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: 

Portfolio Performance Comparison
Ticker/Portfolio Name YTD
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%  
LSC (ELEMENTS S&P CTI TR ETN) -7.3% -1.1% -3.4% -0.18 -7.2%  
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

detailed comparison

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. 


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. 

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