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, February 6, 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.
Fixed Income Portfolio Review
As many users might have known, MyPlanIQ’s fixed income portfolios (total return bond fund portfolios) have done very well. They have consistently outperformed bond market indices and many excellent bond funds. These portfolios select a total return bond fund from a pool of candidate funds each month based on their recent performance (momentum). The candidate funds are those total return bond funds whose managers should have been at least one time selected as Morningstar’s fixed income managers of the year. The portfolios are brokerage specific, only using those no transaction fee (NTF) no load mutual funds available to a brokerage. They are listed on Brokerage Investors (What We Do -> Brokerage Investors).
In the following, we will review how these portfolios did in 2016. First, let’s look at the candidate funds’ performance in 2016.
Total Return Bond Funds Performance in 2016
The following table shows the performance of total return bond funds used as the candidate funds in our total return bond fund portfolios.
Fund Name | 1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
---|---|---|---|---|---|
LSBRX (Loomis Sayles Bond Retail) | 8.4% | 1.8% | 4.7% | 5.6% | 0.94 |
PBDDX (PIMCO Investment Grade Corp Bd D) | 6.9% | 4.8% | 5.2% | 6.9% | 1.22 |
DODIX (Dodge & Cox Income) | 5.7% | 3.5% | 3.8% | 5.0% | 1.46 |
PONDX (PIMCO Income D) | 2.8% | 0.4% | 3.2% | ||
VBMFX (Vanguard Total Bond Market Index Inv) | 2.7% | 2.8% | 2.0% | 4.2% | 0.91 |
PTTDX (PIMCO Total Return D) | 2.5% | 2.3% | 2.9% | 5.3% | 1.16 |
MWTRX (Metropolitan West Total Return Bond M) | 2.4% | 2.6% | 3.8% | 5.6% | 1.3 |
WABRX (Western Asset Core Bond R) | 1.7% | 1.4% | |||
TGMNX (TCW Total Return Bond N) | -0.4% | 1.8% | 3.8% | 5.8% | 1.42 |
DLTNX (DoubleLine Total Return Bond N) | -1.7% | -0.7% | 0.1% |
From the table, one can see that about half of these funds outperformed Vanguard bond index fund (VBMFX). Among them, LSBRX (Loomis Sayles Bond Retail) was the number one, followed by PBDDX (PIMCO Investment Grade Corp Bd D). These funds did well as they invested in corporate bonds (in the Loomis Sayles case, it even had a sizable exposure in high yield bonds) which, as US stocks, did well last year. However, about half of the funds underperformed the index fund as they were more conservative, investing mostly in Treasury bonds, short term bonds and mortgage backed securities.
DLTNX (DoubleLine Total Return Bond N), in particular, ranked at the bottom in 2016 because of its overweight in mortgage backed securities. This is unusual as the fund had always ranked at the top before 2016. Again, this also confirms what we have always said: no single fund can persistently outperform every year. That is why we need to use fund rotation to weed out underperformers in an intermediate term.
Total return bond fund portfolios outperformed in 2016
All of our total return bond fund portfolios outperformed the benchmark (VBMFX) in 2016:
Total return bond fund portfolios in 2016
Ticker/Portfolio Name | 1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR |
---|---|---|---|---|
Schwab Total Return Bond | 7.6% | 3.8% | 6.0% | 8.0% |
Fidelity Total Return Bond | 3.3% | 2.3% | 5.2% | 7.4% |
TDAmeritrade Total Return Bond | 4.7% | 2.9% | 6.1% | 7.9% |
FolioInvesting Total Return Bond | 7.6% | 3.8% | 6.0% | 8.0% |
Etrade Total Return Bond | 3.2% | 3.3% | 5.8% | 7.9% |
Merrill Edge Total Return Bond | 3.6% | 4.2% | 6.6% | 8.4% |
Vanguard Brokerage Total Return Bond | 7.6% | 3.8% | 6.0% | 8.2% |
PTTRX (PIMCO Total Return Instl) | 2.8% | 2.6% | 3.2% | 5.6% |
VBMFX (Vanguard Total Bond Market Index Inv) | 2.7% | 2.8% | 2.0% | 4.2% |
In fact, all of our portfolios did better in the last 1, 5 and 10 year periods. For the past 3 years, only Fidelity portfolio did worse than VBMFX. Its lack luster performance in 2016 was the main factor that affected its 3 year performance.
2016 was a good year for the total return bond portfolios as the algorithm directed their investments to the corporate bond heavy funds such as PBDDX and LSBDX. These trends were almost reversed before the election but then persisted after the Trump’s election victory induced risk asset rally at the year end.
Fixed income investment outlook
The bond market has been scary for several years now as many pundits have predicted an up coming bear market. However, up to now, this doomsday scenario hasn’t materialized.
The main reasons cited by bond bears are the increasing inflation and the rising interest rates because of the strength of US labor market and the infrastructure spending plan president Trump vows to carry out in the backdrop of ultra low interest rates by any historical standard. Others, on the other hand, point out that the US economy is still in an anemic growth mode while the infrastructure spending plan might not be as significant as what many think. Other factors that support this argument include demographic situation, the ever entangled global manufacturing process and the geopolitical risk. These create many uncertainties in global economy that might just easily tip the US back to deflation or hinder its growth.
