Asset Allocation Fund Review

At MyPlanIQ, we believe good asset allocation mutual funds can help us to better structure our portfolios. We are especially interested in understanding how their funds behave and thus derive their allocations to gain insights. In fact, we keep a dedicated page SmartMoneyIQ Managers (click on tab Advanced and you will find it) to monitor these funds’ allocations. 

In the following, we will review how these funds have performed and their see their portfolios’ behavior to understand their current positions. 

Performance Review

The following table shows how the U.S. centric allocation funds have performed:

Portfolio Performance Comparison

*: NOT annualized

**YTD: Year to Date

See year by year and more detailed performance comparison >>

The most outstanding funds are 

• BRUFX(Bruce): this small father and son managed fund is extremely nimble and very risk conscious. It lost 27.5% in 2008. 
• FPACX(FPA Crescent): manager Steve Romick is a solid value investor who combines his stock picking and macro views to pick and allocate his fund. It uses long/short and cash strategy. It lost 20.6% in 2008.  Since 1996, it has achieved 9.7% annualized return. 
• PRWCX(T.Rowe Price Capital): it uses convertible bonds well in its fixed income portion or overall allocation. In stock side, it uses trial and true growth with reasonable prices strategy. The fund recovered from a somewhat steep 27.2% loss in 2008 and again has shown its solid performance. The fund has achieved 10.8% performance since its inception in 1989, a feat few funds can beat. 
• GRSPX(Greenspring): even though its return is not on the top of the pack, it has been more risk averse than others: it lost 11.7% in 2008. 

HSGFX(Hussman Strategic) deserves special mention as we are (yes, we still are) a big fan on his extremely pointed economic and market analysis. It stumbled a bit in its implementation since 2009 but investors can still benefit tremendously from his insights. Though there is no excuse in the fund’s under performance, it is still possible for the fund to deliver outstanding performance if a huge storm comes. 

All in all, these funds have done extremely well since 2008. Now let’s move on to world allocation funds: 

Portfolio Performance Comparison

*: NOT annualized

**YTD: Year to Date

See year by year and more detailed performance comparison >>

Here we are seeing a slightly different picture: these funds mostly under performed U.S. centric funds recently (as far as 5 years) due to recent U.S. stock market strength. 

• PASDX(PIMCO All Asset): managed by Rob Arnott, this fund is nimble and adeptly positions based his macro views. Even though it under performed recently, it has solid track record: it lost 15.9% in 2008. 
• PGMAX(PIMCO Global Multi-Asset): a good test for manager El-Erian since the fund started in late 2008. It also illustrates a high possibility for a fund to stumble for a while, as we stated in our previous newsletter: Though we have high faith in many great investors, time and time again, many of them stumbled for a few bad years. Some of them never recovered.  
• SGIIX(First Eagle Global): this fund is another solid value investor managed global allocation fund. It is also very good at using gold as insurance, which is seldom understood and performed by other investors. 
• MALOX(Blackrock): a solid and straightforward allocation fund that has solid performance, similar to PRWCX(T.Rowe Price Capital). The only complaint is that it lost 20.3% in 2008 that has been recouped back.
• DMLIX(Doubleline Multi-Asset): the Doubleline is famous for its total return bond fund and its manager Jeffrey Gundlach. So far, this conservative allocation fund has been overly conservative and hasn’t deliver. However, it is still less than 3 year old and it is interesting to see how a bond manager positions among stocks and bonds. 

Though these funds have lagged a bit from their U.S. centric funds, we believe a global oriented portfolio is still warranted, especially considering the globalization trends still in place. Unless there is a mega economic trend reversal for globalization, we see no reason to change this positioning. 

Readers should see that all MyPlanIQ’s suggested portfolios have wide array of candidate funds: they have at least U.S. equities, international equities and emerging market equities. It is thus fair to compare our portfolios with the global allocation funds. For Strategic Asset Allocation – Optimal, we adopt our belief stated in the previous paragraph. For Tactical Asset Allocation, the strategy will take care of itself more or less: it will get exposed to high performing stock markets, though it might still be affected by fluctuations from other markets, as evidenced in the recent performance of these portfolios featured on pages like Overview & Featured ETF Portfolios or Brokerage Mutual Fund Portfolios. 

