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

Regular AAC (Asset Allocation Composite), SAA and TAA portfolios are always rebalanced on the first trading day of a month. the next re-balance will be on Tuesday June 1, 2021. 

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.

Total Return Bond ETFs Review

We regularly look at a list of total return bond ETFs (and mutual funds) and review their latest status. 

In this newsletter, we want to first review our current total return bond ETF lineup that’s used in our MPIQ ETF Fixed Income model portfolio (and also as the sublist of bond funds in our asset allocation portfolio MPIQ ETF Allocation Moderate). We then look at the possible new additions. 

The total return bond ETF lineup

For those who are not familiar with our fixed income bond portfolios, please refer to income investor page and other newsletters for more details. Briefly, we are maintaining a list of total return bond ETFs whose mutual fund counterparts have won the Morningstar’s Fixed Income Manager of the Year award. Our flagship bond portfolios select top performing fund from these candidate funds every month. It also has some risk management mechanism builtin to navigate during a severe market downturn. 

Since 2011, our mutual fund total return bond portfolios such as Schwab Total Return Bond (these portfolios are tailored to brokerages, see page for more details) have consistently outperformed all of the best total return bond mutual funds. We also introduced our ETF portfolio MPIQ ETF Fixed Income 3 years ago. This portfolio also did well. See the latest review newsletter February 8, 2021: Total Return Bond ETFs Review.

Here is the list of those ETFs and their mutual fund counterparts. 

Mutual Fund ETF
PTTAX (PIMCO Total Return A) BOND (PIMCO Total Return Active ETF)
DLTNX (DoubleLine Total Return Bond N) TOTL (SPDR® DoubleLine Total Return Tact ETF)
FTBFX (Fidelity Total Return Bond) FBND (Fidelity Total Bond ETF)
TGMNX (TCW Total Return Bond N) FIXD (First Trust TCW Opportunistic Fixed Income ETF)
PBDAX (PIMCO Investment Grade Corp Bd A) N/A
WABRX (Western Asset Core Bond R) N/A (WBND due to low asset under management)
MWTRX (Metropolitan West Total Return Bond M) N/A
LSBRX (Loomis Sayles Bond Retail) N/A
ITBAX (Hartford Total Return Bond A) HTRB (Hartford Total Return Bond ETF) AUM: $985 M
ACPSX (Invesco Core Plus Bond A) GTO (Invesco Total Return Bond ETF) AUM: $685 M

In the above table, the first column lists the mutual funds that are in our total return bond (mutual) fund portfolios. The second column lists their corresponding ETF counterparts. The highlighted two rows are the two new ETFs we will discuss shortly. As of now, they are not in our lineup. 

As we can see from the above, there are still five mutual funds that have no corresponding ETFs (one of them, Western Asset Core Bond does have WBND ETF but unfortunately, this ETF’s AUM is something like $100 M, which is below our cutoff threshold $500M (that we established to ensure there is enough liquidity when rebalancing). 

In our opinion, the most glaring misses in our ETF lineup are  those corresponding to PIMCO Income, PIMCO Investment Corp Bond and Loomis Sayles Bond funds. These three funds have quite some latitude to invest in high yield corporate bonds (or other low quality bonds) and some international (even emerging market) bonds. They have been able to help the mutual fund portfolios outperform the ETF portfolio. In particular, we believe PIMCO Income contributed the most in the outperformance. 

The new ETFs

Morningstar started to phase out its Fixed Income Manager of the Year award 2 years ago. Their new awards are now in three categories which are Outstanding Portfolio Manager, Rising Talent and Exemplary Stewardship. There is no guarantee to have a fixed income fund manager award in a particular year. We have thus decided to extend our horizon to look at some additional funds. In particular, we require that to be included in our ETF portfolio candidate fund list, a total return bond ETF should be rated at least Bronze by Morningstar. However,  Bronze or higher rating does not automatically guarantee to be included in our list. We exercise our discretion here. 

In the following, we will take a look at two new ETFs that are both ranked as Bronze by Morningstar. 

Fund Expense Ratio (%) Asset Under Management (AUM, $M) Morningstar Rating
GTO (Invesco Total Return Bond ETF) 0.5 676 Bronze
ACPSX (Invesco Core Plus Bond A) 0.76 5,700 Bronze
HTRB (Hartford Total Return Bond ETF) 0.29 948 Bronze
ITBAX (Hartford Total Return Bond A) 0.71 3,400 Neutral (HIABX, institutional class ranked as Bronze)

Both ETFs have much lower expense ratios than their mutual fund counterparts. This is one of the two key advantages over mutual funds. The other is that ETFs are usually universally available in most brokerages. Another ETF advantage, tax efficiency, is not as important for taxable bond funds as for stock funds. 

