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, March 13, 2017. You can also find the re-balance calendar for 2017 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.

Long Term Stock Timing Based Portfolios And Their Roles

We introduced a few long term stock timing portfolios several years ago. Specifically we keep track of two Simple Moving Average (SMA) based portfolios on Advanced Strategies page. The first one is a 200 days SMA based portfolio:

Portfolio Performance Comparison (as of 2/17/2017):
Ticker/Portfolio Name 1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe Since 3/31/1988
P SMA 200d VFINX Total Return Bond As Cash Monthly 17.8% 9.4% 13.0% 12.2% 0.91 N/A
P SMA 200d VFINX Monthly 16.8% 8.4% 12.4% 10.2% 0.77 10.7%
VFINX (Vanguard 500 Index Investor) 24.5% 10.7% 13.8% 7.1% 0.32 10.1%

The portfolio buys Vanguard 500 index fund (VFINX, an S&P 500 index fund) when its total return line is above its 200 days SMA and sells VFINX when its total return line is below the 200 days SMA. It then either goes to CASH (the second portfolio) or goes to a total return bond fund such as P_46880 (Schwab Total Return Bond) in the first portfolio. The portfolio makes the above transactions at the end of a month. These portfolios only invest in US stocks (S&P 500 index fund). 

The going to cash portfolio has the earliest start date (3/31/1988). The amazing fact for this portfolio is that it not only has beaten buy and hold VFINX for the past 29 years (10.7% vs. 10.1%), it does so with much lower maximum drawdown (22.4% vs. 55.3%). Though it has lagged slightly behind VFINX in the past 1, 3, 5 years. It did much better (10.2% vs. 7.1%) for the past 10 years. It truly fulfills our stated purpose to keep up with general markets in a bull market and outperform in a full market cycle that includes a bull and a bear market. 

The first portfolio did even better by investing in a total return bond fund instead of going to cash. We have advocated using total return bond fund portfolios as a cash substitute in many newsletters. This is a feasible and fully investable method as the portfolio only buys/sells at a monthly frequency. 

Unlike our globally oriented  Tactical Asset Allocation(TAA) portfolios that can invest in other stocks and risk assets other than US stocks, these portfolios have done much better in this ongoing bull market since 2009 as they only focus on the best performing stock asset – US stocks. 

Global SMA Based Portfolio

 This portfolio was first introduced by Mebane Faber in an article A Quantitative Approach to Tactical Asset Allocation. He termed it as GTAA (Global Tactical Asset Allocation). As this portfolio is a simple equal weighted allocation among 5 major assets: US stocks, US REITs, International Stocks, Commodities and Long Term Treasury Bonds and in each asset, it uses 10 month SMA (or 200 days SMA) to switch between the underlying asset and cash, we believe it’s more appropriate to call it a global SMA based portfolio. 

In the following portfolio, we invest 25% in each asset that is based on 200 days SMA, rebalanced monthly. We also use total return bond portfolio as the cash substitute to boost the performance. 

Portfolio Performance Comparison (as of 2/17/2017):
Ticker/Portfolio Name 1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe Since 6/30/2003 AR
P Diversified Timing Asset Allocation Portfolio With Total Return Bonds 12.0% 5.2% 5.7% 6.2% 0.62 8.6%
VFINX (Vanguard 500 Index Investor) 24.5% 10.7% 13.8% 7.1% 0.32 8.8%
MALOX (BlackRock Global Allocation Instl) 13.1% 2.8% 5.4% 5.1% 0.41 8.3%
PASDX (PIMCO All Asset D) 19.8% 2.1% 3.1% 4.7% 0.5 5.5%

See year by year performance >>  

In the above table, we compare the portfolio with two famous global allocation funds: MALOX and PASDX. Again the simple portfolio has beaten the two mutual funds for the past 1, 3, 5, 10 years and since 6/30/2003, the start date when the PIMCO commodity fund PCRDX was first available. 

The above portfolio again shows that using both long term timing and smart total return bonds as cash, one can outperform some of the best mutual funds with lower risk. 


The above portfolios clearly supports our long term held view that simple, long term timing can be effective to reduce risk while enhancing returns. Though market timing has been criticized by many, simple timing techniques such as moving average based do offer some advantages. We offer the following observations:

  • It’s indisputable that such techniques can be effective in a long term period. 
  • Unlike other traditional timing based portfolios, investing in a good bond fund instead of cash when going to cash can enhance returns by 1-5% annually. We view ‘smart cash’ is an inherent component in a timing portfolio. 
  • However, short term or even in a period of several years (such as the current 7 year and going bull market since 2009), it can lag behind the general markets. This can discourage investors. We have devoted numerous articles to this investment portfolio behavior. The key is to fully understand each strategy’s pros and cons and thus set the appropriate expectation. 
  • It’s even more frustrating during such a period because investors have to perform transactions that only yield bad results, compared with just a simple buy and hold. This is a a ‘much ado about nothing’ behavior is perhaps the biggest challenge for many to stick to such a strategy. Unfortunately, there is no a strategy that can consistently outperform markets in any period of time. 
  • To alleviate or reduce the psychological effect, one can further diversify by employing a combination of investment strategies so that when one zigs, another zags in a particular market environment. 

Market Overview

Last quarter’s earnings report continue to beat the expectation: based on Factset, with 82% of the companies in the S&P 500 reporting results for Q4 2016, the blended earnings growth rate is 4.6%, better than the expected 3.1% on December 31, 2016. Stocks are still at elevated levels. Though stocks are way overvalued, the current market behavior is a classic and typical reflection of the saying ‘Markets can remain irrational for longer than you can remain solvent’. For average investors, it’s better to stay with markets and react accordingly.  We again call for stay on the course. 

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

Now that the Trump administration is officially sworn in, the new president is facing the reality to deliver his many promises to make substantial changes. 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. Whether the new president can truly achieve this goal is still yet to be seen. One thing is certain: we will see more market volatilities. 

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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