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, September 24, 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.

How Momentum Investing Stacks Up?

Since we started to feature Tactical Asset Allocation(TAA) and its related momentum investing methodology almost 10 years ago, this method has been widely recognized as one of viable investment strategies. At individual stock level, momentum is recognized as one of the four key factors (market, size, value, momentum) that drive a stock fund’s returns. Many momentum factor based ETFs and mutual funds have come to market. These include AQR’s US large stock momentum fund AMOMX and iShares S&P 500 Momentum ETF (MTUM), among many others. 

We have discussed this topic from various angles. We encourage readers who want to read more in this subject to look at those in our newsletter collection. In this newsletter, we will look at how viable a momentum based portfolio is for a long term investor. 

The meaning of long term

At MyPlanIQ, we’ve strived to have a better understanding of the meaning of ‘long term’ in several previous newsletters. In general, we believe this depends on the types of investments (stocks, bonds) and the strategies employed (buy and hold (strategic) or tactical). For an all stock or risk asset portfolio, we generally give the following guideline:

  • For a strategic or buy and hold all stock portfolio, you should expect to keep your money in investments for at least 15 years, preferably 20 years or longer. 
  • For a tactical portfolio that employs a sound strategy such as MyPlanIQ’s Tactical Asset Allocation(TAA) or a long term timing based portfolio, the minimum holding period should be 10 years, preferably 15 years or longer.  

In essence, the above guideline states that for different types of portfolios (strategies), holding for at least the minimum holding period should give investors a reasonable inflation beating return. 

It’s thus natural to ask whether the above 10 years minimum holding period is still applicable to a momentum based stock investment portfolio as a momentum based portfolio is indeed a type of tactical portfolios. 

Rolling returns

The way to really gauge how stable a portfolio’s return is is to use so called rolling returns. For example, a 10 year rolling return is to look at the trailing 10 year annualized return for any time in the history of a portfolio and see how stable (minimum, maximum and average) these returns are. So, the rolling 10 year annualized return at the end of 2010 would be the annualized return since January 1, 2000 to the end of 2010. Similarly, a 15 year rolling returns would look at trailing 15 year annualized returns. 

Of course, one can look at these at the end of every month or at the end of every year. Monthly rolling return data are more fine grained. In the following, we only look at rolling returns at the end of a year. 

We will look at the following three portfolios and S&P 500 index fund (Vanguard 500 VFINX). These portfolios are mentioned in our regular review newsletters such as April 30, 2018: Momentum Investing Review.

Portfolio Performance Comparison (as of 8/17/18):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR Since Inception
P Sector Rotation Fidelity Select Funds Top 2 Monthly Adjust with Cash 8.1% 19.0% 13.8% 15.8% 12.4% 14.8% 17.9% (12/31/90)
P Momentum Scoring Style ETFs and Treasuries 11.8% 24.4% 8.6% 9.1% 10.8% 11% 9.4% (1/1/2001)
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds 2.1% 11.9% 8.6% 8.6% 9.9% 12.5% 12.7% (12/31/97)
VFINX (Vanguard 500 Index Investor) 7.8% 19.4% 12.8% 13.6% 10.4% 9.3% 6.6% (1/1/2001)

10 year chart

Detailed year by year comparison >>

From the above data, one can see that VFINX has been very competitive for the past 1,3,5,10 and even 15 years. Though it is ranked in the last position for the last 15 years, its 9.3% annualized return is nothing to sneer at. 

On the other hand, the long term returns of momentum based portfolios have been very compelling: the 17.9% annualized return since 1990 (that’s about 28 years!)  for Fidelity sector rotation is perhaps the most impressive. So is the global tactical allocation portfolio’s 12.5% since 1997!

Of course, the above does not show the maximum drawdown (a maximum loss from a peak to a subsequent trough). Here is the table: 

Maximum drawdown (as of 8/17/18):
Ticker/Portfolio Name 10Yr  MaxDD Since 2001
P Sector Rotation Fidelity Select Funds Top 2 Monthly Adjust with Cash 28.5% 39.4%
P Momentum Scoring Style ETFs and Treasuries 22.2% 22.2%
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds 17.1% 17.2%
VFINX (Vanguard 500 Index Investor) 47.1% 55.3%

One can see that the global tactical has the best risk score while S&P 500 VFINX lost over more than half of its value at one point. The Fidelity Select funds rotation portfolio is also volatile enough even though the portfolio can go to cash when all of the funds have negative momentum scores. 

Unfortunately, this is only one snapshot in the long history of investing: for example, the S&P 500’s wonderful performance is due to its strong performance in the current long running bull market since 2009. Let’s now turn our attention to 10 and 15 year rolling return data: 


Unfortunately, one can see that VFINX (S&P 500) had a negative rolling 10 year annualized return in 2008 and 2009. It also had a very low 10 year rolling return in 2010 and even 2007. Imagine for a moment, an investor who started to invest in 1998 would see it has lost -1.5% every year (in compound) till 2008. Or put it another way, that means his $10,000 in 1998 would be worth $8.6k only at the end of 2008. 

On the other hand, the momentum based portfolios have at least gain 8.3% annually every year in all those years for the past 10 trailing years, sometimes much higher. 

If we extend our view to trailing 15 years: 


This time, just buy and hold S&P 500 (VFINX) for 15 years will get us at least 4.1% (in year 2012). This still barely beats inflation. That’s why we state that for buy and hold stocks, we prefer holding period to be 20 years or so. 

The 15 year rolling returns for the momentum based portfolios are actually very stable.  Here are some more data:

  • The global tactical portfolio 10 year rolling returns are at least 9%. The minimum of its 15 year rolling returns is 11.1%, higher than 10%. The average of its rolling 15 year returns is 13.2%. 
  • The Fidelity select portfolio 10 year rolling returns are at least 8.3% (year 2009). The minimum of its 15 years rolling returns is 9.8%. However, the average of its rolling 15 year returns is 14.9%!
  • The Style rotation portfolio 10 year rolling returns are at least 8.3% (2016). The minimum of its 15 years rolling returns is 8.7% and the average is 9.9%.
  • Finally, the average of VFINX’s 10 year rolling returns is 8.7% but for 5 years in a row (2007 to 2011), its 10 year rolling returns are all lower than 6%. 

To summarize, the above data again confirm that one should be prepared to stay in a buy and hold strategic asset allocation portfolio for at least 15 years to derive a reasonable return. This is especially important at this moment as currently, US stocks are the most expensive by several well known long term metrics. In fact, we would even venture to say that, to be safe,  one should be prepared to hold stocks for a 20 year period. 

On the other hand, from the above data, a global tactical portfolio is less sensitive to stock valuation. In fact, its lowest 10 year rolling return was in 2016, or from 2006 to 2016. However, Fidelity sector seems to be more sensitive to stock valuation as its lowest 10 year rolling return was in 2008 and 2009. 

For momentum based portfolios, 10 year period is a good minimum holding period. This is again consistent with our general guideline stated in the above. 

Of course, the above analysis is only based on the past data and by no means is a given. That’s why it should be held as a rule of thumb and one should diversify among several strategies if it’s possible. 

Market Overview

US stocks are again inching closer their all time high: S&P 500 index is now less than 1% close to its all time high. Furthermore, bond yields have been stable and 10 year Treasury bond’s yield is now back at 2.8% level. However, the 3 month Treasury bills now have over 2% yield. US dollar has risen against most other major currencies. The main unknown factors that can easily derail the current market include trade tension, currency war and weak emerging market economies (such as Turkey).  In the current high stock valuation environment, it’s thus prudent to manage risk accordingly. 

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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