Here is the tactical asset allocation update for May 2016. Before I get into the updates for the month I want to share a must read post from Antonacci. In the post he lists some questions he often gets asked about markets and investing. Here they are;
Question: How much do you think the stock market can drop?
Response: 89%
Question: What?!!
Response: Well, that is the most it has dropped in the past. But past performance is no assurance of future success, so I guess it could go down more than that.
Question: I just looked at my account, and it is down. What should I do?
Response: Stop looking at your account.
Question: What are you doing now?
Response: What I always do … following my models.
After these responses, I am usually not asked any more questions.
This is so on point. I have very similar experiences. I’ll add a few more.
Q: What are you investing in now? A: Uhh, whatever is going up, or cheap, or both… or I’ve also said, don’t know I’d have to check my computer to tell you.
Q: If I do answer the above with a specific investment, which is usually a mistake, then I get, the why? A: Because the computer/model said so…
Q: What do you think about X? (where X=China, Junk bonds, liquidity, etc..) A: I have a lot of personal opinions about those things but for investing I don’t care. Doesn’t matter.
After these answers the conversation usually turns to something else, like craft beer…
Below are the updates for the AGG3, AGG6, and GTAA13 portfolios. The source data can be found here. The sheet contains the IVY5, GTAA5, and the Permanent Portfolio as well. These signals are valid after every trading day. So, while I’ll maintain these month end updates this means that you can implement your portfolio changes on any day of the month, not just month end. FINVIZ will at times generate signals that are slightly different than Yahoo Finance. Also, year to date performance figures have been updated and are included in the sheet.
Note: I am not maintaining the Yahoo Finance versions any more. All portfolios now use FINVIZ data.
For May there are no changes to AGG3. For AGG6, VCIT and VBR are new holdings. Both portfolios are 100% invested. For GTAA13, only GSG remains in cash mode. Approximate monthly and YTD performance is below. In a new change global asset allocation is still working well in 2016.
For the Antonacci dual momentum GEM and GBM portfolios, GEM remains in SPY. and the bond portion of GBM is in MBB. The Antonacci tracking sheet shareable so you can see the portfolio details for yourself.
The Bond 3 quant model, see spreadsheet, ranks the bond ETFs by 6 month return and uses the absolute 6 month return as a cash filter to be invested or not. The Bond 3 quant model is invested in IGOV, VGLT, and MUB.
That’s it for this month. These portfolios signals are valid for the whole month of May. As always, post any questions you have in the comments.
19 Comments
David Haring · April 30, 2016 at 10:09 am
Bond3 – did you mean EMB (#3 in spreadsheet) instead of MUB? Thanks for the update!
paul.novell@gmail.com · April 30, 2016 at 12:07 pm
No. I’m using the FINVIZ version of the model. https://docs.google.com/spreadsheets/d/1o6u6jAUybNi1VbOILj-lC-V4ryAJ4RgrA4mxHF6slMU/edit#gid=1525443278
Sometimes they generate differences.
Eric · April 30, 2016 at 11:47 am
Paul,
I thoroughly enjoy your blog. My wife and I are within several years of retirement and I am starting to evaluate self management of our savings. We currently use an advisor who we like but the returns are not stellar and the mgmt fees are approximately 1.5%. Our returns are less than the major indices and have expected that to date for diversified portfolios. I have scanned quickly through past posts and value the information that you are providing. I believe that you are promoting that one can self manage and do much better than an advisor due to the fees charged. Is this correct and do you identify the portfolios that you personally use anywhere on the site?
paul.novell@gmail.com · May 1, 2016 at 6:48 am
Hi Eric, your situation is quite common. I’ve seen many portfolios over the last 10 years like yours. There’s no good reason for it. And yes, I think one can self manage given the knowledge, inclination, and temperament to do so – the last two being way more important than the first. In addition to management fees, portfolios like yours are usually in active mutual funds that average another 1% or so. How can anyone even match the performance of the market paying 2.5% per year? Pretty much impossible.
My advice would be a two part process. I would move all the assets to a passively managed low cost index provider to being with. This will at least stop the bleeding. I prefer Vanguard, the best in the biz. For 0.3% per year, they will guide you to a diversified portfolio of the lowest cost funds around (averaging about 0.1% in fees per year). Just by doing this you’ll gain 2.1% per year and sleep a lot easier. Vanguard is not the only choice around. Schwab also has a similar offering, as do the other big boys.
Once you’ve stopped the bleeding you can take your time and learn more about self managing your portfolio. I have a list of all kinds of portfolios in the Portfolios page on the blog. Then and only then I would recommend self managing only a portion of your portfolio until you test the last two parts of the equation – inoculation and temperament, and see if this is something you want to do more of going forward.
Paul
Tom · April 30, 2016 at 1:26 pm
Hi Paul,
Great stuff as always. I like the bond model for sheltered accounts. You mentioned previously that you’ve researched it further (into rising rate environments). Would you be able to share any of that info on the blog?
