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, April 17, 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.

Total Return Bond ETFs And Portfolios

We have monitored the actively managed bond ETFs space closely. For our total return bond mutual fund based portfolios, we pay attention to the ETFs that track the total return bond mutual funds used in our total return bond portfolios (see those listed on  Brokerage Investors (What We Do -> Brokerage Investors), or see January 23, 2017: Fixed Income Portfolio Review). Previously, there were only two such ETFs (PIMCO and DoubleLine). However, after this year’s Morningstar’s fixed income manager award, Fidelity total bond (FBND) became a new addition (see February 27, 2017: Fidelity Total Bond Fund Review for more details). 

About a year ago, we reviewed the two ETFs in March 28, 2016: Total Return Bond ETFs Review

Fidelity Total Bond ETF FBND vs. Total Bond Mutual Fund FTBFX

First, let’s look at the performance of the Fidelity ETF:

Fund Performance Comparison (as of 4/7/2017):
Fund Name YTD
1Yr AR Since 10/9/2014
FBND (Fidelity Total Bond ETF) 0.8% 4.2% 2.4%
FTBFX (Fidelity Total Bond) 1.4% 3.7% 2.9%

Since its inception, FBND has lagged behind its mutual fund counterpart (FTBFX) 2.9% vs. 2.4% but in the past 12 months, it did better.

We also compare the other two ETFs with their mutual fund counter parts: 

Fund Performance Comparison (as of 4/7/2017):
Fund Name YTD
1Yr AR 3Yr AR 5Yr AR Since ETF Inception
BOND (PIMCO Total Return Active ETF) 1.9% 2.6% 3.2% 4.0% 4.3%
PTTDX (PIMCO Total Return D) 1.9% 2.0% 2.4% 2.7% 2.6% (since 3/2/12)
TOTL (SPDR® DoubleLine Total Return Tact ETF) 1.7% 2.1%     1.9%
DLTNX (DoubleLine Total Return Bond N) 1.1% 0.7% 2.9% 3.3% 1.8% (since 2/24/15)

PIMCO ETF BOND continued to outperform its mutual fund counterpart while DoubleLine TOTL has a similar performance. 

Notice FBND has longer history than TOTL while BOND has the longest history. 

Total Return Bond ETFs Portfolios

It’s natural to ask whether we can construct an ETF portfolio that is based on the total return bond ETFs available so far. 

We construct ETF based portfolios using the following ETFs

1Yr AR 3Yr AR 5Yr AR
BOND (PIMCO Total Return Active ETF) 1.9% 2.6% 3.2% 4.0%
TOTL (SPDR® DoubleLine Total Return Tact ETF) 1.7% 2.1%    
FBND (Fidelity Total Bond ETF) 0.8% 4.2%    
VCIT (Vanguard Intermediate-Term Corp Bd ETF) 1.4% 2.0% 3.7% 4.1%
VMBS (Vanguard Mortgage-Backed Securities ETF) 0.9% 0.2% 2.5% 2.0%
BND (Vanguard Total Bond Market ETF) 0.9% -0.1% 2.4% 2.0%
JNK (SPDR Barclays High Yield Bond ETF) 2.3% 15.1% 2.2% 5.0%

Here are the two portfolios we construct:

Portfolio Performance Comparison (as of 4/7/2017):
Ticker/Portfolio Name YTD
1Yr AR Since 2/27/15
Total Return Bond ETFs 0.8% 2.9% 2.2%
Total Return Bond with High Yield Bond ETFs 2 1.6% 7.3% 3.2% 
Schwab Total Return Bond 2.8% 8.0% 3.9%
VBMFX (Vanguard Total Bond Market Index Inv) 0.9% -0.1% 1.2%

Total Return Bond ETFs uses the total return bond ETFs and the other 3 ETFs: VCIT, VMBS and BND as candidate funds. It always chooses one ETF every month to invest. The reason we add intermediate corporate bond ETFs is to compensate the loss from missing fund like PIMCO Investment Grade Corp Bd D (PBDDX). One can see that compared with Schwab Total Return Bond (mutual fund based) portfolio, its performance is very much behind. 

We attribute the underperformance to the missing LSBDX and PONDX, the two funds that can invest heavily in high yield or junk bonds. For example, based on Morningstar, LSBDX has about 40% exposure to bonds rated BB and lower:

To remedy the missing part, we add an ETF high yield bond JNK to the candidates. To further limit over exposure of high yield bonds, we choose the top two ETFs in the candidate ETFs. This resulted in Total Return Bond with High Yield Bond ETFs 2. One can see that by adding JNK, we have improved the performance dramatically. This portfolio can be a reasonable replacement for a total return bond mutual fund based portfolio. To further test out our theory, we opt to use only the corresponding mutual funds (for JNK, its corresponding mutual fund is Vanguard high yield bond mutual fund VWEHX) and construct Total Return Bond with High Yield Bond ETF Corresponding Mutual Funds 2

Portfolio Performance Comparison (as of 4/7/2017):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Total Return Bond with High Yield Bond ETFs 2 1.6% 7.3%        
Total Return Bond with High Yield Bond ETF Corresponding Mutual Funds 2 1.9% 6.3% 3.6% 4.4% 6.9% 1.79
Schwab Total Return Bond 2.8% 8.0% 3.8% 6.1% 8.2% 1.74

Compared with Schwab Total Return Bond portfolio, the mutual fund based portfolio performs reasonably well though still lagging behind. 


There are various reasons for investors to choose ETFs instead of mutual funds. One is that ETFs are more flexible and much more accessible. Some of our European users have expressed frustration on the restriction to purchase US based mutual funds. ETFs, like stocks, can be purchased and sold even by foreigners. Other reasons include much more complicated tax treatment for mutual funds and trading restrictions like minimum holding periods. 

With three major total return bond ETFs in the markets and several index ETFs in key bond categories, we believe we are getting very close to construct an ETF based portfolio that’s comparable with mutual fund based portfolios. 

Market Overview

Stocks and bonds are still at elevated levels, on both short term technical metrics and long term valuation metrics. However, over valued markets can continue to go up for whatever reasons. For now, the best way is still to stay with the trends and be prepared for the eventual correction. 

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. 

Latest Articles

Enjoy Newsletter

How can we improve this newsletter? Please take our survey 

–Thanks to those who have already contributed — we appreciate it.

Any investment in securities including mutual funds, ETFs, closed end funds, stocks and any other securities could lose money over any period of time. All investments involve risk. Losses may exceed the principal invested. Past performance is not an indicator of future performance. There is no guarantee for future results in your investment and any other actions based on the information provided on the website including, but not limited to, strategies, portfolios, articles, performance data and results of any tools. All rights are reserved and enforced. By accessing the website, you agree not to copy and redistribute the information provided herein without the explicit consent from MyPlanIQ.