Re-balance Cycle Reminder
Based on our new monthly re-balance calendar, the next re-balance time will be on February 13, 2012. You can also find the re-balance calendar of 2012 on ‘My Portfolios’ page.
Plan Updates
We are changing some ETF plans’ fund choices:
1. Six Core Asset ETFs: We are replacing Vanguard FTSE All-World ex-US ETF (VEU) with Vanguard Europe Pacific ETF (VEA) to better reflect the asset class of international (or foreign) developed country stocks.
2. Permanent Global Portfolio ETF Plan: We are replacing Vanguard FTSE All-World ex-US ETF (VEU) with Vanguard Europe Pacific ETF (VEA) and, Dow Jones REITs (IYR) with Vanguard REIT Index (VNQ).
3. Permanent Portfolio ETF Plan: Similarly, we are replacing Dow Jones REITs (IYR) with Vanguard REIT Index (VNQ). The above changes will be effective in the next re-balancing cycle. For portfolios that have held replaced ETFs (such as IYR), you might want to continue to hold them even if the re-balance instructions say to replace them with the new ETFs (such as VNQ) to reduce trading. Notice at the moment we don’t know what rebalance instructions for the next re-balance will be.
Year End Review: Top 401K Plans’ Portfolios
We review the performance of portfolios in the Fortune Top 10 Company 401K Plans table on page Retirement 401K, 403B, 457. These plans represent some of largest 401K plans offered by companies. Notice by default, funds in a 401K plan has a 3 month minimum holding period.
All performance data are through 12/30/2011.
| Plan (2011, TAA) | AR | Sharpe | Draw Down | Beta |
| Exxon Mobil | 4.5% | 0.57 | 5.0% | 0.10 |
| The J.P. Morgan | 4.0% | 0.47 | 5.1% | 0.08 |
| The Bank of America | 3.9% | 0.36 | 9.8% | 0.27 |
| Ford Motors | 1.3% | 0.14 | 7.0% | 0.24 |
| Hewlett Packard | 1.2% | 0.12 | 7.5% | 0.18 |
| AT&T | 1.1% | 0.17 | 4.9% | 0.09 |
| ConocoPhillips | 0.0% | 0.00 | 8.2% | 0.13 |
| Wal-Mart | -2.9% | -0.32 | 9.6% | 0.24 |
| Chevron | -4.6% | -0.51 | 10.3% | 0.26 |
| General Electric | -4.9% | -0.64 | 9.9% | 0.21 |
| Plan (2011, SAA) | AR | Sharpe | Draw Down | Beta |
| The Bank of America | -0.2% | -0.03 | 8.0% | 0.30 |
| Ford Motors | -1.1% | -0.10 | 10.8% | 0.44 |
| Chevron | -1.3% | -0.10 | 11.5% | 0.51 |
| Exxon Mobil | -1.7% | -0.11 | 13.7% | 0.66 |
| ConocoPhillips | -1.7% | -0.15 | 12.4% | 0.46 |
| AT&T | -1.9% | -0.19 | 11.1% | 0.41 |
| General Electric | -2.2% | -0.18 | 12.5% | 0.52 |
| Hewlett Packard | -3.4% | -0.28 | 12.7% | 0.50 |
| Wal-Mart | -4.4% | -0.36 | 11.8% | 0.47 |
| The J.P. Morgan | -4.6% | -0.29 | 15.5% | 0.66 |
Overall, the model portfolios in these 10 plans did reasonably well in 2011. In fact, they are doing better than those Brokerage Mutual Fund Portfolios. The main reason is again due to the fact that Brokerage Mutual Fund Portfolios offer more invesetment choices in asset classes such as international stocks, emerging market stocks and foregin bonds. The presence of these ‘extra’ funds/assets distracted performance in 2011. On the other hand, most 401K plans actually don’t have many investment choices as those brokerage plans. This actually helped their portfolios’ performance.
In a longer term, however, one can see that more choices will help to deliver better risk adjusted returns.
Finally, a word on minimum redemption holding period restriction: we would like to encourage our users to furnish us more accurate information on your plans so that our TAA and SAA strategies can have more flexibility to re-balance. This proved to be an important performance factor in 2011.
Market Overview
Gold (GLD) rose most last week. It is now ranked on the top spot in he major asset trend table on 360° Market Overview. Equity continued their rise, though the momentum has definitely slowed down. We are stil not seeing uniform risk asset up trends though.
U.S. REITs (IYR, VNQ) continued their strong trends. Keep in mind, however, IYR is more volatile than S&P 500 (standard deviation in 2011: IYR 24% vs. SPY’s 22%). When broad stock markets experienced weakness, REITs ETFs can retreated in a much faster pace. On the other hand, as what we pointed consistently in the past two years, U.S. REIT companies have used ultra low rate environment to refinance their debts and they are generally in much better balance sheets right now. Investors’ yield hunger and inflation fear do provide some support for these stocks.
We are approaching to final Greek and eurozone’s debt resolutions in the coming months. Market volatility will be here to stay. We urge cautious portfolio allocations at the moment.
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