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, January 19, 2016. You can also find the re-balance calendar for 2015 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.

What Worked And Didn’t In 2015

2015 marked another difficult year for many strategies. First, let’s review returns of major asset classes: 

Asset Performance (as of 1/4/2016):

Asset ETF 2015 1Yr AR 3Yr AR 5Yr AR 10Yr AR
SPY (SPDR S&P 500 ETF) 1.3% -0.1% 13.5% 12.1% 7.0%
EFA (iShares MSCI EAFE) -1.0% -2.1% 3.0% 3.1% 2.6%
EEM (iShares MSCI Emerging Markets) -16.2% -17.4% -9.5% -6.0% 2.5%
IYR (iShares US Real Estate) 0.3% -1.9% 7.8% 9.7% 5.6%
DBC (PowerShares DB Commodity Tracking ETF) -27.6% -27.6% -21.7% -13.5%  
GLD (SPDR Gold Shares) -10.7% -10.7% -14.4% -6.1% 7.0%
BND (Vanguard Total Bond Market ETF) 0.5% 0.1% 1.3% 3.0%  
TLT (iShares 20+ Year Treasury Bond) -1.8% -1.8% 2.7% 8.2% 6.5%

In a word, other than the meager returns from US stocks, REITs and US bonds, everything else down. Even for the US assets, only large cap growth and large cap blend stocks (such as those represented by S&P 500 SPY) had positive returns: 

US Equity Style Trend

01/04/2016

Description Symbol 1 Week 4 Weeks 13 Weeks 26 Weeks 52 Weeks Trend Score
Russell Largecap Growth IWF -2.36% -3.45% 1.96% -0.73% 5.59% 0.2%
Russell Largecap Index IWB -2.04% -2.95% 1.34% -2.65% 1.09% -1.04%
Russell Midcap Growth IWP -2.25% -3.27% -0.79% -5.89% -0.07% -2.45%
Russell Smallcap Growth IWO -3.62% -5.22% -2.21% -11.23% -2.12% -4.88%
Russell Midcap Indedx IWR -1.87% -2.78% -1.16% -6.04% -2.14% -2.8%
Russell Largecap Value IWD -1.7% -2.45% 0.65% -4.41% -3.4% -2.26%
Russell Midcap Value IWS -1.46% -2.31% -1.44% -6.19% -4.4% -3.16%
Russell Smallcap Index IWM -3.47% -4.76% -2.46% -10.45% -4.87% -5.2%
Russell Smallcap Value IWN -3.33% -4.38% -2.71% -9.77% -7.84% -5.6%

Similarly, among sectors: 

US Sectors Trend

01/04/2016

Description Symbol 1 Week 4 Weeks 13 Weeks 26 Weeks 52 Weeks Trend Score
Consumer Discretionary XLY -2.36% -4.62% 0.19% 0.5% 10.94% 0.93%
Consumer Staples XLP -1.87% -0.7% 3.21% 5.03% 6.59% 2.45%
Technology XLK -2.2% -4.2% 3.96% 2.67% 5.93% 1.23%
Healthcare XLV -1.91% -0.48% 3.74% -4.7% 5.07% 0.34%
Telecom IYZ -3.86% -4.06% 1.25% -1.94% -0.18% -1.76%
Financial XLF -2.58% -4.19% 1.47% -3.68% -1.57% -2.11%
Industries XLI -1.95% -3.07% 1.51% -2.05% -3.21% -1.75%
Utilities XLU -0.83% 2.3% -0.61% 3.91% -4.38% 0.08%
Materials XLB -2.42% -4.3% 1.47% -9.98% -7.88% -4.62%
Energy XLE -0.25% -2.22% -7.49% -16.63% -18.49% -9.02%

Simply put, it is a very divergent market. In fact, if one would removed the four stocks FANG (Facebook, Amazon, Netflix and Google), S&P 500 would be in the red and Nasdaq would have had more than -5% loss: 

FANG Stocks Performance (as of 1/4/2016):

Ticker 2015 1Yr AR 3Yr AR 5Yr AR 10Yr AR
FB (Facebook Inc Class A) 34% 34.1% 57.8%    
AMZN (Amazon.com Inc) 117.8% 106.5% 35.3% 28.4% 29.5%
NFLX (Netflix Inc.) 134.4% 120.6% 100.2% 33.5% 40.9%
GOOG (Google, Inc. Class A) 44.6% 44.2% 2.4% 4.8%  

Strategic Asset Allocation

As discussed in December 7, 2015: Diversification And Global Allocation, global allocation portfolios or funds have all encountered difficulties: 

Portfolio Performance Comparison (as of 01/04/2016):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 10Yr AR
7Twelve Original Portfolio -1.0% -8.3% 1.2% 2.7% 4.3%
P David Swensen Yale Individual Investor Portfolio Annual Rebalancing -1.0% -1.3% 7.1% 8.1% 6.9%
Six Core Asset ETFs Strategic Asset Allocation – Equal Weight Moderate -0.9% -4.5% 0.4% 2.2% 4.2%
Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate -1.0% -2.7% 3.0% 4.1% 4.6%
MALOX (BlackRock Global Allocation Instl) -0.78% -1.6% 4.4% 4.3% 5.9%
GAL (SPDR® SSgA Global Allocation ETF) -1.03% -2.8% 4.6%    
VBINX (Vanguard Balanced Index Inv) -0.86% -1.1% 8.1% 8.3% 6.3%

Again, the more balanced allocation is (such as the Six Core Equal Weight portfolio), the worse the performance is for 2015. 

