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, April 17, 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.
Total Return Bond ETFs And Portfolios
We have monitored the actively managed bond ETFs space closely. For our total return bond mutual fund based portfolios, we pay attention to the ETFs that track the total return bond mutual funds used in our total return bond portfolios (see those listed on Brokerage Investors (What We Do -> Brokerage Investors), or see January 23, 2017: Fixed Income Portfolio Review). Previously, there were only two such ETFs (PIMCO and DoubleLine). However, after this year’s Morningstar’s fixed income manager award, Fidelity total bond (FBND) became a new addition (see February 27, 2017: Fidelity Total Bond Fund Review for more details).
About a year ago, we reviewed the two ETFs in March 28, 2016: Total Return Bond ETFs Review.
Fidelity Total Bond ETF FBND vs. Total Bond Mutual Fund FTBFX
First, let’s look at the performance of the Fidelity ETF:
Fund Name | YTD Return** |
1Yr AR | Since 10/9/2014 |
---|---|---|---|
FBND (Fidelity Total Bond ETF) | 0.8% | 4.2% | 2.4% |
FTBFX (Fidelity Total Bond) | 1.4% | 3.7% | 2.9% |
Since its inception, FBND has lagged behind its mutual fund counterpart (FTBFX) 2.9% vs. 2.4% but in the past 12 months, it did better.
We also compare the other two ETFs with their mutual fund counter parts:
Fund Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | Since ETF Inception |
---|---|---|---|---|---|
BOND (PIMCO Total Return Active ETF) | 1.9% | 2.6% | 3.2% | 4.0% | 4.3% |
PTTDX (PIMCO Total Return D) | 1.9% | 2.0% | 2.4% | 2.7% | 2.6% (since 3/2/12) |
TOTL (SPDR® DoubleLine Total Return Tact ETF) | 1.7% | 2.1% | 1.9% | ||
DLTNX (DoubleLine Total Return Bond N) | 1.1% | 0.7% | 2.9% | 3.3% | 1.8% (since 2/24/15) |
PIMCO ETF BOND continued to outperform its mutual fund counterpart while DoubleLine TOTL has a similar performance.
Notice FBND has longer history than TOTL while BOND has the longest history.
Total Return Bond ETFs Portfolios
It’s natural to ask whether we can construct an ETF portfolio that is based on the total return bond ETFs available so far.
We construct ETF based portfolios using the following ETFs
ETF Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR |
---|---|---|---|---|
BOND (PIMCO Total Return Active ETF) | 1.9% | 2.6% | 3.2% | 4.0% |
TOTL (SPDR® DoubleLine Total Return Tact ETF) | 1.7% | 2.1% | ||
FBND (Fidelity Total Bond ETF) | 0.8% | 4.2% | ||
VCIT (Vanguard Intermediate-Term Corp Bd ETF) | 1.4% | 2.0% | 3.7% | 4.1% |
VMBS (Vanguard Mortgage-Backed Securities ETF) | 0.9% | 0.2% | 2.5% | 2.0% |
BND (Vanguard Total Bond Market ETF) | 0.9% | -0.1% | 2.4% | 2.0% |
JNK (SPDR Barclays High Yield Bond ETF) | 2.3% | 15.1% | 2.2% | 5.0% |
Here are the two portfolios we construct:
Ticker/Portfolio Name | YTD Return** |
1Yr AR | Since 2/27/15 |
---|---|---|---|
Total Return Bond ETFs | 0.8% | 2.9% | 2.2% |
Total Return Bond with High Yield Bond ETFs 2 | 1.6% | 7.3% | 3.2% |
Schwab Total Return Bond | 2.8% | 8.0% | 3.9% |
VBMFX (Vanguard Total Bond Market Index Inv) | 0.9% | -0.1% | 1.2% |
Total Return Bond ETFs uses the total return bond ETFs and the other 3 ETFs: VCIT, VMBS and BND as candidate funds. It always chooses one ETF every month to invest. The reason we add intermediate corporate bond ETFs is to compensate the loss from missing fund like PIMCO Investment Grade Corp Bd D (PBDDX). One can see that compared with Schwab Total Return Bond (mutual fund based) portfolio, its performance is very much behind.
We attribute the underperformance to the missing LSBDX and PONDX, the two funds that can invest heavily in high yield or junk bonds. For example, based on Morningstar, LSBDX has about 40% exposure to bonds rated BB and lower:
To remedy the missing part, we add an ETF high yield bond JNK to the candidates. To further limit over exposure of high yield bonds, we choose the top two ETFs in the candidate ETFs. This resulted in Total Return Bond with High Yield Bond ETFs 2. One can see that by adding JNK, we have improved the performance dramatically. This portfolio can be a reasonable replacement for a total return bond mutual fund based portfolio. To further test out our theory, we opt to use only the corresponding mutual funds (for JNK, its corresponding mutual fund is Vanguard high yield bond mutual fund VWEHX) and construct Total Return Bond with High Yield Bond ETF Corresponding Mutual Funds 2.
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
---|---|---|---|---|---|---|
Total Return Bond with High Yield Bond ETFs 2 | 1.6% | 7.3% | ||||
Total Return Bond with High Yield Bond ETF Corresponding Mutual Funds 2 | 1.9% | 6.3% | 3.6% | 4.4% | 6.9% | 1.79 |
Schwab Total Return Bond | 2.8% | 8.0% | 3.8% | 6.1% | 8.2% | 1.74 |
Compared with Schwab Total Return Bond portfolio, the mutual fund based portfolio performs reasonably well though still lagging behind.
Summary
There are various reasons for investors to choose ETFs instead of mutual funds. One is that ETFs are more flexible and much more accessible. Some of our European users have expressed frustration on the restriction to purchase US based mutual funds. ETFs, like stocks, can be purchased and sold even by foreigners. Other reasons include much more complicated tax treatment for mutual funds and trading restrictions like minimum holding periods.
With three major total return bond ETFs in the markets and several index ETFs in key bond categories, we believe we are getting very close to construct an ETF based portfolio that’s comparable with mutual fund based portfolios.
Market Overview
Stocks and bonds are still at elevated levels, on both short term technical metrics and long term valuation metrics. However, over valued markets can continue to go up for whatever reasons. For now, the best way is still to stay with the trends and be prepared for the eventual correction.
For more detailed asset trend scores, please refer to 360° Market Overview.
Now that the Trump administration is officially sworn in, the new president is facing the reality to deliver his many promises to make substantial changes. 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. Whether the new president can truly achieve this goal is still yet to be seen. One thing is certain: we will see more market volatilities.
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
- April 3, 2017: Quarter End Asset Trend Review
- March 27, 2017: Practical Consideration For IRAs And 401k Accounts
- March 20, 2017: Fund Fees: That’s (Still) Outrageous
- March 13, 2017: Long Term Stock Valuation Review
- March 6, 2017: Asset Classes for Retirement Investments
- February 27, 2017: Fidelity Total Bond Fund Review
- February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles
- February 13, 2017: Alternative Investment Portfolios Review
- February 6, 2017: Tax Free Municipal Bond Investments Review
- January 30, 2017: Brokerage Specific Conservative Portfolios
- January 23, 2017: Fixed Income Portfolio Review
- January 16, 2017: Long Term Trend Following Portfolio Review
- January 9, 2017: Tactical Asset Allocation Review
- January 3, 2017: Strategic Asset Allocation Review
- December 12, 2016: Enhanced Index Funds
- 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 14, 2016: Asset Trends After The Election
- 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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