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, March 28, 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.

Correction: In the previous newsletter, we incorrectly cited a high expense ratio for BSCF (Guggenheim BulletShrs2015 Corp Bd ETF). The correct expense ratio should be 0.24% instead of 0.42%. We thank several users who pointed this out.  

Are Tactical And Timing Strategies Losing Steam? 

As many readers might have known, we are a firm believer in using both strategic and tactical asset allocation strategies. Furthermore, many users are also familiar with our long term valuation or market timing based portfolios such as Shiller CAPE based strategies or even just long term moving average strategies. We believe both strategic and tactical complement with each other and, using them properly together (such as in a core satellite portfolio), one can derive reasonable returns with managed risk. 

Market timing has been always a hot topic. A political correct investment assertion is that markets are always efficient and there is no need and actually it is harmful to adopt a market timing approach. What we try to maintain is to let data speak for themselves. In this newsletter, let’s review their long term performance. 

Global Tactical Asset Allocation Underperformed Recently

From the portfolios we maintain on MyPlanIQ.com, readers can see that 2015 was one of the worst years for portfolios based on Tactical Asset Allocation(TAA) in the recent history.

Let’s focus on recent performance: 

Portfolio Performance Comparison (as of 3/14/2016):

Ticker/Portfolio Name

YTD

Return**

1Yr AR

3Yr AR

5Yr AR

10Yr AR

10Yr Sharpe

VFINX (Vanguard 500 Index Investor)

-0.7%

0.4%

11.3%

11.5%

6.9%

0.29

VBINX (Vanguard Balanced Index Inv)

0.1%

0.2%

7.2%

8.0%

6.3%

0.46

RGBGX (American Funds Global Balanced R6)

1.6%

-0.9%

5.3%

6.0%

 

 

P Goldman Sachs Global Tactical Benchmarks Based Include Emerging Market Diversified Bonds ETFs

-2.3%

-9.4%

3.4%

5.7%

 

 

Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate

0.7%

-2.4%

2.7%

4.2%

4.3%

0.27

MALOX (BlackRock Global Allocation Instl)

-1.2%

-3.6%

3.3%

3.8%

5.6%

0.42

GBMFX (GMO Benchmark-Free Allocation III)

-0.9%

-7.6%

0.7%

3.8%

5.3%

0.58

Six Core Asset ETFs Tactical Asset Allocation Moderate

0.1%

-4.4%

2.9%

3.5%

8.0%

0.73

Fund Advice Ultimate Buy and Hold Lazy Portfolio

0.4%

-3.3%

1.7%

3.4%

4.2%

0.28

7Twelve Original Portfolio

0.7%

-5.9%

0.9%

2.6%

4.2%

0.24

PASDX (PIMCO All Asset D)

2.8%

-5.2%

-2.2%

1.5%

3.8%

0.38

See detailed year by year comparison >>

Rows in the above table are sorted based on 5 Year Annual Return. 

We make the following observations: 

  • Both US Stocks (VFINX representing S&P 500) and US balanced index fund (60% US Stocks/40% US Bonds) have done best for the past 5 years, solely due to the strength of US stocks.
  • RGBGX (American Funds Global Balanced R6) is one of the best performing global allocation funds in the past 5 years. Lagging behind VBINX, it is the best among the rest global asset portfolios and funds.
  • P Goldman Sachs Global Tactical Benchmarks Based Include Emerging Market Diversified Bonds ETFs had a terrible 1 year return. However, it is still not far behind the best RGBGX for the past 5 years.
  • Famed global allocation funds such as MALOX, GBMFX and representative global oriented lazy portfolio Fund Advice have performed in par with MyPlanIQ Six Core ETFs TAA and SAA Optimal portfolios for the past 5 years.
  • Unfortunately, both 7Twelve portfolio and PASDX (PIMCO All Asset D) are ranked at the very bottom, lagging behind others by some big margins. 

