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, May 7, 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.
Momentum Investing Review
We periodically looked at the performance of momentum investing strategies at various levels. Last time, we looked at this in June 12, 2017: A Mixed Bag Performance of Momentum Investing. In this newsletter, let’s review how these portfolios/funds have recently fared.
Again, here is the taxonomy of momentum based investing strategies:
- m1: A group of individual stocks such as Dow Jones 30 or Nasdaq 100 etc. — Can be Effective, but volatile.
- m2: A group of industrial stock funds such as Fidelity’s famous Fidelity Select funds. – Can be Effective, but volatile.
- m3: A group of stock sector funds such as SPDR’s S&P sector ETFs such as SPDR Select Energy (XLE) etc. – Can be Effective, but volatile.
- m4: A group of stock style funds such as Russell large, mid and small cap stock ETFs. – Effective and comparable risk.
- m5: single stock index (fund) buy/sell decision. – Fickle though might be on par with buy and hold.
- m6: A group of diversified and somewhat uncorrelated asset classes such as stocks, bonds, real estates (REITs) and their minor asset classes such as long term bonds, international bonds, gold etc. – Effective and lower risk.
Furthermore, at MyPlanIQ, we always advocate the momentum driven strategy at asset allocation level, or m6 in the above categories. This is what our Tactical Asset Allocation(TAA) strategy is based on.
Momentum stocks continue to do well
It turns out that until recently, stock level momentum investing has paid off (as of 4/27/2018):
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR |
---|---|---|---|---|---|
PIE (PowerShares DWA Emerging Markets Mom ETF) | 1.2% | 26.4% | 3.8% | 1.2% | 0.1% |
EEM (iShares MSCI Emerging Markets) | 0.3% | 20.5% | 4.5% | 4.5% | 1.7% |
AMOMX (AQR Momentum L) | 3.7% | 18.3% | 9.7% | 12.8% | |
PDP (PowerShares DWA Momentum ETF) | 2.9% | 16.3% | 6.9% | 11.5% | 7.6% |
MTUM (iShares MSCI USA Momentum Factor) | 4.0% | 27.8% | 16.1% | 17.1% | |
SPY (SPDR S&P 500 ETF) | 0.7% | 14.3% | 10.5% | 13.3% | 9.0% |
AIMOX (AQR International Momentum L) | 2.8% | 17.9% | 4.5% | 4.3% | |
EFA (iShares MSCI EAFE) | 0.9% | 14.1% | 4.7% | 5.8% | 2.4% |
ASMOX (AQR Small Cap Momentum L) | 2.8% | 14.9% | 8.1% | 11.6% | |
IWM (iShares Russell 2000) | 1.5% | 10.9% | 9.0% | 12.2% | 9.5% |
**YTD: Year to Date (not annualized)
More detailed year by year comparison >>
For the past one year, all of the momentum stock strategies have done better than their benhcmark indexes. Unfortunately, other than MTUM, they have all underperformed for 3, 5 and 10 years.
MTUM (iShares MSCI USA Momentum Factor) stands out as it has done better than SPY for the last 1, 3, and 5 years by some big margins.
Several important characteristics for this ETF:
- Low fee: 0.15% vs. PDP’s 0.63% or AMOMX’s 0.5% (AMONX’s 0.65%)
- It invests in both large and mid cap stocks
- Its momentum score formula combines both 6 and 12 month returns and then scaled by the volatility of the past 3 years. So it’s a risk adjusted momentum score, similar to the one used in MyPlanIQ Strategic Asset Allocation fund selection.
Based on iShares, the index has performed very well:
MTUM is one of the best momentum ETFs with reasonable fees. We will continue to monitor this fund’s future performance. It’s one of the factor style funds that we are considering to add to some of our investment plans.
Momentum strategies at higher levels are doing well too
For the past 12 months, momentum strategies have also done well at higher levels:
Ticker/Portfolio Name | 1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
---|---|---|---|---|---|
(m2)P Sector Rotation Fidelity Select Funds Top 2 Monthly Adjust with Cash | 14.9% | 12.3% | 15.9% | 11.2% | 0.5 |
(m3)P Momentum Scoring Sector ETFs | 15.1% | 6.6% | 7.8% | 7.2% | 0.43 |
(m4)P Momentum Scoring Style ETFs and Treasuries | 9.6% | 4.4% | 8.6% | 9.0% | 0.58 |
(m5)P SMA 200d VFINX Total Return Bond As Cash Monthly | 13.8% | 8.9% | 12.3% | 13.3% | 1.04 |
(m6)P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds | 14.2% | 6.2% | 8.0% | 8.8% | 0.75 |
(m1()AMOMX (AQR Momentum L) | 18.3% | 9.7% | 12.8% | ||
VFINX (Vanguard 500 Index Investor) | 13.8% | 10.3% | 13.2% | 8.9% | 0.43 |
In general, the lower level momentum strategies are doing better than higher level ones. However, P Momentum Scoring Style ETFs and Treasuries got a hit last year and it’s the only one that underperformed VFINX in the past one year.
One possible explanation for the lower level strategies have done well is that the past stock index performance has been largely driven by few stocks that have done very well. These stocks are mostly technology stocks such as FANG (Facebook, Amazon, Netflix, Google) plus a few others such as Microsoft and Apple. Markets are so much tilted to these stocks so stock level momentum can benefit directly while other level strategies (such as style rotation) benefit less as they tend to choose two or more funds to invest. For example, the style rotation portfolio P Momentum Scoring Style ETFs and Treasuries might invest in both large cap and small cap growth ETFs at a time, its returns might be distracted by the small cap growth ETF (which does not have these FANG type of stocks).
