Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Tuesday, January 3, 2017. 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.

Review of Broad Base Core Mutual Funds for Brokerages 

In the previous newsletter, we reviewed core index ETFs for brokerage plans. In this newsletter, we review core index mutual funds used for brokerage plans. Last year we review them in November 9, 2015: Broad Base Core Mutual Fund Review.

We wrote last year that for many brokerages, there were not many transaction fee free low cost index mutual funds, especially those from Vanguard. Unfortunately, this situation hasn’t improved. For the brokerage plans that use mutual funds, we again have to rely on some low cost transaction fee free broad base mutual funds. Notice these funds are very brokerage specific. For these mutual funds, some brokerages might charge transaction fees and some might not. As a reminder, our brokerage specific plans only use transaction fee free funds.  Furthermore, the fees these mutual funds charge have not improved much to match those ultra low cost index mutual funds. 

US Equity

As we reviewed in the last year’s newsletter, many S&P 500 index mutual funds available to brokerages are comparable, though some might charge much more than others. Please refer to last year’s newsletter for these funds. 

We want to look at how PSPDX (PIMCO StocksPLUS D) (used in Fidelity, Schwab, Merrill, Etrade investment plans) has performed, compared with the low cost VFINX (Vanguard 500 Index Investor).  The PIMCO fund is an enhanced index fund that uses derivatives to track S&P 500 and invests the bulk of money in a fixed income bond portfolio, hopefully to deliver better total returns than S&P 500. 

Fund Performance Comparison (as of 11/30/2016)
Fund Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
PSPDX (PIMCO StocksPLUS D) 9.7% 8.1% 8.3% 15.0% 6.9% 0.29
VFINX (Vanguard 500 Index Investor) 9.7% 6.8% 8.9% 15.3% 6.9% 0.3

See detailed performance comparison >>

Year to date (YTD), the two funds exactly match to each other. Similarly they have the same 10 year returns. Again, we are cautious about the PIMCO fund in the current rising rate environment as its fixed income portfolio might encounter difficulty. 

Moving on to total stock market index tracking funds: 

Total Stock Market Fund Performance Comparison (as of 11/30/2016)
Fund Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
FSTMX (Fidelity Spartan Total Market Index Inv) 10.5% 8.2% 8.6% 14.3% 7.0% 0.3
SWTSX (Schwab Total Stock Market Index) 10.5% 8.2% 8.6% 14.3% 7.1% 0.31
NOSIX (Northern Stock Index) 9.7% 7.9% 9.0% 14.3% 6.7% 0.29
POMIX (T. Rowe Price Total Equity Market Idx) 10.6% 8.2% 8.5% 14.3% 6.9% 0.3
VTSMX (Vanguard Total Stock Mkt Idx Inv) 10.4% 8.2% 8.5% 14.2% 7.0% 0.3

See detailed performance comparison >>

The most noticeable laggard here is NOSIX (Northern Stock Index) that is used in Merrill Edge. This is not surprising as this fund charges the highest expense (about 0.2% more than other funds). Other than this, other funds have comparable performance. 

International Developed Market Stock Mutual Funds

We are again seeing a wide performance dispersion among these mutual funds. 

Portfolio Performance Comparison (as of 11/30/2016)
Fund Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
SWISX (Schwab International Index) -1.5% -3.4% -2.2% 5.3% 0.9% 0.02
PPUDX (PIMCO Intl StkPLUS TR Strat (Unhedged) D) -0.7% -2.2% -3.0% 6.6% 2.6% 0.08
PIPDX (PIMCO International StocksPLUS TR Str D) 3.2% 0.2% 3.6% 11.3% 5.2% 0.2
FSIIX (Fidelity Spartan International Index Inv) -1.6% -3.5% -2.1% 5.5% 0.8% 0.02
PIEQX (T. Rowe Price International Eq Index) -0.9% -3.0% -2.1% 5.2% 0.9% 0.02
VGTSX (Vanguard Total Intl Stock Index Inv) 2.6% 0.4% -1.7% 4.5% 1.0% 0.02
VDSIX (Victory Diversified Stock I) 2.9% -1.0% 4.2% 12.0%    

