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 2, 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 Update

In this newsletter, we review current bond market trends and then discuss several issues of total return bond funds. 

Trends in fixed income bonds

The Federal Reserve raised interest rate by 0.25% last week. In general, interest rates have been rising and prices of bonds have declined. However, long term rates have recently become steady.

Bond trends (as of 3/23/2018) from 360° Market Overview:

Description Symbol 1 Week 4 Weeks  13 Weeks 52 Weeks Trend Score
International Treasury BWX 0.92% 1.25% 4.67% 11.13% 4.44%
International Inflation Protected WIP 1.2% 0.2% 4.67% 10.39% 4.05%
High Yield Muni VWAHX 0.09% 0.2% -0.66% 5.01% 0.92%
Long Term Muni VWLUX 0.09% 0.19% -0.95% 3.62% 0.46%
Treasury Bills SHV 0.04% 0.11% 0.29% 0.95% 0.39%
Short Term Muni VWSUX -0.06% -0.03% 0.27% 0.76% 0.16%
Interm Term Muni VWIUX -0.07% 0.0% -0.72% 2.06% 0.0%
Short Term Treasury  SHY 0.11% 0.14% -0.14% -0.03% -0.07%
Short Term Credit CSJ 0.04% -0.07% -0.46% 0.43% -0.12%
Inflation Protected TIP 0.35% 0.61% -0.51% -0.69% -0.17%
US Total Bond BND -0.01% 0.34% -1.22% 1.35% -0.19%
MBS Bond MBB 0.1% 0.23% -1.38% 0.57% -0.38%
20+ Year Treasury TLT 0.3% 1.93% -3.29% 2.13% -0.47%
Intermediate Term Credit CIU -0.18% -0.34% -1.54% 0.9% -0.55%
Intermediate Treasury IEF 0.32% 0.71% -1.92% -0.68% -0.91%
High Yield JNK -0.97% -1.32% -1.89% 0.94% -0.98%
10-20Year Treasury TLH 0.26% 1.03% -2.53% -0.7% -1.15%
Long Term Credit LQD -0.89% -0.99% -3.56% -0.56% -1.77%
Emerging Mkt Bonds PCY -1.49% -1.66% -4.93% -1.5% -2.93%

10 year Treasury yield chart: 


Since February, the 10 year Treasury yield has been stable. 

From the above data, municipal bonds and international bonds (excluding emerging market bonds) are still showing positive trend scores while the rest, including US total bonds, have been in a downtrend. This is yet another example/period that shows municipal bonds can be used even for a tax deferred account to boost returns or reduce losses. 

Total return bond fund update

First, we want to report on PIMCO funds’ D share to A share conversion issue. As of this Monday, PIMCO officially converted its various D share funds to A share funds. This affects some of the funds MyPlanIQ uses in several plans:

  1. PIMCO income fund PONDX to PONAX
  2. Total return fund PTTDX to PTTAX
  3. Investment grade corp bond fund PBDDX to PBDAX
  4. StocksPlus PSPDX to PSPAX
  5. Intl StocksPlus PIPDX to PIPAX, Intl StocksPlus Unhedged PPUDX to PPUAX, Real Estate Real Return PETDX to PETAX

We have checked with major brokerages on the availability of A share funds as no load (load waived) and no transaction fee (NTF) funds for the above funds. Fortunately, most major brokerages including Fidelity, Schwab, Merrill Edge, Vanguard and Etrade have officially stated A share funds from 1 to 4 are available as load waived NTF funds. Even though TD Ameritrade web site has not made a change on A share funds, based on our conversation with the company, those A share funds in item 1 to 4 should be available as load waived NTF funds too. 

Unfortunately, A share funds in item 5 are not load waived so we will eliminate these funds in MyPlanIQ plans that use these funds in the coming days. 

At the moment, you might notice MyPlanIQ portfolios are still using D share fund symbols. This is a technical convenience as we are in the process of merging them to A share funds. Just beware of this. We will eventually change D share symbols to A share symbols and eventually stop using D share fund symbols. 

