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, July 1, 2019. You can also find the re-balance calendar for 2019 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.

Money Market And Ultra Short Term Bond Funds

In our previous newsletter August 27, 2018: Money Market ETFs?, we discussed and compared ultra short term bond ETFs that some investors try to use as as alternatives for money market funds. In this newsletter, we review the current cash market state and then look at additional ultra short term bond mutual funds. 

Current cash returns

The Federal reserve raised interest rates in December and now cash returns are much higher, amounting to 2.2% annual return for 3 month TBill (or cash). The following are the latest rates for CDs and Treasury bonds based on Fidelity: 

A few comments: 

  • We now finally see that the comparable rates of CDs are better than Treasury bills/bonds. This wasn’t the case before for the last 2 years or so: strangely CDs are lower than their comparable Treasury bonds’. It should be intuitive that as Treasury bonds are considered to be the safest, they should have lower yields than other comparable (same maturity) bonds like corporate bonds. CDs in general hold Treasuries, bank loans and short term corporate bonds. As we explained before, the higher CD yields before were mostly due to investors’ expectation of imminent Fed rate increase. The current normalized relationship probably explains that investors are now expecting no more rate increase in the near future. 
  • Unfortunately, as the economic outlook is slowing, the Treasury bonds’ yields are inverted: for example, the yields of 1, 3, 4, 5 and 10 years are all lower than even the 3 month TBill’s. This also indicates bond investors’ belief that the Federal will need to cut interest rates very soon. 

Relatively, the above ‘inverted’ yield curve is in favor of cash investors. 

Unfortunately, major banks are still offering measly interests for their customers. For example, Bank of America checking interest rates is still lingering at almost 0, 0.1% to be precise. So cash investors should still look for other ways such as money market funds to increase their returns. 

Money market and ultra short term bond funds

The following table includes representative (and best) Vanguard money market funds, some ultra short term ETFs and added ultra short term bond mutual funds: 

Name Expense AUM  Spread Effective Duration SEC Yield
MINT (PIMCO Enhanced Short Maturity Active ETF) 0.35% 11.9 bil 0.01% 0.27 yr 2.7%
FLRN (SPDR® Barclays Investment Grd Fl Rt ETF) 0.15% 4.1 bil 0.07% 0.11 yr 2.89%
NEAR (iShares Short Maturity Bond) 0.25% 6.3 bil 0.02% 0.48 yr 2.53%
SHV (iShares Short Treasury Bond) 0.15% 22.3 bil 0.04% 0.39 yr 2.28%
Vanguard Federal Money Market VMFXX 0.11% 122 bil NA 41 days 2.32%
Vanguard Prime Money Market VMMXX 0.16% 122 bil NA 32 days


Fidelity Conservative Income Bond (FCONX) 0.35% 11.4 bil NA 0.22 yr 2.44%
PIMCO Short-Term R (PTSRX) 1.07% 18 bil NA 0.28 yr 2.38%

The two additional ultra short bond mutual funds (FCONX and PTSRX) are the only two funds that have highest analyst ratings ‘silver’ by Morningstar in the ultra short term bond category. 

As we stated in the previous newsletter August 27, 2018: Money Market ETFs?, the major drawbacks of using an ETF as a money market fund alternative are trading spread (bid/ask) and possibly trade commission. Unfortunately, since last August, we see the spreads of FLRN, NEAR and SHV have all increased noticeably: for example, the FLRN’s 0.07% spread is almost unacceptable (vs. its August’s 0.03%). 

Mutual funds such as Fidelity Conservative Income or PIMCO Short Term don’t have trading spread and commission issues. This makes them much better suited for short term cash need. 

Returns (as of 6/10/19):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR
MINT (PIMCO Enhanced Short Maturity Active ETF) 1.77% 2.75% 2.14% 1.59%
FLRN (SPDR® Barclays Investment Grd Fl Rt ETF) 2.22% 2.65% 2.15% 1.48%
NEAR (NEAR) 1.93% 2.87% 1.95% 1.48%
SHV (iShares Short Treasury Bond) 1.18% 2.33% 1.25% 0.79%
Vanguard Federal Money Market VMFXX 1.02%  2.16%  1.26%  0.79% 
Vanguard Prime Money Market VMMXX 1.07%  2.29% 1.45% 0.92% 
Fidelity Conservative Income Bond (FCONX) 1.54% 2.45% 1.69%  1.19%
PIMCO Short-Term R (PTSRX) 1.29% 1.5% 1.94% 1.38%

From the above table, we can see that Fidelity Conservative Income has been more consistent: it have outperformed Vanguard money market funds in all of the periods, even though it underperformed PIMCO short term fund for the past 3 and 5 years. We also take a note that PIMCO fund is not consistent as its recent 1 year return indicates. 

NEAR (iShare short maturity fund) has performed well. 

In general, we believe a few mutual funds like the above two can be good for investors who are considering to boost their short term cash returns. If there is a choice, we generally prefer mutual funds over ETFs for low return cash like funds as any trading cost can decrease returns meaningfully. Currently, investing in ultra short term bond funds seems be a good time as it’s very likely that the Federal Reserve will reduce interest rate in the near future if economy further slows down.  

Market overview

Last week’s stock market actions further revealed investors’ ‘bad news is good news’ mentality, in the current last stage of the bull market: as payroll jobs in last month disappointed, investors bought stocks as they believed the Federal Reserve will now likely to step in to reduce interest rates to ‘save’ the economy. As stocks are expensive and overly extended right now, we believe markets are more speculative than ever. This is however very typical in the very late phase of a bull market. Again, we emphasize risk management and stay the course as a long term good strategy based investor will be able to achieve the strategy’s average outcome when enough time is given. 

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

In terms of investments, even after the recent retreat, U.S. stock valuation is still at a historically high level and a bigger correction is still waiting to happen. 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. 

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