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, October 9, 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.
International Diversification Effect
For many global oriented asset allocation investors, 2017 so far has been an interesting year. To begin with, at the beginning of the year, we were very concerned about US stocks’ valuation. We have indicated our uneasiness on this for quite some time. In fact, if one looks at the time the long term valuation based portfolio P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy Total Return Bond Funds As Cash went into ‘cash’ or bonds, it was in December 2014. So 2 and half years and going.
On the other hand, many good investment managers such as PIMCO All Asset’s Rob Arnott were steadfast to point out that emerging market stocks and international stocks were much undervalued, compared with US stocks. So these funds maintained or overweighed their exposure in these stocks. This has proved to be very effective. Thus far, the international diversification again proves its mantle in asset allocation.
US stocks lagged this year
As much as investors are happy with stock returns this year, it turns out US stocks have lagged behind foreign stocks:
|1Yr AR||3Yr AR||5Yr AR||10Yr AR||
|VTSMX (Vanguard Total Stock Mkt Idx Inv)||10.7%||14.6%||8.8%||13.4%||7.8%||4.8%|
|VGTSX (Vanguard Total Intl Stock Index Inv)||20.4%||16.7%||3.3%||7.4%||2.0%||10.4%|
|VEIEX (Vanguard Emerging Mkts Stock Idx)||25.1%||17.9%||1.4%||4.3%||2.1%||23%|
**YTD: Year to Date
In fact, US stocks underperformed by a large margin so far this year: as much as by more than 15%. On the other hand, we remind readers that both international stocks and emerging market stocks have abysmal 10 year performance: 2% vs. US stocks’ 7.8% annual return.
But this is not new: the highlighted column in the above table shows that US stocks severely lagged behind foreign stocks from 2000 to 2007. In fact, until the end of last decade, global allocation portfolios had consistently outperformed US stocks centric portfolios.
Whether markets can substain this trend is anybody’s guess. But the odds are definitely good.
Global allocation funds outperformed
For years, we have monitored some of the best global allocation funds listed on SmartMoneyIQ Managers page. Unfortunately, in the past several years, it was depressing to compare these funds with a simple 60% US stocks and 40% US bonds index fund VBINX (Vanguard Balanced Index Inv) as they have lagged severely.
The tide has turned this year so far:
|1Yr AR||3Yr AR||5Yr AR||10Yr AR||10Yr Sharpe|
|PASDX (PIMCO All Asset D)||11.2%||11.7%||2.6%||3.6%||5.1%||0.57|
|PGMAX (PIMCO Global Multi-Asset A)||10.0%||10.4%||3.7%||2.3%|
|GBMFX (GMO Benchmark-Free Allocation III)||10.6%||9.7%||2.2%||4.8%||5.1%||0.62|
|WASYX (Ivy Asset Strategy Y)||12.0%||10.9%||-2.1%||4.0%||4.3%||0.27|
|MALOX (BlackRock Global Allocation Instl)||10.8%||10.9%||3.9%||6.5%||5.1%||0.42|
|SGIIX (First Eagle Global I)||9.3%||9.5%||5.8%||8.2%||7.0%||0.5|
|DMLIX (DoubleLine Multi-Asset Growth I)||10.2%||12.1%||6.3%||5.0%|
|VBINX (Vanguard Balanced Index Inv)||8.0%||8.9%||6.5%||8.9%||6.7%||0.53|
In fact, year to date all of these funds has had better returns than VBINX. However, other than SGIIX, all other funds have underperformed VBINX by 2-6% annually for the past 5 years. SGIIX is also the only one that did better than VBINX in the last 10 years.
GMO’s GBMFX, a stellar balanced fund, recently has large allocation in (or correlation with) international stocks (see our SmartMoneyIQ Managers page):
GMO Benchmark Free Allocation (GBMFX)
Please note that the above allocations are derived using our regression algorithm, it’s really just an indication on how closely correlated a fund is to an asset class (such as IntlStks or USStks). They are not necessarily the same as the actual allocations.