Current Portfolio Positioning

One of the less well known advanced features developed by MyPlanIQ is its allocation analyzer: we use a technique developed for hedge fund allocation cloning to analyze a fund’s past return (price, dividends and distribution all together) and derive the fund’s behavior similarity with each major asset class. By doing so, we will be able to analyze how a fund’s portfolio is resembled with various asset classes. Even though the allocations (called beta in technical term) are not necessarily the exact allocations of the portfolio, they do reflect how a portfolio behaved fairly accurately. 

The parameters derived are shown on SmartMoneyIQ Managers page. They are updated every weekend to reflect up to last Friday’s behavior and allocation proxies. 

The fund’s allocation has been in its lower side in stock allocation, indicating a cautious stance. 

Similarly, Manning & Napier positions in a cautious optimistic way. 

Leuthold Core Investment (LCORX)

Leuthold core is also positioned in lower side stock allocation in its allocation bands. 

Greenspring Fund (GRSPX)

Greenspring had a reasonable reduction in its US Stock allocation or risk beta. 

T. Rowe Price Capital Appreciation (PRWCX)

Even Price Capital Appreciation, which normally has about 70% beta allocation in stocks, now has lower beta indicating either their stocks are more defensive in nature or their allocation is lower than 70%. 

Bruce fund (BRUFX)

Similar picture for Bruce fund. 

PIMCO All Asset (PASDX)

This fund has been cautious all year long, resulting its lower return but it might be a correct call at the end?

PIMCO Global Multi-Asset (PGMAX)

Because of its use of protective options, this fund fluctuated in it allocation more than its previous peer. 

First Eagle Global (SGIIX)

It is fairly stable but not outright bullish, which has been always for the fund to position. 

Blackrock Global Allocation (MALOX)

Fairly stable but still a bit defensive or at least not overly bullish. 

Wells Fargo Adv (Evergreen) Asset Allocation (EAXFX)

Again, a standard allocation here. 

To summarize, the smart money has been cautiously optimistic in terms of stock allocation. 

Portfolio Performance Review

Since we published  June 3, 2013: Total Return Bond Fund Portfolios For Major Brokerages two weeks ago, the bond market promptly went into a correction: ten year Treasury note interest rate is now 2.17%, compared with 1.86% a month ago. Let’s look at those total return bond fund upgrade portfolios mentioned in the newsletter: 

Portfolio Performance Comparison (as of 6/17/2013)

*: NOT annualized

**YTD: Year to Date

Click for latest and detailed year and year performance comparison >>

So far, these portfolios have consistently done better than total bond index (VBMFX) or even PIMCO’s total return bond fund (PTTRX). With short term (CASH) inherently built in in these portfolios, we are confident that they will not be damaged dramatically even when interest rates are rising rapidly. 

Market Overview

The stock markets went into a big scare last week, we were a hair close to see some major trends turning. For now, however, rate sensitive securities such as REITs (VNQ, IYR) are out of favor while U.S. broad base stock index (VTI or SPY) are still elevated. The major trend turning point is deferred. 

For other detailed ranking, see 360° Market Overview or Asset Trends & Correlations.

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. 

Latest Articles

• The 24/7 Financial News Media Machine
• The Stock Market – Economy Disconnect
• Is your stock strategy working?
• The Million-Dollar Illusion
• Big Mac Index Shows Official CPI Underreports Inflation
• From the Archives: If You Miss the 10 Best Days
• The Emotional Roller Coaster
• Bucket List: Financial Independence
• June 10, 2013: Risk Managed Strategic Asset Allocation Portfolios

Enjoy Newsletter

How can we improve this newsletter? Please take our survey 

–Thanks to those who have already contributed — we appreciate it.

RSS Feed