Here are what Morningstar has to say about the two ETFs: 

For GTO, “Managers Matt Brill and Michael Hyman have led this strategy since July 2013. Brill oversees the strategy’s day-to-day operations and works alongside experienced comanagers and analysts specializing in corporate credit and structured products. They typically invest 40%–65% of assets in corporate bonds, 10%–20% in both agency and nonagency MBS, 10%–20% in U.S. Treasuries, and mid- to high-single- digit stakes each in commercial MBS and ABS.”

For HTRB, “Joseph Marvan, Campe Goodman, and Robert Burn took the reins of the strategy in 2012. The trio makes sector allocation, duration, and yield-curve decisions, while sector specialists, who are also seasoned portfolio managers, weigh in on individual security selections. The team also relies on the firm’s large analyst team, comprehensive fixed-income risk systems, and quantitative research team to hone the portfolio. The team has kept moderate allocations in higher- yielding sectors and has tactically increased exposure to lower-quality credits. But the strategy’s flexibility to take risk in out-of-benchmark positions means it may underperform in rocky credit markets but do relatively well when credit rallies.“

One of the main motivations for us to look at these two funds is that both have demonstrated a strong ability to tactically invest in lower quality higher yielding sectors. This is an important ability possessed by funds like PIMCO Income and Loomis Sayles Bond. 

The returns of these two ETFs are good so far: 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
GTO (Invesco Total Return Bond ETF) -1.4% 6.9% 7.2% 5.8%  
ACPSX (Invesco Core Plus Bond A) -1.5% 7.4% 6.3% 4.2% 4.3%
HTRB (Hartford Total Return Bond ETF) -2.1% 4.0% 6%    
ITBAX (Hartford Total Return Bond A) -2.5% 3.4% 5.6% 3.8% 3.6%
VBMFX (Vanguard Total Bond Market Index Inv) -3% -0.4% 5,1% 2.9% 3.2%

ETF returns for the past 3 years:


  • Both ETFs outperformed their mutual fund counterparts for the past 1, 3 and 5 years (HTRB has a history shorter than 5 years). 
  • They both did much better than VBMFX for the past 1, 3 and 5 years. 
  • Their mutual fund counterparts have consistently outperformed the index fund VBMFX for the past 1, 3, 5 and 10 years, indicating that the managers’ ability has been consistent, a very important quality when we consider to include a candidate fund in our fixed income portfolios. 

In a future newsletter, we will study the performance of our fixed income portfolios in more details. We’ll also explore whether including these new ETFs can help boost returns without adding much risk. 

Market Overview

Q1 earnings reports are now wrapping up: 91% of the companies in the S&P 500 had reported as of last Friday.  The streak of positive surprises for the blended (actual + expected for those still to report) earnings growth continued, based on Factset

  • the blended earnings growth was 50.3%, compared with 49.4% the week before, 45.8% twos week before, 33.8% three weeks before, 30.2% four weeks before and, 23.8% on March 31, 2021. 

However, investors are now turning their attention to the surging inflation: the Consumer Price Index (CPI) for April rose 4.2% from a year earlier, way higher than the expected 3.6% increase. Even excluding food and energy prices that are usually more volatile and temporary, the core CPI increased 3% from a year earlier, higher than 2.3%. It’s clear that the inflation has been rising more rapidly recently. The key question is whether this is transitory or more permanent. If it’s transitory, the economy will hopefully get into a goldilocks situation soon. However, if this rise prolongs, the economy could be eventually affected negatively.  

Investors should be aware that even though the rising inflation could be ‘transitory’ for the economy in a longer time frame, the short term rapidly rising inflation can push to reset interest rates back to the pre pandemic level faster and harder and its impact on stock prices could be much bigger: given current stock’s extremely high valuation and elevated level, stock prices can be pulled down hard.  

We are again cautiously optimistic and reiterate the following practice: 

  • For strategic allocation (buy and hold) investors, ignore the current market behavior. Remember, as what we have emphasized numerous times, when you choose and commit to a strategic portfolio, you essentially know and commit that your investment horizon (or the time you need to utilize this capital) is 20 years or longer. As we pointed out, if your investments are those diversified (index) funds such as an S&P 500 index fund (VFINX, for example), you know your money is in some solid ‘business’ that eventually (20 years later) will deliver some reasonable returns. As long as you are comfortable with this thesis, you should sit tight and forget about the current gyration.
  • For tactical investors, again, you have to ignore the current market noise. Furthermore, you should follow your strategy rigorously, especially in a time like this. Human emotion, both optimistic and pessimistic, and human desire, both greedy and fearful, are your worst enemies. This has been shown to be true time and time again.

Stock valuation is still extremely high by many historical standards. For the moment, we believe it’s prudent to be cautious while riding on market uptrend. However how serious a correction might be, we have confidence in the US economy in the long term and thus in the stocks in aggregate. We just need to manage through interim losses carefully.  

We again would like to emphasize that 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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