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 26, 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.

The New Addition To Our Total Return Bond Fund Candidates

Every year, Morningstar picks one fixed income (bond) manager(s) as the winner of their fixed income manager of the year award. MyPlanIQ total return bond fund portfolios pick a total return bond fund every month to invest. We deem these funds as excellent candidates for the portfolios. We have routinely discussed these portfolios and view them as some important offerings from our service.  For more details on these portfolios and the methodology behind them, please read June 3, 2013: Total Return Bond Fund Portfolios For Major Brokerages.

You can also read many newsletters on these portfolios from our newsletter collection page (in section titled as Fixed Income, Dividend, Total Return Bond Funds & Conservative Allocation).

Morningstar just announced PDBZX (Prudential Total Return Bond Z) as the winner of their fixed income manager of the year for 2017. We welcome it as the latest addition to the list. We will review this new fund and its addition to our portfolios.

Prudential total return bond fund performance

Based on Morningstar, the fund (adding all of different fund classes) manages over $80 billion, making it one of the largest bond funds. Lead manager Robert Tipp has been with the fund since 2002. Morningstar describes the fund as follows:

This portfolio carries well-defined risk guidelines and benefits from the methodical, deep, and broad research across sectors and disciplines of roughly 125 portfolio managers, 100 analysts, and 50 quantitative and risk-management professionals. So, while the firm itself is rooted in its history as a manager of insurance assets leaning heavily toward corporate credit, the fund has enjoyed success with a broader scope, both over the long term and in the past year. Security selection, sector allocation, and yield-curve and duration positioning were all significant contributors to its outperformance in 2017. The fund’s long-term returns are exceptionally strong: Its 10-year record is tops in a competitive category, both on a total-return and risk-adjusted basis.

Among the total return bond fund candidates, we view this fund as more a balanced fund that can vary its investments (or weights) over sectors such as high yield bonds, asset backed securities, international bonds within a standard band, unlike for example, PIMCO total return bond fund that can at time invest heavily in foreign bonds or Loomis Sayles total return bond fund that can have an oversized bet on high yield bonds. Thus, it’s more similar to funds like FTBFX (Fidelity Total Bond or MWTRX (Metropolitan West Total Return Bond M).

The following is its credit exposure on 12/31/2017, per Morningstar:

It has about 30% exposure in high yield bonds which is probably its upper limit on the sector.

The performance (as of 1/29/2018):

Funds YTD
Return**
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
PDBAX (Prudential Total Return Bond A) -1.0% 4.8% 2.4% 3.0% 5.5% 1.3
PDBZX (Prudential Total Return Bond Z) -1.0% 5.0% 2.7% 3.3% 5.8% 1.36
MWTRX (Metropolitan West Total Return Bond M) -0.9% 2.2% 1.1% 2.1% 5.1% 1.26
FTBFX (Fidelity Total Bond) -0.8% 2.6% 2.3% 2.6% 5.3% 1.23
DLTNX (DoubleLine Total Return Bond N) -0.7% 2.8% 1.9% 2.5%    
PTTRX (PIMCO Total Return Instl) -1.0% 3.8% 1.8% 2.1% 4.9% 1.14
LSBDX (Loomis Sayles Bond Instl) 1.5% 4.9% 2.7% 3.3% 5.7% 1.01
LSBRX (Loomis Sayles Bond Retail) 1.4% 4.4% 2.4% 3.0% 5.4% 0.95

Compared with other total return bond funds in our list, this fund stands out as one of the best performers for the past 3, 5 and 10 years.

Addition to total return bond fund portfolios

Unfortunately, this fund is mostly available to retirement and insurance plans and it’s not always available to many brokerage investors as a no load and no transaction fee fund (which is one of our requirements to be added to the candidate fund list). In fact, we managed to find that it’s only available to clients in Schwab, Fidelity and Etrade. Furthermore, these funds are load waived funds. Here is the breakdown on these funds:

Brokerage Brokerage Expense Minimum Redemption
Fidelity PDBAX (Prudential Total Return Bond A) 0.76% $2,500 90 days
Schwab PDBZX (Prudential Total Return Bond Z) 0.51% $100 90 days
ETrade PDBAX (Prudential Total Return Bond A) 0.76% $2,500 90 days

As a result, we are updating the corresponding portfolios. Furthermore, we are adding PDBZX as a candidate fund to our representative portfolio P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly which is listed on Advanced Strategies page.

Currently, for example, Schwab total return bond portfolio has the following candidate funds:

Intermediate-Term Bond PBDDX PIMCO Investment Grade Corp Bd D
Intermediate-Term Bond PDBZX Prudential Total Return Bond Z
Multisector Bond PONDX PIMCO Income D
Intermediate-Term Bond DLTNX DoubleLine Total Return Bond N
Intermediate-Term Bond WABRX Western Asset Core Bond R
Intermediate-Term Bond TGMNX TCW Total Return Bond N
Intermediate-Term Bond PTTDX PIMCO Total Return D
Intermediate-Term Bond MWTRX Metropolitan West Total Return Bond M
Multisector Bond LSBRX Loomis Sayles Bond Retail

We expect this newly added portfolio can help to give our portfolios one more stable choice at the current/upcoming turbulent time in bond markets.

Total return bond fund portfolio performance

Our total return bond fund portfolios had another good year in 2017: they outperformed total bond fund VBMFX (Vanguard Total Bond Market Index Inv) by some big margins (example, Schwab portfolio’s 7.2% vs. VBMFX’s 3%).

Total return bond portfolio returns (as of 1/26/2018):

Ticker/Portfolio Name 2017 AR 3Yr AR 5Yr AR 10Yr AR Since 12/31/2000
Schwab Total Return Bond 7.2% 3.9% 3.9% 7.6% 8.7%
Fidelity Total Return Bond 8.7% 3.1% 3.4% 7.1% 8.6%
TDAmeritrade Total Return Bond 8.5% 3.8% 3.7% 7.6% 8.5%
FolioInvesting Total Return Bond 7.2% 3.9% 3.9% 7.6% 8.3%
Etrade Total Return Bond 6.8% 3.2% 3.8% 7.5% 8.4%
Merrill Edge Total Return Bond 7.3% 3.1% 3.7% 8.5% 7.7%
PTTRX (PIMCO Total Return Instl) 5.1% 1.8% 2.1% 4.9% 5.7%
VBMFX (Vanguard Total Bond Market Index Inv) 3.0% 1.2% 1.8% 3.5% 4.4%

10 year charts:

Market Overview

Bond market rout continued last week: the 10 year Treasury note’s yield rose to 2.7% as 30 year Treasury bond’s rose to 2.97%. On the other hand, with 24% of S&P 500 companies having reported Q4 2017 earnings, it’s encouraging to see that the blended earnings growth 12% surpassed the expected 11% made on December 31, 2017 (see Factset’s last week’s summary). Global economy has been in its best shape since 2008: in fact, almost all of the major economies in the world are experiencing simultaneous growth. Regardless, considering the weakness in the bond markets and the elevated and overextended stock markets, one should manage overall risk exposure to a level that’s suitable to his/her tolerance profile. As always, the best way is to stay the course and respond according to strategies.

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 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. 

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