Thanks,
Tom
paul.novell@gmail.com · May 1, 2016 at 6:52 am
Tom, I wrote a piece on rising rates back in 2014 that may be of interest. The bond model would adjust to the rising rates scenario by keeping one invested in the medium to short duration funds. Over the longer term rising rates is the best thing that could happen to bond investors, counter to what most people think.
Paul
Tom · May 1, 2016 at 11:19 am
Thanks Paul!
David H. · April 30, 2016 at 6:22 pm
Paul, re Eric’s Q about self managing interest, don’t know if appropriate to post here (up to you of course) but in that vein I’d suggest Eric might also have a look at the dough.com and tastytrade.com sites. And if a user of Thinkorswim, have a look at thinkscripter.com site.
Appreciate all your posts.
paul.novell@gmail.com · May 3, 2016 at 8:22 am
David, I think that would be something to look into at an ‘advanced’ stage of investing. Thanks for the input.
Paul
Bob L · April 30, 2016 at 9:08 pm
Hi Paul,
Thanks again for your willingness to share your analysis and expertise with others.
After reading this posting, I clicked through to the GTAA Bond 3 New spreadsheet and reviewed it to compare your spreadsheet with my own techniques. I noticed that the Cash Filter column value seems to be based on the Quarterly % column, column D, rather than the Half Year % column as described in the blog. Have I misunderstood the text, or is this a minor error in the spreadsheet?
Again, thanks for all your efforts, and safe travels.
paul.novell@gmail.com · May 1, 2016 at 6:53 am
Hey Bob, good catch. Thanks. I was linking to the wrong bond sheet in the post. I fixed it now.
Paul
David · May 1, 2016 at 8:24 am
Paul,
Great post as always. Does your analysis demonstrate a preferred way to initially enter a portfolio like GTAA6 ? Would buying all six positions or phasing in the signals have a statistical advantage? Thoughts? greatly appreciate all your work.
paul.novell@gmail.com · May 3, 2016 at 8:21 am
David, the data shows that all at once is the better approach. But in my experience emotion is the most important thing to consider. Whichever way works better for you and helps you stick with the strategy over the long run is prob the way to go. In the long run there won’t be much difference.
Paul
Bob L · May 1, 2016 at 8:44 am
Hi Paul,
I realized the link was to the old Yahoo based spreadsheet in the post, but I failed to mention it. I did go to what I think is the new bond spreadsheet at https://docs.google.com/spreadsheets/d/1o6u6jAUybNi1VbOILj-lC-V4ryAJ4RgrA4mxHF6slMU/edit#gid=1525443278 which is based on FinViz data. My question was the formula used to set the Cash Filter value. Your text indicates that you use the six month performance, column E, but the formula references the quarterly performance, column D. Just thought I would mention the difference.
Take care,
paul.novell@gmail.com · May 1, 2016 at 10:08 am
Bob, either filter works fine over the long run. They’ve both had similar performance. There are periods when one outdoes the other. I’ve been meaning to try an average of the 3 month and 6 month but haven’t had the chance to test it.
Paul
Thom Hudson · May 2, 2016 at 10:21 am
Hi Paul, and thanks again for your wonderful education work.
Three questions:
1. Does the AGG3/6 spreadsheet use total return (i.e., does it account for dividends)?
2. Also any plans to share a spreadsheet that uses something other than the 200 sma?
3. Is it possible for one (i.e., me) to copy the spreadsheet, and use it with other ETFs (e.g., some of the Schwab ETFs)? It looks like you can plug in other ETFs, but I am uncertain whether other fields need periodic updating. (Yes, still trying to figure out how exactly the spreadsheet works).
Thanks again.
T
paul.novell@gmail.com · May 3, 2016 at 8:11 am
Thom,
1. Yes
2. No. It’s easy to make changes to what I have in the sheet. I’m sticking with publicly available portfolios.
3. Yes. Make your own copy and do with it as you wish. You can always go back to my original if you mess things up.
P
Lars · May 2, 2016 at 9:09 pm
Hi Paul,
Thank you for your update!
Do you think the currency risk provided by IGOV is a feature, or a necessary evil? Most of its recent uptrend seems to be due to a falling USD, especially against the yen.
What do you think of BNDX as an alternative? Currency hedged, 20 basis points lower expense ratio, and more diversification beyond government bonds (~20% investment grade international corporate bonds).
Thanks,
Lars
paul.novell@gmail.com · May 3, 2016 at 8:15 am
Great question Lars. I happen to believe the currency risk in IGOV is a positive thing. For AGG3/6 I want volatility, in particular upside volatility like we are seeing these days.
BNDX is a great product. It’s a better choice for buy and hold portfolios than IGOV due to lower expense ratios and lower volatility from the hedging.
As to currency hedging in general, Vanguard has a great paper on the topic. Basically, the recommend hedging bond portfolios, due to volatility, but not hedging equity portfolios.
Paul
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