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.

Fidelity Total Bond Fund Review

Fidelity Total Bond Fund (FTBFX (Fidelity Total Bond)) just won the Morningstar’s Fixed Income Manager of the Year award for 2016 (see this). As our stated policy, we are adding the fund to the candidate fund list for our total return bond fund portfolios listed on Brokerage Investors (What We Do -> Brokerage Investors). In this newsletter, we take a closer look at the fund. 


Portfolio Performance Comparison (as of 2/23/2017):
Ticker/Portfolio Name 1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe Since 10/24/2002 AR
FTBFX (Fidelity Total Bond) 6.6% 3.4% 3.2% 5.6% 1.22  5.4%
DODIX (Dodge & Cox Income) 6.6% 3.1% 3.4% 5.0% 1.46  5.1%
MWTRX (Metropolitan West Total Return Bond M) 1.2% 2.3% 3.6% 5.6% 1.31  6.3%
PTTRX (PIMCO Total Return Instl) 3.8% 2.6% 3.0% 5.7% 1.26  5.4%
LSBRX (Loomis Sayles Bond Retail) 15.2% 2.1% 4.5% 5.6% 0.95  8.4%
VBMFX (Vanguard Total Bond Market Index Inv) 1.1% 2.5% 2.1% 4.2% 0.92  4.3%

Detailed year by year comparison >>

The fund’s performance is comparable with other funds in our total return bond list. Like other funds, it did much better in the past 10 years, outperforming VBMFX by a big margin. Since its inception in 2002, it matched PTTRX and lagged behind LSBRX and MWTRX. Its performance is more compatible with DODIX. 

The fund did poorly in 2008, losing over -5%, compared with the positive return of VBMFX in that year. 

Fund Investments

Fidelity total bond was introduced in 2002. Based on Fidelity, it had the following allocation as of 12/31/2016:

From the above, it has a much higher exposure in corporate bonds than Barclay Total Bond Index (43.8% vs. 27.7%). The following shows its holdings’ credit risk:

It has about 15% in high yield bonds and 5% in emerging market bonds. These investments have helped its recent performance. 

The following is the synopsis of the fund’s investment philosophy:

  • The fund carries an intermediate term duration which is in the sweet spot of bond investments. In general, its interest rate risk is similar to total bond market index such as VBMFX. 
  • The fund can invest in investment grade and high yield corporate bonds, emerging market bonds, Treasury bonds and mortgage-backed securities. 
  • However, it generally maintains around 80% in high quality bonds including investment grade corporate bonds, Treasuries and mortgage-backed bonds. The other 20% can be in riskier bonds such as high yield bonds and emerging market debts. This is similar to many total return bond funds in our candidate list. Specifically, we would say it’s more like DODIX (Dodge & Cox Income) and MWTRX (Metropolitan West Total Return Bond M). It takes less risk than LSBDX (Loomis Sayles Bond Instl)
  • Morningstar attributed its recent relatively good performance to the oversized investments in emerging market bonds and high yield bonds. On the other hand, it was hit harder than other total return bond funds in 2008 because of its relative higher risk exposure at that time. 

Fidelity traditionally has a good fixed income investment team. Their bond funds have been reasonable and we are not surprised that finally, one of their bond funds won the Morningstar’s award. The lead manager of the fund is Ford O’Neil who has been with Fidelity for the past 27 years. Furthermore, the fund has a deep bench investment team. We believe it’s good to include it in our candidate total return bond fund list. 

In general, we view this bond fund as a good substitute/candidate for DODIX, MWTRX and WAPIX. Its addition certainly can help when it outperforms other similar funds. 

Brokerage Availability

Interestingly, we included this bond fund in our Fidelity Total Return Bond portfolio since last year. It’s naturally available as a no load no transaction fee fund (NTF) in Fidelity. It’s also available as NTF in TD Ameritrade. We have added the fund to the TD Ameritrade portfolio. 

Unfortunately, other brokerages all charge transaction fee, making it limited to the two portfolios only. 

We would like to remind our users that DODIX (Dodge & Cox Income) is practically excluded in all of our total return bond portfolios as it’s not available as a NTF fund in all the brokerages we support. 

Market Overview

Last week, US stocks continued to advance though international stocks and commodities had started to retreat. The US stock market has been very overbought since the election in last November. From Factset, With the earnings report for Q4 2016 being near the end, S&P 500 companies (92% have reported earnings) exceeded the expectation: the blended earnings growth is 4.9%, better than the expected 3.1% on December 31, 2016. Regardlessly, stocks are very over valued. For example, the Buffet ratio of  Total Stock Market Capitalization to GNP is over 136%, much higher than a normal 100% ratio. We have no idea when a correction will come and the best way is to stick to the well defined properly risk managed investment strategies and react accordingly when market and economic conditions change. 

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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