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, August 20, 2018. 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

It’s been a while since our last discussion on total return bond ETFs: 

As we stated previously, we monitor these total return bond ETFs to see whether they can become some solid alternatives for the total return bond mutual funds that we are utilizing for fixed income investing. 

Recent performance

The following table compares the three total return bond ETFs with their mutual fund counter parts: 

Total return bond ETFs vs. mutual funds (as of 8/13/2018):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR Since ETF inception
FBND (Fidelity Total Bond ETF) -1.0% -0.1% 2.4% 2.1% (10/09/14)
FTBFX (Fidelity Total Bond) -0.8% -0.6% 2.5% 2.2%
BOND (PIMCO Total Return Active ETF) -0.9% -0.4% 2.1% 3.7% (03/2/12)
PTTAX (PIMCO Total Return A) -1.5% -1.3% 1.6% 2.2%
TOTL (SPDR® DoubleLine Total Return Tact ETF) -0.4% -0.7% 1.8% 1.6% (02/24/15)
DLTNX (DoubleLine Total Return Bond N) 0.4% 0.6% 2.0% 2.0%
VBMFX (Vanguard Total Bond Market Index Inv) -1.5% -1.1%  1.4% 1% (02/24/15)

See detailed comparison >>


  • Fidelity total return bond funds are very comparable, though the ETF FBND is still a little bit behind. 
  • PIMCO ETF BOND has consistently outperformed its mutual fund peer PTTAX since its inception more than 6 years ago. This is very surprising. Apparently, the mutual fund one hasn’t performed well since its star fund manager Bill Gross left the firm. It’s been reported that the mutual fund employs various techniques such as futures and leverage to enhance returns while the ETF is a much simpler vanilla style — only holding bond securities. In this case, it does seem that simpler is better. 
  • On the other hand, Doubleline’s ETF TOTL is a disappointment: it’s been underperforming against the mutual fund DLTNX since its inception. This even raises the question whether the ETF is really well implemented to mimic the mutual fund. 
  • On the other hand, all of the three ETFs have outperformed the total bond market index fund VBMFX since 2/4/2015. This is very encouraging and again validates our claim that market weight based bond indexing is not a very good way for bond investing. Many good actively managed funds can outperform such indices. 

ETF portfolios

In the previous newsletter, we also introduced two ETF portfolios based on the three ETFs and some other bond index ETFs: 

1Yr AR 3Yr AR 5Yr AR
BOND (PIMCO Total Return Active ETF) -0.9% -0.4% 2.1% 3.0%
TOTL (SPDR® DoubleLine Total Return Tact ETF) -0.4% -0.7% 1.8%  
FBND (Fidelity Total Bond ETF) -1.0% -0.1% 2.4%  
VCIT (Vanguard Intermediate-Term Corp Bd ETF) -1.7% -0.3% 2.6% 3.2%
VMBS (Vanguard Mortgage-Backed Securities ETF) -0.4% 0.1% 1.4% 2.3%
BND (Vanguard Total Bond Market ETF) -1.6% -1.1% 1.5% 2.0%
JNK (SPDR Barclays High Yield Bond ETF) 0.6% 3.0% 3.8% 3.3%

Two portfolios are constructed. Let’s take a look at their latest performance

Portfolio Performance Comparison (as of 8/13/2018)
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR
Total Return Bond ETFs -1.4% -1.0% 2.0%  
Total Return Bond with High Yield Bond ETFs 2 -1.2% 0.0% 3.8%  
Schwab Total Return Bond -1.1% 1.4% 4.6% 3.9%
VBMFX (Vanguard Total Bond Market Index Inv) -1.5% -1.1% 1.4% 2.0%

Last three year return chart: 

Unfortunately, the two ETF based portfolios have not been in par with the mutual fund based portfolio Schwab Total Return Bond though the one with high yield bond ETF added is somewhat closer. 

The underperformance cab be attributed to missing funds that are similar to Loomis Sayles (LSBRX) and PIMCO Income (PONAX). LSBRX is known to be adept to invest in high yield bonds to boost its returns. In fact this is the reason why we tried to construct Total Return Bond with High Yield Bond ETFs 2 that includes high yield bond ETF JNK. However, for this portfolio not to deviate too much out of the risk spectrum of total return bond funds, we opt to invest in two ETFs, thus limit the exposure to high yield bond ETFs up to 50%. 

PIMCO Income, on the other hand, is very skilled in corporate bonds. It can at times even adopt leverage and have exposure in foreign bonds. Unfortunately, we don’t really have anything similar in ETFs yet. 

In conclusion, the actively managed bond ETF space hasn’t changed much — we are still waiting for more good actively managed mutual funds to come to the ETF market. This, however, is not guaranteed by any means, judging from the asset under management for the three ETFs: BOND $2 billion, FBND $0.5 billion while TOTL $3.15 billion — nothing compared to their mutual fund peers. It’s also a surprise here TOTL, while underperforming against the other two ETFs by some good margins for the past 3 years, has attracted most assets. Talk about star manager (TOTL’s Jeffrey Gundlach) attraction!

Market Overview

By last Friday, majority (91%) of S&P 500 companies had reported Q2 earnings. The blended earnings growth was 24.6%, much higher than the 20% expected on 6/30 (see Factset). Unfortunately, negative earnings guidance for the next quarter is also above the 5 year average (74% vs. 72%). At the moment, investors are turning attention to Turkish currency crisis. However,  they are still very much risk on: 

Regardless, in addition to trade war induced concerns, the major market risk is in its historically high valuation and extended rise. We believe investors should review their overall risk exposure and reduce any extra risk. 

As always, we call for staying the course.  

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 about 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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