasury Bond) 17.8% 15.7%
VWO (Vanguard FTSE Emerging Markets ETF) 17.7% 6.6%
VNQ (Vanguard REIT ETF) 15.5% 18.9%
VTI (Vanguard Total Stock Market ETF) 8.4% 5.9%
BND (Vanguard Total Bond Market ETF) 5.9% 5.8%
VEA (Vanguard FTSE Developed Markets ETF) 3.6% -3.2%

Apparently, it’s an all risk on mode for investors (or speculators): other than broad base commodities and international developed market stocks, everything else is on fire. Even for international stocks, they have fully recovered from the lows of BREXIT (Britain’s referendum to  exit from European Union) and have gained some more. 

Emerging market stocks 

Emerging market stocks have outperformed US stocks and European stocks year to date. In the WallStreet Journal’s Emerging Markets Are Hot—Except for China, it pointed out that most emerging market stocks have done well: 

Global Stocks Trend


Description Symbol 1 Week 4 Weeks  13 Weeks 26 Weeks 52 Weeks Trend Score
Brazil EWZ 2.14% 6.87% 25.4% 81.48% 35.68% 30.31%
South Africa EZA 2.67% 7.49% 26.82% 38.97% 7.06% 16.6%
Taiwan EWT 0.91% 4.14% 24.42% 28.42% 18.52% 15.28%
Russia RSX 2.88% 2.6% 8.9% 40.13% 21.08% 15.12%
South Korea EWY 2.68% 6.01% 15.77% 24.47% 22.14% 14.21%
China FXI 5.02% 6.17% 20.04% 31.52% -2.76% 12.0%
Hong Kong EWH 0.99% 4.3% 14.35% 25.49% 3.27% 9.68%
Australia EWA 0.38% 2.54% 8.06% 25.73% 9.85% 9.31%
Canada EWC 2.09% 1.89% 6.39% 27.71% 5.18% 8.65%
India INP -0.05% 3.66% 11.13% 26.85% -0.31% 8.26%
Mexico EWW 5.45% 4.83% 6.81% 20.44% 1.55% 7.82%
Germany EWG 3.86% 7.64% 6.42% 17.98% -1.92% 6.8%
Malaysia EWM 2.18% 0.72% 6.19% 8.62% 15.92% 6.73%
US SPY 0.48% 1.24% 6.51% 18.61% 6.31% 6.63%

In fact, stocks from all the four BRIC’s countries, the so called major emerging market regions, have outperformed the US stocks for the past 52 weeks. These include Brazil, Russia, India and even China. Even though the Chinese domestic A share stocks are lackluster, the ADRs (represented by ETFs such as FXI) are showing some strength. 

For a while, we have maintained skeptical view on emerging market economies in the near and intermediate terms. We are still not optimistic on near term Chinese economy as it hasn’t fully gone through a more structured reform or transformation to turn itself from an export driven country to a more balanced consumption and production economy (and we believe this is a process that could last for a long period, as long as 10 years). Brazil’s economy is still in trouble, though investors are more hopeful that the current change will enable its economy to turn a corner. Its stocks have recovered strongly, mostly from a very low base. Among these four, India is perhaps the only economy that has a reasonable near term strength. 

Admittedly, globalization has lifted much of emerging markets to a level more and more close to that of a developed market. This has resulted in a gigantic pull that will last a long time. For now, because of the so called coordinated quantitative monetary easing policies from most central banks, these markets have been muddling through, along with the developed ones including the US and European countries. 

However, it’s hard to imagine such a policy can sustain for so long, without suffering from a correction, at least in financial markets. 

It’s still our opinion that among all the major economic regions, the US stocks will still be the best in the coming several years. That doesn’t mean we are optimistic about the US stocks at this level (in fact, just the opposite). But relatively, the US stocks or economy is the least dirty ‘shirt’, among others, at least in the near term. 