The tactical portfolios, though severely impacted by the recent underperformance, have done way better for the past 10 years, even compared with VFINX and VBINX. They do this with much less (about 1/3) maximum drawdown. 

Similarly, let’s look at our longest tactical benchmark portfolio, compared with VFINX (S&P 500): 

Portfolio Performance Comparison (as of 3/14/2016):

Ticker/Portfolio Name

Max Drawdown

1Yr AR

3Yr AR

5Yr AR

10Yr AR

Since 6/28/91

P Relative Strength Trend Following Six Assets

19.2%

-10.9%

2.8%

4.8%

7.3%

9.8

VFINX (Vanguard 500 Index Investor)

55.3%

0.4%

11.3%

11.5%

6.9%

9.2

 Comments: 

  • The TAA portfolio had the worst year in 2015 since its start date 6/28/1991 (about 25 years)! In fact, it incurred its maximum drawdown 19.2% in the period from 2015 to January this year. This indicates that for a TAA portfolio, its worst time might not necessarily be in a bear market, instead, it could be in a period like this. 
  • The portfolio still managed to outperform VFINX for the past 10 years and since its start date. 
  • From 1995 to 2002, the portfolio under performed VFINX, a long 7 period. Currently, since 2009, this portfolio has under performed again. Another 7 year period approaching!
  • We do NOT suggest using this portfolio for actual investment as there are better diversification asset classes used in portfolios such as the Goldman Sachs one. This portfolio is solely used as a long running benchmark for TAA strategy. 

We have no idea when the tide will turn for the TAA strategy. However, from the above data, we would claim that compared with a global allocation portfolio or fund, the global TAA portfolios have only performed slightly worse, indicating most under performance was caused by the ‘bad’ performance of other asset classes other than US stocks. 

US Centric Long Term Timing Portfolios

Instead of focusing on global allocation portfolios, if we look at the US centric timing portfolios, things become much better: 

Portfolio Performance Comparison (as of 3/14/2016):

Ticker/Portfolio Name

YTD

Return**

1Yr AR

3Yr AR

5Yr AR

10Yr AR

Since 3/31/88

P SMA 200d VFINX VFINX Monthly

0.0%

-3.3%

9.6%

9.5%

10.1%

10.5%

P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy Total Return Bond Funds As Cash

0.9%

-1.2%

4.9%

7.8%

11.6%

NA

P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly Total Return Bond Funds As Cash

0.8%

-1.2%

7.2%

8.9%

12.3%

NA

VFINX (Vanguard 500 Index Investor)

-0.7%

0.4%

11.3%

11.5%

6.9%

9.8%

Observations:

  • For the past 5 years, these portfolios lagged behind VFINX, but by much smaller margins compared with the global portfolios mentioned above. 
  • For the 10 years, these portfolios have done way better than VFINX, with again 1/3 or so maximum drawdown. 
  • Even from 3/31/1988 (when the portfolio P SMA 200d VFINX VFINX Monthly first had data), the 200 days moving average portfolio has done better than VFINX!

To summarize, even with the recent struggle, we believe tactical and long term timing portfolios can deliver comparable performance in a long term with much less risk. However, we also recognize the complementary nature of the TAA and strategic SAA portfolios, thus, adopting a core satellite approach is the best way to avoid psychological anxiety caused by a period of underperformance and have a long term investing success. 

Market Overview

Risk assets are now almost fully recovered from this year’s loss. In fact, emerging market stocks are now positive for the year. Furthermore, high yield bonds also turn positive year to date. Even though we are skeptical, we do not exclude the possibility that this year’s early negative performance might be yet another repeat of 2014 or 2011. Loose global monetary policies might be able to prop up economy one more time. However how it might turn out, the best way is to stick to what we have and respond based on the strategies. 

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 6 years. Since the financial crisis in 2008-2009, we have not seen meaningful or substantial structural change in the U.S., European and emerging market economies. Even though U.S. stocks have had a recent correction, their valuation is still at a historical high level.  It is thus not a good time to take excessive risk. 

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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