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, September 30, 2013. You can also find the re-balance calendar for 2013 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.
Interview with Gary Antonacci
We featured the interview with Gary Antonacci whose research in momentum investing has been well recognized. His work won him NAAIM (National Association of Active Investment Managers) Wagner Awards in both 2011 and 2012. Please refer to
Interview with Gary Antonacci on Momentum Based Investing
for the interview. Readers can find out more in Gary’s website Optimal Momentum.
As a note, MyPlanIQ plans to have more interviews with well known practitioners and researchers in wealth and investment management. If you have suggestions, please let us know.
Dual Momentum: Relative Momentum and Absolute Momentum
Gary’s research in momentum investing centers on the two concepts: relative momentum and absolute momentum. Relative momentum, or relative strength, has been studied and used extensively in stock investing. Absolute momentum will only invest winners (i.e. those with high momentum) if these winners have positive momentum. Gary’s work and MyPlanIQ’s Tactical Asset Allocation (TAA) are the most systematic and extensive attempts to apply dual momentum (i.e. both relative and absolute momentums) to portfolio management, especially in asset allocation.
The following newsletters give some background info on momentum investing:
- July 22, 2013: Tactical Asset Allocation: The Good, The Bad And The Ugly
- April 1, 2013: Momentum Over Stocks, Sector And Style Funds
- December 10, 2012: How Asset Allocation Strategies Performed In Secular Market Trends
The following is some interesting information about momentum application on MyPlanIQ platform using Gary’s terminologies (which we find very useful):
- Tactical Asset Allocation (TAA) applies dual momentum in risk assets (stocks, REITs and/or commodities) and will only invest those that are ranked higher than bonds and/or cash (cash is guaranteed to have positive momentum). Allocations will be replaced by bonds or cash if they have lower/negative momentum.
- Relative momentum is applied in fund selection, both in Tactical Asset Allocation (TAA) and Strategic Asset Allocation (SAA).
- Absolute momentum can be implemented with relative momentum by extending the candidate funds/assets with bonds and cash.
- Fixed Income Bond Fund Portfolios and Conservative Allocation Fund Portfolios are all absolute momentum based, or using our early terminology, ‘guarded’. They will switch to safer assets such as bonds and as the last resort cash when winners do not have rankings higher than these safer assets.
- With more than 60,000 portfolios and more than 10,000 active 401k and IRA plans, our asset allocation model portfolios (SAA and TAA) have been monitored live since 2009. We believe our data will continue to demonstrate/reveal how effective these strategies are as time goes. In addition to servicing users, we believe these data will be very valuable to understand the strategies in the long term.
- We are now monitoring two representative absolute momentum based asset allocation portfolios listed on Advanced Strategies page: P Relative Strength Trend Following Six Assets has the back testing dated back in 1991 and it’s been live for public for about a year; P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs has been live for public for almost 4 years now.
We are excited that as more and more quality work such as Gary’s is coming online, a transparent platform such as MyPlanIQ that is applied to massive retirement plans average investors can access will be useful to justify or shed insights into asset allocation and other portfolio management strategies.
Current Market Review
Now that we enter September, the weakest market month in US stock market history, it is time to review where we are.
- Stock Valuation: Overvalued. In fact, based on Shiller’s CAPE-10 (i.e. current price divided by last 10 year average earnings), it is currently 44% above its long term average, or 44% overvalued. It’s current value is about the same as in late 2007 and early 2008. See Market Indicators for more info. In fact, our P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly just went into cash due to the extreme over valuation.
- Bonds’ weakness continues: the following table shows practically fixed income investors have nowhere to hide other than cash. It doesn’t help either that even bond King Jeffrey Gundlach capitulated, stating bond rates will continue to rise till the year end (see DoubleLine Gundlach Changed His Mind: Rates Will Continue to Rise)
Fixed Income Assets Trend
08/30/2013
| Description | Symbol | 52 Weeks | Trend Score |
|---|---|---|---|
| High Yield | JNK | 4.69% | 0.54% |
| Short Term Credit | CSJ | 0.8% | 0.14% |
| Treasury Bills | SHV | 0.03% | 0.02% |
| Short Term Treasury | SHY | 0.0% | -0.04% |
| Intermediate Term Credit | CIU | -0.98% | -1.18% |
| MBS Bond | MBB | -3.2% | -1.63% |
| International Treasury | BWX | -4.3% | -1.63% |
| US Total Bond | BND | -3.82% | -1.89% |
| Long Term Credit | LQD | -3.2% | -2.17% |
| International Inflation Protected | WIP | -2.91% | -3.37% |
| Intermediate Treasury | IEF | -6.4% | -3.52% |
| California Muni | CMF | -5.73% | -3.98% |
| 10-20Year Treasury | TLH | -8.86% | -4.05% |
| National Muni | MUB | -6.35% | -4.27% |
| Inflation Protected | TIP | -7.51% | -4.37% |
| New York Muni | NYF | -7.09% | -4.82% |
| 20+ Year Treasury | TLT | -14.98% | -6.08% |
| Emerging Mkt Bonds | PCY | -8.81% | -6.37% |
- Market behavior: currently markets are extremely weak and not uniform: though US stocks and developed country stocks still exhibit positive momentum measured in the trailing 52 weeks, they all have negative shorter momentum scores in our internal short term metrics.
To summarize, we are extremely cautious for the notorious volatile September in the current environment.
Portfolio Performance Review
| Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR |
|---|---|---|---|---|---|
| Fidelity Commission Free ETFs Tactical Asset Allocation Moderate | 1.9% | 3.8% | 8.3% | 7.4% | 9.5% |
| Schwab Commission Free ETFs Tactical Asset Allocation Moderate | 2.6% | 4.1% | 7.9% | ||
| TD Ameritrade Commission Free ETFs Tactical Asset Allocation Moderate | 2.9% | 4.6% | 5.5% | 4.0% | 8.3% |
| Vanguard ETFs Tactical Asset Allocation Moderate | 2.1% | 5.9% | 8.6% | 8.9% | 9.8% |
| Etrade All Star ETFs Tactical Asset Allocation Moderate | 2.3% | 5.6% | 8.8% | 11.2% | 12.1% |
| Schwab ETF Select List Tactical Asset Allocation Moderate | 1.3% | 2.4% | 7.3% | 6.4% | 8.0% |
**YTD: Year to Date
See the more detailed year by year comparison >>
We are monitoring these plans closely as some of commission free ETFs in brokerages are apparently for short term traders, not for portfolio building purpose. Our position is that we don’t have to use every single one of these ETFs to form a solid portfolio, though we certainly like to have more choices for diversification purpose. We will rely on our algorithm as well as some necessary manual intervention (if necessary, so far, we have not done that) to exclude these funds to ensure these portfolios perform well.
Market Overview
As stated above, the “winning” US stocks and international stocks are hanging by a thread. In fact, since May this year, they have been in such a state for quite some time. We can only stay on course and be vigilant at the moment.
For more detailed asset class trends, see 360° Market Overview.
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
- DoubleLine Gundlach Changed His Mind: Rates Will Continue to Rise
- *Very* Sobering
- Relative Strength and Philosophy
- Interview with Gary Antonacci on Momentum Based Investing
- Another key factor for stock investors to watch
- Sound Smart on CNBC!
- August 26, 2013: Risk Management: Implementation Risk
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Diversified Asset Allocation Portfolios For Your Plans