Small cap stocks

Year to date, small cap stocks are outperforming other styles: 

As of 08/15/2016

Description Symbol 1 Week 4 Weeks  13 Weeks 26 Weeks 52 Weeks Trend Score
Russell Smallcap Value IWN 0.8% 2.34% 10.62% 28.36% 8.27% 10.08%
Russell Smallcap Index IWM 0.95% 2.92% 11.75% 28.85% 3.06% 9.5%
Russell Smallcap Growth IWO 1.15% 3.5% 12.83% 29.29% -1.85% 8.98%
Russell Midcap Value IWS 0.43% 1.18% 7.38% 26.1% 6.77% 8.37%
Russell Midcap Indedx IWR 0.68% 1.62% 7.52% 24.23% 3.94% 7.6%
Russell Largecap Value IWD 0.37% 0.76% 6.65% 20.53% 5.8% 6.82%
Russell Midcap Growth IWP 0.94% 2.12% 7.8% 21.99% 0.92% 6.76%
Russell Largecap Index IWB 0.54% 1.42% 6.64% 19.54% 5.51% 6.73%
Russell Largecap Growth IWF 0.7% 1.93% 6.74% 18.6% 5.19% 6.63%

So smaller capitalization stocks are doing better than larger capitalization stocks. 

However, in longer term cycles, small cap stocks are still lagging behind large cap stocks. We just updated the table in the previous newsletter March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles using latest data on 8/15/2016:

Index Name 5/1/11 – present AR 5/1/09 – 4/30/11 1/1/06- 1/1/08 4/1/03 – 12/31/05 1/1/96 – 1/1/2000 1/18/91 – 12/31/95
VFINX (Vanguard 500 Index Investor) 11.65% 27.2%  9.6% 16.4% 26% 16.4%
NAESX (Vanguard Small Cap Index Inv) 9.8% 38.2%%  7.4% 27.2% 15.2% 21.7%

The highlighted columns are for the early expansion cycles. 

From 5/1/2011 to 8/15/2016, small cap stocks still lag behind large caps. Whether this will continue or not is still to be seen. 

Reaching for yield

This time, the risk on has again centered around investors reaching for yield, at all cost: 

As of 08/15/2016

Description Symbol 1 Week 4 Weeks  13 Weeks 26 Weeks 52 Weeks Trend Score
WisdomTree Emerging Market Equity Income DEM 2.45% 4.27% 18.03% 33.92% 8.53% 13.44%
iShares MSCI Emerging Markets Index EEM 2.68% 5.18% 16.86% 30.17% 10.29% 13.04%
PowerShares HighYield Dividend Achievers PEY -0.38% -0.88% 7.64% 24.98% 21.58% 10.59%
iShares Dow Jones US Real Estate IYR -0.51% -0.3% 6.44% 27.17% 12.61% 9.08%
SPDR S&P Dividend SDY 0.37% 0.37% 6.61% 20.22% 16.24% 8.76%
iShares Dow Jones Select Dividend Index DVY 0.16% -0.36% 6.36% 18.84% 15.85% 8.17%
First Trust Value Line Dividend Index FVD 0.48% 0.33% 5.96% 17.25% 14.9% 7.78%
SPDR Dow Jones Industrial Average DIA 0.67% 0.78% 5.88% 18.1% 8.82% 6.85%
Vanguard Dividend Appreciation VIG 0.69% 0.85% 5.7% 17.08% 9.54% 6.77%
Vanguard High Dividend Yield Indx VYM 0.23% -0.18% 5.88% 16.99% 10.89% 6.76%
SPDR S&P 500 SPY 0.48% 1.24% 6.51% 18.61% 6.31% 6.63%

Because of ultra low interest rates, investors again are flocking to dividend stocks and REITs. Investors, however, need to understand that high yielding stocks do not necessarily equal to safer stocks. In 2008, US REITs such as VGSIX (Vanguard REIT Index Inv) lost -37% and had a 64% maximum drawdown (from a peak to its following trough)! 

To summarize, investors are in a frenzy to chase risk assets. Markets are always in a trial and error mode. For now, the stampede seems pointing to a hopeful strong recovery from the recent earnings recession. For a prudent investor, it’s essential to first allocate assets properly, especially controlling risk asset exposure.

Market Overview

Earnings report is largely behind us: as of last Friday, 91% of S&P 500 companies have reported earnings. So far, the blended earnings (actually reported and the remaining estimated) declined -3.5% year over year. It’s a forgone conclusion that Q2 2016 marks the fifth consecutive quarterly earnings decline (see Factset). As stated above, however, in the current market strength/euphoria, market risk is abound. Stay the course. 

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. 

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