Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Tuesday, May 28, 2019. You can also find the re-balance calendar for 2019 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.

Morningstar Portfolio Manager Awards

We have long monitored Morningstar Fund Manager of the Year Awards. We maintain a list of total return bond fund portfolios that use total return bond funds managed by these award winning managers as candidate funds.  For more details on these portfolios and the methodology behind them, please read June 3, 2013: Total Return Bond Fund Portfolios For Major Brokerages. These fixed income portfolios have consistently outperformed even these bond funds themselves and can be used as core fixed income investment portfolios. 

Starting from this year, Morningstar has changed its fund manager award methodology (see this): instead of giving out awards for fixed income and equity categories, Morningstar now gives out awards to outstanding portfolio manager, in addition to two other categories: rising talent (manager) and exemplary stewardship (for a firm). In the outstanding portfolio manager award category, it will only select one manager among all of fund types including equity and bonds. 

More due diligence

Since there is no longer a stand alone category for fixed income manager award, we’ll have to do more due diligence to choose a fund to be included in our total return bond fund list. We’ll basically look at bond funds that are managed by the chosen outstanding portfolio manager (if it happens to be a fixed income manager) and the nominees in this category. Furthermore, as the candidate fund list grows bigger, we’ll also look at the existing funds from time to time and remove some of them from the list if needed. 

For 2019, Morningstar nominates 5 managers, two of which are bond fund mangers:

Dan Fuss, Loomis Sayles, Manager Tenure: 28 years. Fund:  Loomis Sayles Bond (LSBRX, LSBDX)

Mary Ellen Stanek, Baird Asset Management, Manager Tenure: 20 years, Fund: Baird Aggregate Bond (BAGSX, BAGIX)

Dan Fuss won the outstanding portfolio manager award.

Let’s look at the two funds.

Loomis Sayles bond fund: high return with high risk 

We are not surprised at all that Dan Fuss won the first award as we are very familiar with Loomis Sayles bond fund and have covered it many times in our newsletters. The fund’s strategy has always been adept overweight in high yield bonds to boost performance. This strategy has paid off and it has consistently put the fund to the top place in terms of long term returns:

Total return bond fund returns (as of 5/20/2019):
Fund YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15 Yr AR
LSBRX (Loomis Sayles Bond Retail) 5.9% 3.1% 3.9% 1.5% 7.1% 6.2%
BAGSX (Baird Aggregate Bond Inv) 3.9% 6.7% 2.1% 2.6% 4.7% 4.3%
DLTNX (DoubleLine Total Return Bond N) 2.6% 5.7% 2.5% 2.9%    
MWTRX (Metropolitan West Total Return Bond M) 3.7% 6.9% 2.2% 2.4% 5.6% 5.2%
PTTAX (PIMCO Total Return A) 3.4% 6.0% 2.4% 2.3% 4.2% 4.7%
VBMFX (Vanguard Total Bond Market Index Inv) 3.4% 6.6% 1.7% 2.3% 3.4% 4%

LSBRX’s 10 and 15 year returns are way ahead of the rest ones’. 

This is because its flexible exposure to high yield bonds. However, such an aggressive stance sometimes can get the fund into trouble. For example, it fund lost a whopping -22% in 2008. 

Nevertheless, MyPlanIQ’s total return bond fund portfolios tactically utilize this fund’s outstanding returns and we view the portfolios’ exposure to this fund from time to time has contributed to our outperformance. 

It’s again reassuring that Dan Fuss was again picked to win the award. 

Baird aggregate: a boost from its benchmark

Based on Morningstar’s analysts on this fund (BAGSX), it carefully manages its position sizing so that it will not deviate too much from its benchmark (i.e. VBMFX). However, it does have a flexibility to overweight in corporate bonds (especially investment grade ones) from time to time to boost performance. 

If we look at the above table more closely, we can see that the fund has outperformed VBMFX for the past 1, 3, 5, 10 and 15 years, a very consistent performer. However, if we compare this fund with the rest of total return bond funds in the above table, we can see that fund had only started to outperform other funds such as MWTRX (Metro West Total Return Bond) in the past 5 years. It has underperformed other funds for the past 10 and 15 years. 

In fact, from both its investment strategy (a careful overweight in investment grade bonds with strict position sizing) and its return history, we view this fund is similar to MWTRX. They both can be viewed as an ‘enhanced’ index fund. They don’t take some outsized bets in one sector. These funds can be used as so called ‘core plus’ bond funds. 

In light of its performance, at this moment, we believe our current candidate fund list has funds like MWTRX that are similar and have done better. We thus opt to not add this fund to our candidate fund list this time. However, we will monitor this fund and see whether it warrants a consideration in the future. 

Market overview

The trade war has been escalated and stocks are again under pressure. For now, only US stocks and REITs are still showing positive trend scores while international and emerging market stocks have been in a downtrend. We have no idea on what’s going to be next. However, as stock valuations are high and US stocks’ prices are also high, we believe it warrants a careful risk management. For now, the best way is to review your risk exposure and stay the course. 

For more detailed asset trend scores, please refer to 360° Market Overview

In terms of investments, even after the recent retreat, U.S. stock valuation is still at a historically high level and a bigger correction is still waiting to happen. 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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