David Swensen’s lazy portfolio continued to perform well, mostly due to its heavy exposure in REITs and hedged with long term Treasury bonds. 

Tactical Asset Allocation

2015 is no doubt a difficult year for tactical asset allocation portfolios or funds. This is especially true for trend following portfolios such as MyPlanIQ’s Tactical Asset Allocation(TAA) portfolios:

Portfolio Performance Comparison (as of 1/4/2016):

Ticker/Portfolio Name 1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Six Core Asset ETFs Tactical Asset Allocation Moderate -5.6% 3.3% 3.7% 8.4% 0.76
GDAFX (Goldman Sachs Dynamic Allocation A) -7.8% -0.7% 1.0%    
GBMFX (GMO Benchmark-Free Allocation III) -4.3% 2.5% 4.2% 5.7% 0.63
PASDX (PIMCO All Asset D) -10.8% -3.5% 1.0% 3.3% 0.31
GMOM (Cambria Global Momentum ETF) -8.5%        
GTAA (AdvisorShares Morg Crk Glbl Tacticl ETF) -8.5% -1.4% -1.1%    

See detailed year by year comparison >>

The under performance for this class of portfolios can be mostly attributed to the trendless markets, especially among U.S. stocks, REITs and US dollar driven international stocks:

This is a classic sideway/whip-saw market that has frustrated the trend following strategy. 2015 is actually one of the worst years since 2009 for many TAA portfolios. For example, for P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds, 2015 has the worst maximum drawdown since 2007. It has the first ever negative annual return since 2997 when the portfolios back testing starts. Similarly, it also has the first ever negative Sortino ratio. It is not an understatement that 2015 is the worst year for this portfolio (in fact, for many TAA portfolios) since late 1990s. 

  1 Yr 3 Yr 5 Yr 10 Yr Inception 2015 2014 2013 2012 2011 2010 2009 2008 2007
AR(%) -7.0 5.5 7.3 11.2 14.4 -5.2 10.7 14.4 11.2 8.2 11.0 21.0 2.4 22.9
SR -0.73 0.57 0.72 0.82 1.14 -0.54 1.35 1.34 1.55 0.6 0.64 1.38 0.13 1.16
DD(%) 13.6 13.6 13.6 16.6 16.6 13.6 6.1 10.7 4.5 10.4 13.1 7.3 13.2 12.1
SD(%) 9.7 9.5 10.1 12.7 11.5 9.7 7.9 10.7 7.2 13.8 17.0 15.1 11.2 17.1
SR2 -0.96 0.78 0.99 1.15 1.61 -0.72 1.88 1.85 2.26 0.83 0.9 2.06 0.18 1.58
Yield(%) 3.32 3.5 3.96 4.35 4.74 3.28 4.35 2.83 4.69 4.55 3.26 6.65 3.77 7.13
AR: Annual Return (Compound)
SR: Sharpe Ratio
DD: Maximum Drawdown
SD: Standard Deviation
SR2: Sortino Ratio
For a longer time analysis, readers are referred to P Relative Strength Trend Following Six Assets: again excluding 2006, it has the worst maximum drawdown as well as the worst negative returns since 1991. 

Observations

As much as one can attribute the under performance to the fault of the strategies, we believe the behaviors of major asset classes, our portfolios and many asset allocation funds, are pointing to an inflection point in markets:

  • Stocks, especially US stocks, are at an elevated valuation level. How much further markets can still rise up before they undergo a big correction or a bear market is up to debate. However, we are just getting increasingly closer to a point to do so. 
  • US and Europe have been muddled through using loose monetary policies for so long. Now that US has started its to raise rates, markets have lost their strong psychological support. 
  • China is perhaps the biggest known threat to global markets: its high debt burden, extremely overvalued real estate market, ongoing currency devaluation, tight labor market and contracting/slowing exports are presenting the biggest challenge for its government to tackle. 

No one can predict for certainty where the markets are going. However, if history is of any guide, such muddling can not last forever and will soon be resolved. 

Market Overview

The New Year began with a big thud: Chinese stock market hit its circuit breaker and halted trading after 7% loss. This caused a chain effect across global stock markets. However, for us, this is not surprising: as what we commented above, markets are fragile and laden with many accidents waiting to happen. For now, trends of most risk assets are decidedly negative. 

For more detailed asset trend scores, please refer to 360° Market Overview

We would like to remind our readers that markets are more precarious now than other times in the last 5 years. It is a good time and imperative to adjust to a risk level you are comfortable with right now.  However, recognizing our deficiency to predict the markets, we will stay on course. 

We again copy our position statements (from previous newsletters): 

Our position has not changed: We still maintain our cautious attitude to the recent stock market strength. Again, we have not seen any meaningful or substantial structural change in the U.S., European and emerging market economies. However, we will let markets sort this out and will try to take advantage over its irrational behavior if it is possible. 

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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