PIMCO’s PASDX virtually has no allocation to US stocks:
SGIIX mostly allocates to US stocks, but it has sizable international bond exposure. Furthermore, it is well known that the fund allocates in gold for diversification. At this moment, it has about 6.6% in gold commodity. That also helps its performance as gold has done well this year.
Interested readers are encouraged to look at the Smart Manager’s page to see how these funds are allocated/behaved with respect to the major asset classes.
This year’s performance reenforces the concept of diversification. Besides this, what we have learned is that market rotation in various market environments can happen in a meaningful way, even when a market (such as US stocks) is very overvalued. Though it’s possible that amid strong performance of US stocks (and thus the overvaluation), stocks including foreign and emerging market ones can come crashing down, along with US stocks. However, one has to consider several scenarios: first, even if US stocks and foreign stocks might experience a steep correction, it’s likely that the foreign stocks might correct less as their valuations are more reasonable. Furthermore, if US stocks continue their ascent, foreign stocks can rise even more. This scenario is exactly what has happened. Thus, overweight in foreign stocks at the beginning of the year or even last year proves to be a good bet.
Regardless, the relative performance among all these stock assets again points to the importance of sticking to a well designed plan. Markets can ebb and flow, portfolio allocation strategies should remain the same.
Hurricane Irma turns out to be less damaging and this has sparked another rally in stocks. At the moment, S&P 500 reaches another another all time high. Bonds have also avoided the widely predicted demise so far. It seems that the goldilocks continue. For us, the best way is always to stay the course, reaping benefits from whatever markets can give while properly managing risk.
For more detailed asset trend scores, please refer to 360° Market Overview.
Now that the Trump administration has been in the office for more than half a year, it has stumbled and encountered many difficulties to implement its promised changes in terms of tax cuts, job stimulation and infrastructure spending. On the other hand, stocks continued to ascend, regardless of the progress. Looking ahead, however, we remain convinced that markets will experience more volatilities at some point when reality finally sets in.
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.
- September 4, 2017: Invest And Speculate Revisited
- August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?
- August 21, 2017: Portfolio Performance: A Walk In The Past
- August 14, 2017: Fidelity Commission Free ETFs Update
- August 7, 2017: I Didn’t Learn Anything — Mistake vs. Temporary Underperformance
- July 31, 2017: Asset Classes And Fund Choices: A Primer
- July 24, 2017: Total Return Bond Fund Portfolios And Cash
- July 17, 2017: Long Term Stock Holding Periods For Retirement
- July 10, 2017: Half Year Asset Trend Review
- June 26, 2017: How To Beat The Best Balanced Allocation Fund
- June 19, 2017: Newsletter Collection Update
- June 12, 2017: A Mixed Bag Performance of Momentum Investing
- June 5, 2017: How To Start A New Portfolio
- May 29, 2017: Alternative Assets And Their Role In Portfolios
- May 22, 2017: Summer Seasonality And Portfolio Management
- May 15, 2017: Cash: Banking Or Investing?