See detailed performance comparison >>

The two PIMCO funds stand out in this pack. Even for PPUDX (PIMCO Intl StkPLUS TR Strat (Unhedged) D) which does not hedge currency exchange, it has done better than others. Furthermore, the currency hedged PIPDX (PIMCO International StocksPLUS TR Str D) has done way better. As we noted before, the currency hedged international funds are becoming more and more important as we are seeing some wide currency fluctuation, given the Trump election victory and current global financial relationship. 

Among others, VGTSX (Vanguard Total Intl Stock Index Inv) fund and Schwab’s fund are still our favorite. 

Emerging Market Stock Mutual Funds 

Emerging Market Stock Fund Performance Comparison (as of 11/30/2016)
Fund Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
FPEMX (Fidelity Spartan EMkts Idx Inv) 11.3% 8.1% -2.5% 0.3%    
ODMAX (Oppenheimer Developing Markets A) 7.2% 4.9% -3.9% 2.1% 4.9% 0.19
NOEMX (Northern Emerging Markets Equity Index) 10.9% 7.8% -3.4% 0.2% 1.5% 0.04
VEIEX (Vanguard Emerging Mkts Stock Idx) 11.7% 8.9% -2.1% 0.6% 2.1% 0.06
PRMSX (T. Rowe Price Emerging Markets Stock) 11.3% 7.8% -0.5% 1.8% 2.0% 0.06
SSEMX (SSgA Emerging Markets Instl) -0.1% -3.1% -7.4% -2.7% -0.4% -0.04

See detailed performance comparison >>

We make the following observations:

Real Estate Mutual Funds

Real Estate Fund Performance Comparison (as of 11/30/2016)
Fund Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
PETDX (PIMCO Real Estate Real Return D) 3.5% 5.3% 13.5% 11.6% 6.7% 0.16
FRXIX (Fidelity Spartan Real Estate Idx Inv) 1.6% 3.8% 11.9% 11.3%    
CSRSX (Cohen & Steers Realty Shares) 1.5% 3.2% 11.8% 11.5% 4.5% 0.11
VGSIX (Vanguard REIT Index Inv) 3.5% 5.4% 11.8% 11.9% 4.5% 0.11
TCREX (TIAA-CREF Real Estate Sec Retail) 0.3% 2.1% 10.5% 10.8% 3.5% 0.08

See detailed performance comparison >>

We notice that the PIMCO fund and the Vanguard index fund have done the best for the past one year. The PIMCO fund is still outstanding for its long term performance. However, as we noted before, we are cautious about this fund in the rising rate environment as this fund, like other PIMCO’s enhanced index funds, invests in a fixed income portfolio while using derivatives to track an underlying index. 

Market Overview

It looks like the Trump election victory induced market rally has stalled. Last week, US stocks had a small loss. Bonds continued their losing streak, though they somewhat stabilized. As we pointed out right after the election, we believe investors are too quick to speculate that the new administration will deliver its promise and grow the economy in a faster pace. Regardless whether the promise will be materialized or not, the obstacles will be ahead. Furthermore, US stocks are at a historically high valuation level. Markets will for sure have a bumpy ride ahead. Again, we emphasize to stick to your strategy and have a long term vision. 

For more detailed asset trend scores, please refer to 360° Market Overview

As now we have a president elect who promised to challenge the status quo and make substantial structural change (such as infrastructure building), we are now in a wait and see period: as the nation is posed to invest, the most important factor to watch is how productive the investments will be. Simply put, productive investments will result in better return on investment (ROI), tangibly or intangibly. They should also increase productivity that in turns will improve our standard of living. Capital misallocation can result in a higher growth but might not improve the real standard of living, which is the ultimate goal of economic activities.

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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