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, November 28, 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.
Current Commodity Trend and Managed Futures
Every now and then, commodities as an asset class are posing uneasy questions to investors. they exhibit high volatility and can fluctuate out of sync with main stream stocks and bonds. Furthermore, it’s much harder to pinpoint their underlying intrinsic value. It is said that the best way to invest in commodities is to through managed futures funds, which we discussed in June 13, 2016: Managed Futures For Portfolio Building.
The wild oil price
Recent oil price has shown its wild nature:
The relentless oil price drop in 2014 and then another drop in 2015 with a head fake caught many experts off guard. Oil price was greatly affected by market manipulation and geopolitical factors in the middle east and Russia, the two main oil producing regions. It’s just hard to derive an objective fair price for it.
Recent commodities strength
However, from the chart above, oil has recovered from mid 30s to now above 50. This has propelled broad base commodity indices such as that represented by DBC:
As of 10/24/2016, Commodity ETFs trend scores on 360° Market Overview:
Description | Symbol | 1 Week | 4 Weeks | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
---|---|---|---|---|---|---|---|
Energy | DBE | 0.62% | 8.73% | 13.74% | 15.66% | -0.38% | 7.67% |
Commodity | DBC | 0.39% | 4.57% | 6.53% | 9.18% | 2.54% | 4.64% |
Natural Gas | UNG | -4.71% | 1.48% | 10.27% | 25.67% | -10.81% | 4.38% |
US Oil | USO | 0.53% | 9.59% | 12.83% | 8.34% | -18.42% | 2.57% |
Base Metals | DBB | 0.04% | -0.87% | -0.37% | 5.26% | 8.01% | 2.41% |
Gold | GLD | 0.74% | -5.48% | -3.91% | 1.97% | 8.19% | 0.3% |
Precious Metals | DBP | 0.65% | -6.58% | -6.01% | 1.16% | 7.43% | -0.67% |
Silver | SLV | 0.78% | -9.29% | -9.92% | 3.28% | 10.52% | -0.93% |
Agriculture | DBA | 0.84% | 0.2% | -1.68% | -1.78% | -3.49% | -1.18% |
One can see that energy (DBE) is the main component that has driven DBC higher. In fact, the other major commodities agriculture commodities DBA are still in a downtrend, showing a negative trend score.
Industrial base metals (DBB) has actually stagnated for the past 13 weeks. Precious metals are on the borderline of the up and down trends. Gold has retreated from its strength in earlier of this year while silver now shows a negative trend score.
Regarding precious metals like gold, unless you are an experienced investor who can actively trade comfortably, we believe one should not have too much exposure in them. They should be used purely for insurance and hedge purpose. For example, My Simple Alternative Hedge Fund portfolio shown on Brokerage Investors page has 10% exposure to Harry Browne Permanent Portfolio, which translates into about 2.5% gold exposure in the overall portfolio. Similar to oil, we have seen how gold behaved in the recent years: fast and violent rise and fall with lot of fluctuations in between.
Managed futures funds
In June 13, 2016: Managed Futures For Portfolio Building, we looked at several popular managed futures funds. These funds invest in commodity futures (and/or financial futures) based on their strength. They can take both long and short positions, depending on the trend direction. Let’s look at their recent performance:
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 3Yr Sharpe | 5Yr AR | 10Yr AR |
---|---|---|---|---|---|---|
P S and P Diversified Trend Indicators | 0.1% | 0.4% | 0.8% | 0.16 | 0.6% | |
P S and P Commodity Trend Indicators Strategy | 0.2% | 1.2% | -1.1% | -0.15 | -1.2% | |
WDTI (WisdomTree Managed Futures Strategy ETF) | 1.2% | 2.8% | 0.7% | 0.11 | -1.5% | |
AMFAX (Natixis ASG Managed Futures Strategy A) | -3.8% | -5.6% | 6.3% | 0.52 | 3.2% | |
AQMNX (AQR Managed Futures Strategy N) | -2.9% | -3.8% | 4.5% | 0.35 | 3.8% | |
AMFQX (361 Managed Futures Strategy A) | 0.5% | -0.8% | 0.9% | 0.1 | ||
GMSAX (Goldman Sachs Managed Futures Strat A) | -0.5% | 0.1% | 3.5% | 0.45 | ||
PQTDX (PIMCO TRENDS Managed Futures Strat D) | 3.0% | -0.1% | ||||
DBC (PowerShares DB Commodity Tracking ETF) | 14.7% | 1.9% | -16.4% | -1.05 | -10.8% | -3.8% |
**YTD: Year to Date
LSC (ELEMENTS S&P CTI TR ETN) was closed in September, mostly due to its poor performance.
Unfortunately, most of these long/short futures funds have not done as well as what one would have expected: given the strong uptrend in oil price, these momentum based funds should be able to capitalize it.
The reality is that other than oil, all other commodities haven’t shown strong enough trends. In fact, they fluctuated, which is bad for a trend (momentum) based strategy. Furthermore, even for oil, the following one year chart shows how hard it’s been to capture its near or even intermediate term trend:
The takeaway here is that commodity markets in the past several years have not been good for a momentum based strategy, similar to what discussed in the previous newsletter October 10, 2016: Momentum Investing Review for stocks and multiple asset classes.
Summary
Even though commodity indices have shown some strong strength, we should take this with caution. In fact, the underlying components are showing very uneven behavior. Furthermore, as the Federal Reserve is expected to raise interest rate as early as in December, US dollar has risen, further diminishing commodity prices.
Market Overview
A bit good news is that S&P 500 companies have reported better than expected earnings for the last quarter: based on Factset, as of last Friday, among 23% of the 500 companies that have reported Q3 earnings, the blended (reported and expected) earnings are now expected to decline -0.3% year over year, better than -2% expected on September 30. Eight of eleven sectors have shown higher growth. On the cautious side, even if the earnings can turn around and become positive, it’s still a long way to go for the stock valuation to be reasonable.
For more detailed asset trend scores, please refer to 360° Market Overview.
The current nasty presidential election is a reflection to the long standing reality facing Americans and others: since the financial crisis in 2008-2009, not much substantial structural change in the U.S., European and emerging market economies has taken place. Economies have heavily relied on low interest debts. Capital might be misallocated to unproductive investments and consumption. In terms of investments, 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
- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
- September 26, 2016: Fixed Income Investing: Actively Managed Funds vs. Index Funds
- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
- August 22, 2016: Inflation Protected Securities TIPS For Current Overvalued Markets
- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
- 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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