Now, let’s look at the total return bond fund performance (as of 3/23/2018):

Fund YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
PONDX (PIMCO Income D) -0.9% 5.1% 5.6% 5.4% 8.8%
PBDDX (PIMCO Investment Grade Corp Bd D) -2.1% 3.7% 3.0% 3.4% 6.7%
PDBZX (Prudential Total Return Bond Z) -2.2% 2.8% 2.2% 2.9% 5.6%
DLTNX (DoubleLine Total Return Bond N) -0.5% 2.1% 1.8% 2.4%  
PTTDX (PIMCO Total Return D) -1.6% 1.9% 1.3% 1.5% 4.5%
LSBRX (Loomis Sayles Bond Retail) -0.3% 1.6% 1.8% 2.6% 5.4%
WABRX (Western Asset Core Bond R) -2.3% 1.3% 1.4% 2.1%  
FTBFX (Fidelity Total Bond) -1.6% 1.1% 1.9% 2.4% 5.2%
TGMNX (TCW Total Return Bond N) -1.5% 1.0% 0.8% 1.9% 5.3%
MWTRX (Metropolitan West Total Return Bond M) -1.8% 0.6% 0.8% 1.8% 5.0%
VBMFX (Vanguard Total Bond Market Index Inv) -2.1% 0.6% 0.8%  1.5% 3.4%

**YTD: Year to Date

PIMCO Income fund (PONDX and soon PONAX) has maintained its stellar performance. Like PIMCO total return (PTTAX), this fund uses derivatives to boost its returns. Based on Morningstar, on 12/31/2017, it has the following allocation:

Top holdings:

It’s notable that the fund were shorting foreign bonds and this is basically a currency play. To get ahead of other similar funds, this fund, like the old Bill Gross’ PIMCO total return bond fund, is adept at using derivatives and international bonds. 

The other noticeable fund is Loomis Sayles LSBRX. This fund actually had the smallest loss year to date. As profiled numerous times in our newsletters, this fund is usually heavily tilted to low grade corporate bonds. However, as of the end of last year, it has raised cash (18.6% on 12/31/2017) and reduced its duration (thus shorten its maturity exposure) to just 3.2 years by the end of 2017. We believe this contributed to its small loss. 

The timely using global bonds, duration adjustment, credit level exposure and other means, as illustrated in the above two funds, are the basis for our confidence that even in the current bond hostile environment, our total return bond fund portfolios (see Brokerage Investors page) will be able to derive some reasonable returns. 

As of 3/23/2018, the performance of total return bond fund portfolios: 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
Schwab Total Return Bond -1.3% 3.6% 3.4% 3.6% 7.5%
Fidelity Total Return Bond -1.3% 5.0% 2.6% 3.1% 7.0%
TDAmeritrade Total Return Bond -1.3% 4.6% 3.2% 3.5% 7.4%
FolioInvesting Total Return Bond -1.3% 3.6% 3.4% 3.6% 7.5%
Etrade Total Return Bond -1.3% 3.6% 3.4% 3.6% 7.5%
Merrill Edge Total Return Bond -1.3% 3.6% 2.7% 3.5% 8.3%
Vanguard Brokerage Total Return Bond -1.3% 3.6% 3.4% 3.6% 7.6%
PTTRX (PIMCO Total Return Instl) -1.5% 2.3% 1.6% 1.9% 4.8%
VBMFX (Vanguard Total Bond Market Index Inv) -2.1% 0.6% 0.8% 1.5% 3.4%

**YTD: Year to Date

Market Overview

Stocks took a deep dive last week as investors are becoming more concerned about a possible trade war between the U.S. and China, among other factors. S&P 500 approached the low made in February. Bonds rose as the fear was more related to economy not inflation. This is a good news for balanced investors as bonds are at least still acting as a hedge when stocks are in a dump. Commodities also rose. Again, we want to bring to readers’ attention that high yield bonds have been in a long period of downtrend. Whether a major trend change is soon to arrive is anyone’s guess. For now, staying the course and managing risk are the best way to navigate through this period, as in other periods too. 

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 a year, the economy and financial markets are in general still in a good shape. Whether the economy will continue to benefit from the supposedly trickle down of the tax cut, the deregulation and the promised infrastructure spending remains to be seen.  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. 

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