- May 8, 2017: Holding Period of Long Term Timing Portfolios
- May 1, 2017: Debate on Risk vs. Volatility
- April 24, 2017: The Long Term Stock Market Timing Return Since 1871
- April 17, 2017: Risk vs. Volatility: Long Term Stock Market Returns
- April 10, 2017: Total Return Bond ETFs And Portfolios
- April 3, 2017: Quarter End Asset Trend Review
- March 27, 2017: Practical Consideration For IRAs And 401k Accounts
- March 20, 2017: Fund Fees: That’s (Still) Outrageous
- March 13, 2017: Long Term Stock Valuation Review
- March 6, 2017: Asset Classes for Retirement Investments
- February 27, 2017: Fidelity Total Bond Fund Review
- February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles
- February 13, 2017: Alternative Investment Portfolios Review
- February 6, 2017: Tax Free Municipal Bond Investments Review
- January 30, 2017: Brokerage Specific Conservative Portfolios
- January 23, 2017: Fixed Income Portfolio Review
- January 16, 2017: Long Term Trend Following Portfolio Review
- January 9, 2017: Tactical Asset Allocation Review
- January 3, 2017: Strategic Asset Allocation Review
- December 12, 2016: Enhanced Index Funds
- December 5, 2016: Review Of Broad Base Core Mutual Funds For Brokerages
- November 28, 2016: Core Index ETFs Review
- November 21, 2016: International Exposure Of U.S. Large Companies
- November 14, 2016: Asset Trends After The Election
- November 7, 2016: Rising Rate And Current Bond Trend
- October 31, 2016: Economy Power And Long Term Stock Returns
- October 24, 2016: Current Commodity Trend And Managed Futures
- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
- September 26, 2016: Fixed Income Investing: Actively Managed Funds vs. Index Funds
- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
- August 22, 2016: Inflation Protected Securities TIPS For Current Overvalued Markets
- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
- June 6, 2016: Newsletter Summary
- May 30, 2016: Swensen Portfolio And Permanent Portfolios
- May 23, 2016: AAII Article And Some Web Changes
- May 16, 2016: The PIMCO (Dis)Advantages
- May 9, 2016: Boost Your Dull Summer Investments
- May 2, 2016: Low Cost Index Fund Investing
- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
- February 15, 2016: Bond ETF Portfolios
- February 8, 2016: Newsletter Collection Update
- February 1, 2016: Total Return Bond Fund Portfolios In A Volatile Period
- January 25, 2016: Alternative Portfolios Review
- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
- October 12, 2015: What About Commodities?
- October 5, 2015: Core Satellite Portfolios In A 401k Account
- September 28, 2015: Risk Managed Strategic Asset Allocation Portfolios Revisited
- September 21, 2015: Quest For The Best Investment Strategy
- September 14, 2015: Core Satellite Portfolios In Market Turmoil
- September 7, 2015: Market Rout Creates An Opportunity to Reposition Your Portfolios
- August 31, 2015: Review of Asset Allocation Funds and Portfolios
- August 24, 2015: Market Rout And Your Portfolios
- August 17, 2015: ETF or Mutual Fund Based Portfolios
- August 10, 2015: Updated Newsletter Collection
- August 3, 2015: Slippery Asset Trends
- July 27, 2015: Performance Dispersion Among Momentum Based Portfolios
- July 20, 2015: Global Balanced Portfolio Benchmarks
- July 13, 2015: Pain in Tactical Portfolios
- July 6, 2015: Fixed Income Total Return Bond Funds In Strategic Asset Allocation Portfolios
- June 29, 2015: Core ETF Commission Free Portfolios
- June 22, 2015: Secular Asset Trends
- June 15, 2015: Giving Up Bonds?
- June 1, 2015: Summer Blues?
- May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment
- May 18, 2015: Portfolio Update
- May 11, 2015: Pain in Fixed Income?
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
- April 20, 2015: 529 College Savings Plan Rebalance Policy Change
- April 13, 2015: Total Return Bond Funds As Smart Cash
- April 6, 2015: The Low Return Environment
- March 30, 2015: Brokerage Specific Core Mutual Fund Portfolios 2
- March 23, 2015: Investment Arithmetic for Long Term Investments
- March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios
- March 9, 2015: Newsletter Collection Update
- March 2, 2015: Total Return Bond ETFs
- February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?
- February 16, 2015: Where Are Permanent Portfolios Going?
- February 9, 2015: How Have Asset Allocation Funds Done?
- February 2, 2015: Risk Management Everywhere
- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- January 5, 2015: When Forecast Fails
- December 22, 2014: Long Term Asset Returns: How Long Is Long?
- December 15, 2014: Beaten Down Assets
- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
- September 8, 2014: Momentum Based Portfolios Review
- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment
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