Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

Regular AAC (Asset Allocation Composite), SAA and TAA portfolios are always rebalanced on the first trading day of a month. the next re-balance will be on Monday November 1, 2021. 

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.

MyPlanIQ Ultra Short Term Bond Portfolio vs. Other Funds

So far, we have reviewed our general asset allocation ETF portfolios and fixed income ETF portfolios:

In this newsletter, we continue to look at our ultra short term bond portfolio and compare it with some famous ETFs and mutual funds


We featured MPIQ Ultra ST Bond ETFs in previous newsletters like July 26, 2021: Ultra Short Term Bond ‘Money Market’ Portfolio And Banking. The following table compares this portfolio with some best ultra short term bond funds: 

Portfolio Performance Comparison (as of 10/8/2021):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr MDD
MPIQ Ultra ST Bond ETFs 0.2% 0.5% 1.9% 1.9% 0.2%
FLRN (SPDR® Barclays Investment Grd Fl Rt ETF) 0.5% 0.7% 1.6% 1.7% 14.6%
FLOT (iShares Floating Rate Bond) 0.5% 0.7% 1.6% 1.8% 13.5%
USFR (WisdomTree Floating Rate Treasury Fund) 0.0% -0.0% 1.0% 1.2% 0.8%
TFLO (iShares Treasury Floating Rate Bond ETF) -0.0% -0.0% 1.0% 1.0% 0.2%
VUSB (Vanguard Ultra-Short Bond ETF) 0.2%       0.1%
NEAR (iShares Short Maturity Bond ETF) 0.5% 0.9% 1.9% 1.8% 9.6%
MINT (PIMCO Enhanced Short Maturity Active ETF) 0.2% 0.5% 1.8% 1.8% 4.6%
ICSH (iShares Ultra Short-Term Bond ETF) 0.3% 0.4% 1.9% 1.8% 3.9%
DLUSX (DoubleLine Ultra Short Bond Fund Class N) 0.0% 0.1% 1.2% 1.1% 3%
STOT (SPDR DoubleLine® Short Duration Total Return Tactical ETF) 0.4% 0.9% 2.7% 1.8% 5.1%

MDD: Maximum Draw Down (from a peak to its subsequent troughs)

YTD: Year to Date

We want to draw readers’ attention to MDD: maximum draw down. Based on SEC, a money market fund has to always maintain its NAV (Net Asset Value) within +-0.995. Or it can’t have its value drop more than 0.5% (see our previous newsletter for more details on this subject). From the above table, only TFLO and VUSB two funds, in addition to MPIQ portfolio, satisfy this condition. VUSB or Vanguard Ultra Short Bond ETF has a too short history to be meaningful. 

For returns, we can see our portfolio has the highest 5 year annualized return. Its 3 year annualized return is also second to STOT (DoubleLine ETF) but it has much lower volatility and drawdown. 

We maintain that our portfolio can be utilized as a close substitute for ultra short term investments like a prime money market fund. 

Comparing with DoubleLine bond funds

We want to compare our portfolio with DoubleLine bond funds in more details. DoubleLine is founded and led by the famous bond ‘king’ Jeffrey Gundlach. It’s also considered to be one of the best bond fund managers, similar or even overtaking PIMCO and other bond power houses like Gundlach’s old firm TCW. 

Unfortunately, DoubleLine’s flagship fund DoubleLine Total Return Bond Fund and its ETF counterpart haven’t been on fire for the past 3  or 5 years:

Portfolio Performance Comparison (as of 10/8/2021):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
MPIQ ETF Fixed Income 0.6% 3.2% 7.7% 5.4%  
DLTNX (DoubleLine Total Return Bond N) 0.1% 0.7% 3.9% 2.6% 3.4%
TOTL (SPDR® DoubleLine Total Return Tact ETF) -0.6% 0.1% 4.0% 2.3%  
PTRAX (PIMCO Total Return Admin) -1.3% -0.1% 5.8% 3.5% 3.7%
TGMNX (TCW Total Return Bond N) -1.5% -1.2% 5.5% 2.8% 3.8%

One can see that the two DoubleLine funds have lagged behind PIMCO and TCW funds with big margins for the past 3,5 and 10 years. 

DoubleLine total return bond fund has oversized exposure in Securitized bonds (such as Mortgage Backed Securities (bonds) or CMS (Commercial Mortgage Securities)). Based on Morningstar, as of 8/32/2021, the fund has a whopping 79% invested in this category. It also has about 27% or so in junk or unrated bonds: 

It actually underperformed its long time nemesis TGMNX (TCW Total Return Bond N) that also likes to invest in securitized bonds. So it’s hard to just simply attribute its underperformance to the over exposure in this category. 

On the other hand, all of these funds have underperformed our fixed income portfolio with big margins. Our portfolio also has a much smaller drawdown than these funds. See this detailed link

Let’s shift our attention back to ultra short term investments. From the first table, one can see that both DoubleLine’s ultra short funds (DLUSX and STOT) have lagged in terms of returns. Both funds have high expense ratios: DLUSX: 0.51% and STOT: 0.4%. The following chart also shows how the two funds have much higher drawdowns/volatilities: 

STOT has much higher unusual volatility in the above chart. This makes it not very suitable as a short term safe conservative investment. 

The above discussion again confirms one of our key beliefs: there are no fool proof managers, no matter how great the persons and their funds have been. It’s important to have an added layer or strategy to filter/rotate out of these funds once they start to underperform. It has been proved again and again from PIMCO funds to now DoubleLine funds. MPIQ’s portfolios do exactly like this to filter out laggards and maintain lower risk. 

Market Overview

Stocks staged a feeble recovery last week. Whether it’s out of its current correction is yet to be seen. Investors are now waiting for Q3 earnings report with high expectation: they expect 27.6% year over year earnings growth rate for the S&P 500. However, they are also anxious to know how serious the supply chain constraint impact is. Factset’s first earnings insight indicated that 71% of S&P 500 companies are citing negative supply chain impact. This is a big unknown. 

For now, we maintain our cautious stance and will respond according to market’s further development. As always, we advocate the following practice:

  • For strategic allocation (buy and hold) investors, ignore the current market behavior. Remember, as what we have emphasized numerous times, when you choose and commit to a strategic portfolio, you essentially know and commit that your investment horizon (or the time you need to utilize this capital) is 20 years or longer. As we pointed out, if your investments are those diversified (index) funds such as an S&P 500 index fund (VFINX, for example), you know your money is in some solid ‘business’ that eventually (20 years later) will deliver some reasonable returns. As long as you are comfortable with this thesis, you should sit tight and forget about the current gyration.
  • For tactical investors, again, you have to ignore the current market noise. Furthermore, you should follow your strategy rigorously, especially in a time like this. Human emotion, both optimistic and pessimistic, and human desire, both greedy and fearful, are your worst enemies. This has been shown to be true time and time again.

Stock valuation is still extremely high by historical standard. For the moment, we believe it’s prudent to be cautious while riding on market uptrend. However how serious a correction might be, we have confidence in the US economy in the long term and thus in the stocks in aggregate. We just need to manage through interim losses carefully.  

We again would like to emphasize that 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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