In the event of a bond bear market, as we pointed out several times before, there will still be a few of pockets of opportunities a good fixed income investor can take advantage of. Fixed income spans from spectrums of high yield bonds, emerging market bonds and long term bonds to floating rates and short term bonds. Interest rate risk, though significant, does not mean all is lost. Yes, it will be more volatile and possibly lower returns for bond indexes. But we have confidence that a good active strategy such as our total return bond fund rotation will help navigate through this secular period and achieve a reasonable return. If there is anything, this era calls for such active strategies even more.
Finally, we would like to remind our readers that amid the bearish talk on bonds, we view fixed income or bonds are still the vital component in an asset allocation portfolio. Even in a bond negative environment, bonds still serve as an important hedge or stabilizer for a portfolio. An all stock portfolio, however how negative bonds are, still has much higher risk than a stock and bond mix portfolio. When stocks undergo a correction, bonds, especially those high quality bonds such as (long term) Treasury bonds, will still become a fly to safety asset. That in turn will help to mitigate a portfolio’s risk.
Market Overview
Last week, other than REITs, practically all of major assets lost ground. It appears that investors are finally getting over the euphoric period of Trump’s election victory and are adjusting the reality. We have no idea what markets will do next but as long as we manage our risk properly and stick to our sound strategies, we will stay on the course to achieve long term investment goals.
For more detailed asset trend scores, please refer to 360° Market Overview.
As now we have a president elect who promised to challenge the status quo and make substantial structural change (such as infrastructure building), we are now in a wait and see period: as the nation is posed to invest, the most important factor to watch is how productive the investments will be. Simply put, productive investments will result in better return on investment (ROI), tangibly or intangibly. They should also increase productivity that in turns will improve our standard of living. Capital misallocation can result in a higher growth but might not improve the real standard of living, which is the ultimate goal of economic activities.
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.
Latest Articles
- January 16, 2017: Long Term Trend Following Portfolio Review
- January 9, 2017: Tactical Asset Allocation Review
- January 3, 2017: Strategic Asset Allocation Review
- December 5, 2016: Review Of Broad Base Core Mutual Funds For Brokerages
- November 28, 2016: Core Index ETFs Review
- November 21, 2016: International Exposure Of U.S. Large Companies
- November 7, 2016: Rising Rate And Current Bond Trend
- October 31, 2016: Economy Power And Long Term Stock Returns
- October 24, 2016: Current Commodity Trend And Managed Futures
- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
- September 26, 2016: Fixed Income Investing: Actively Managed Funds vs. Index Funds
- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
- August 22, 2016: Inflation Protected Securities TIPS For Current Overvalued Markets
- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
- June 6, 2016: Newsletter Summary
- May 30, 2016: Swensen Portfolio And Permanent Portfolios
- May 23, 2016: AAII Article And Some Web Changes
- May 16, 2016: The PIMCO (Dis)Advantages
- May 9, 2016: Boost Your Dull Summer Investments
- May 2, 2016: Low Cost Index Fund Investing
- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
- February 15, 2016: Bond ETF Portfolios
- February 8, 2016: Newsletter Collection Update
- February 1, 2016: Total Return Bond Fund Portfolios In A Volatile Period
- January 25, 2016: Alternative Portfolios Review
- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
- October 12, 2015: What About Commodities?
- October 5, 2015: Core Satellite Portfolios In A 401k Account
- September 28, 2015: Risk Managed Strategic Asset Allocation Portfolios Revisited
- September 21, 2015: Quest For The Best Investment Strategy
- September 14, 2015: Core Satellite Portfolios In Market Turmoil
- September 7, 2015: Market Rout Creates An Opportunity to Reposition Your Portfolios
- August 31, 2015: Review of Asset Allocation Funds and Portfolios
- August 24, 2015: Market Rout And Your Portfolios
- August 17, 2015: ETF or Mutual Fund Based Portfolios
- August 10, 2015: Updated Newsletter Collection
- August 3, 2015: Slippery Asset Trends
- July 27, 2015: Performance Dispersion Among Momentum Based Portfolios
- July 20, 2015: Global Balanced Portfolio Benchmarks
- July 13, 2015: Pain in Tactical Portfolios
- July 6, 2015: Fixed Income Total Return Bond Funds In Strategic Asset Allocation Portfolios
- June 29, 2015: Core ETF Commission Free Portfolios
- June 22, 2015: Secular Asset Trends
- June 15, 2015: Giving Up Bonds?
- June 1, 2015: Summer Blues?
- May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment
- May 18, 2015: Portfolio Update
- May 11, 2015: Pain in Fixed Income?
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
- April 20, 2015: 529 College Savings Plan Rebalance Policy Change
- April 13, 2015: Total Return Bond Funds As Smart Cash
- April 6, 2015: The Low Return Environment
- March 30, 2015: Brokerage Specific Core Mutual Fund Portfolios 2
- March 23, 2015: Investment Arithmetic for Long Term Investments
- March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios
- March 9, 2015: Newsletter Collection Update
- March 2, 2015: Total Return Bond ETFs
- February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?
- February 16, 2015: Where Are Permanent Portfolios Going?
- February 9, 2015: How Have Asset Allocation Funds Done?
- February 2, 2015: Risk Management Everywhere
- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- January 5, 2015: When Forecast Fails
- December 22, 2014: Long Term Asset Returns: How Long Is Long?
- December 15, 2014: Beaten Down Assets
- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
- September 8, 2014: Momentum Based Portfolios Review
- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment
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