We need to point out that because of the outstanding returns for US stocks (represented by S&P 500 index like VFINX) in this bull market since 2009, the multi-asset strategy such as P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds has not shown many advantages for as many as past 10 years. Furthermore, the single index momentum strategy using 200 days simple moving average (P SMA 200d VFINX Total Return Bond As Cash Monthly) has done the best, beating both benchmark VFINX and the multi-asset tactical one.
However, if we extend our horizon to 15 years and since 2001 (when P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds back test started), we can see that it still outperforms VFINX by both returns and risk (maximum drawdown):
Name |
Maximum Drawdown since 1/1/2001 |
AR since 1/1/2001 |
15Yr AR** |
10Yr AR** |
---|---|---|---|---|
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds | 17.2% | 12.8% | 12.7% | 8.8% |
VFINX (Vanguard (S&P 500) Index) | 55.3% | 6.3% | 9.5% | 8.9% |
VBINX (Vanguard Balance (60% stocks/40% bonds) | 36% | 6.2% | 7.8% | 7.2% |
Apparently, it’s hard to imagine the red-hot VFINX can underperform the portfolio in the above table by some big margin (for example, 12.7% vs. 9.5% in the 15-year timeframe) considering VFINX has done better for the past 1, 3 and 5 years. But as the current bull market is over stretched and over extended, we believe the outperformance will tide will soon to turn and the long term outperformance of such a tactical strategy will continue.
Market Overview
Factset’s latest S&P 500 earnings report continues to paint a rosy picture: as of last Friday, 53% of the companies in the S&P 500 had reported actual results for Q1 2018. The blended earnings growth is 23.2%, much higher than the expected 17.3% on December 31, 2017. However, stock returns have languished. In fact, year to date, roughly S&P 500 has return negatively. One of the explanations is so called peak earning theory: meaning business profits have reached the peak and from now on, growth will slow down. Though we are skeptical on this at the moment: Factset states that so far earnings guidance has been very positive for the next quarter, nevertheless, it’s an established fact that the gross profit margin of S&P 500 companies has reached a historically high level that’s hard to sustain for a long time. Regardless, we admit we have no any positive idea on the near term stock direction and the best way is to stick to the investment strategies of our choice and manage risk to a comfortable level.
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.
Enjoy Newsletter
How can we improve this newsletter? Please take our survey
–Thanks to those who have already contributed — we appreciate it.
Latest Articles
- April 23, 2018: Commodities In Current Environment
- April 16, 2018: Municipal Bonds As A Fixed Income Asset Class
- April 9, 2018: Exponential Or Compounding Nature In Investing
- April 2, 2018: Inside Of The Stock Chaos
- March 26, 2018: Total Return Bond Update
- March 19, 2018: Treasury Bills vs. Brokered CDs
- March 12, 2018: Defensive Conservative Portfolio Review
- March 5, 2018: Warren Buffett’s Advices
- February 26, 2018: Pros And Cons of Strategic And Tactical Portfolios In 2018
- February 12, 2018: Trend Review
- February 5, 2018: Market Selloff And Long Term Investing
- January 29, 2018: The New Addition To Our Total Return Bond Fund Candidates
- January 22, 2018: Where Are Bonds Heading?
- January 15, 2018: Tactical Portfolios Review
- January 8, 2018: Strategic Portfolios Review
- December 18, 2017: Record Highs And Risk
- December 11, 2017: Cash Return And Interest Rate Update
- December 4, 2017: Mutual Fund Star Ratings: Are They Useful?
- November 20, 2017: Thankful And Mindful
- November 13, 2017: Is This A Good Time For Retirees Or Would Be Retirees?
- November 6, 2017: Newsletter Collection Update
- October 30, 2017: Rising Interest Rates
- October 23, 2017: A Primer For Portfolios
- October 16, 2017: REITs As An Asset Class
- October 9, 2017: Conservative Portfolios Revisited
- October 2, 2017: The Role of Short Term Bond Funds
- September 25, 2017: Fees In Cash Investments
- September 18, 2017: Conservative Portfolios Review
- September 11, 2017: International Diversification Effect
- September 4, 2017: Invest And Speculate Revisited
- August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?
- August 21, 2017: Portfolio Performance: A Walk In The Past
- August 14, 2017: Fidelity Commission Free ETFs Update
- August 7, 2017: I Didn’t Learn Anything — Mistake vs. Temporary Underperformance
- July 31, 2017: Asset Classes And Fund Choices: A Primer
- July 24, 2017: Total Return Bond Fund Portfolios And Cash
- July 17, 2017: Long Term Stock Holding Periods For Retirement
- July 10, 2017: Half Year Asset Trend Review
- June 26, 2017: How To Beat The Best Balanced Allocation Fund
- June 19, 2017: Newsletter Collection Update
- June 12, 2017: A Mixed Bag Performance of Momentum Investing
- June 5, 2017: How To Start A New Portfolio
- May 29, 2017: Alternative Assets And Their Role In Portfolios
- May 22, 2017: Summer Seasonality And Portfolio Management
- May 15, 2017: Cash: Banking Or Investing?
- May 8, 2017: Holding Period of Long Term Timing Portfolios
- May 1, 2017: Debate on Risk vs. Volatility
- April 24, 2017: The Long Term Stock Market Timing Return Since 1871
- April 17, 2017: Risk vs. Volatility: Long Term Stock Market Returns
- April 10, 2017: Total Return Bond ETFs And Portfolios
- 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