| US and Foreign Indexes | 3 mo | 1 yr | 3 yr | 5 yr | 10 yr | 2008 | |
| Stock Mkts (50us 40for 10em) | 6.9% | 7.3% | 13.0% | 10.4% | 7.3% | -39.7% | |
| S&P 500 (100usa) | 0.6% | 11.8% | 19.7% | 16.5% | 8.1% | -37.0% | |
| Ibbotson Aggressive | 5.6% | 8.5% | 13.7% | 11.4% | 7.3% | -35.5% | |
| Aggressive | 6.1% | 6.6% | 12.7% | 10.1% | 6.8% | -36.3% | |
| 95 Flex V | 2.7% | 4.2% | 9.8% | 8.4% | -19.1% | ||
| 95 Strategic II | 5.5% | 7.1% | 14.2% | 12.5% | 9.8% | -35.9% | |
| 95 Schwab index | 6.2% | 7.5% | 14.1% | 11.3% | 7.8% | -37.2% | |
| WealthFront 9 | 6.3% | 6.2% | 10.4% | 8.9% | -38.0% | ||
| Ibbotson Moderately Aggressive | 4.3% | 7.5% | 11.6% | 10.2% | 7.0% | -28.5% | |
| Moderately Aggressive | 5.3% | 5.9% | 11.4% | 9.5% | 6.7% | -32.0% | |
| 80 Flex V | 2.6% | 4.0% | 9.3% | 8.1% | -16.9% | ||
| 80 Strategic II | 4.6% | 5.8% | 12.0% | 10.7% | 9.0% | -30.0% | |
| 80 Schwab index | 5.0% | 7.0% | 12.0% | 10.1% | 7.2% | -32.1% | |
| Ibbotson Moderate | 3.2% | 6.5% | 9.4% | 8.8% | 6.5% | -21.2% | |
| Moderate | 3.7% | 4.5% | 8.7% | 8.0% | 6.2% | -23.1% | |
| 60 Flex V | 2.5% | 4.0% | 8.7% | 8.0% | -13.1% | ||
| 60 Flex IV | 1.9% | 2.7% | 6.7% | 7.2% | -13.0% | ||
| 60 Strategic II | 3.5% | 5.1% | 10.0% | 9.3% | 8.3% | -23.9% | |
| 60 Schwab index | 3.4% | 6.6% | 9.7% | 8.8% | 6.4% | -25.6% | |
| Ibbotson Moderately Conservative | 1.9% | 5.1% | 6.8% | 7.1% | 5.8% | -12.4% | |
| Moderately Conservative | 2.1% | 3.1% | 6.0% | 6.5% | 5.6% | -10.4% | |
| 40 Flex V | 2.3% | 4.0% | 8.4% | 7.9% | -13.3% | ||
| 40 Strategic II | 3.0% | 5.3% | 9.4% | 8.5% | 7.9% | -17.7% | |
| 40 Schwab Index | 2.0% | 5.9% | 7.3% | 7.2% | 5.5% | -18.8% | |
| Ibbotson Conservative | 0.4% | 3.2% | 3.8% | 5.0% | 4.9% | -1.4% | |
| Conservative | 0.5% | 1.6% | 3.4% | 4.8% | 4.8% | -2.5% | |
| 20 Flex V | 2.1% | 3.8% | 7.1% | 7.4% | -5.2% | ||
| 20 Strategic II | 1.9% | 4.1% | 7.2% | 6.7% | 6.8% | -10.5% | |
| 20 Schwab index | 0.6% | 5.0% | 4.7% | 5.4% | 4.3% | -11.7% | |
| NOTE 1: Past performance is no guarantee of specific future results. This data is presented by Potomac Wealth Strategies, LLC. This data is from Morningstar and should be accurate, but it has not been independently verified. | |||||||
| NOTE 2: "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies. They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors. | |||||||
| NOTE 3: "XX Schwab index" models are low-cost portfolios. They are comprised of index funds available free of transaction charges to my clients at Schwab. This is what many might recommend due to low-costs and portfolio efficiency. | |||||||
| NOTE 4: Nothing on this blog post represents investment advice to any individual or organization. If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation. | |||||||
An investing and financial strategies blog offered by Gary Partoyan, veteran financial advisor and owner of Potomac Wealth Strategies, LLC.
Showing posts with label Style-box. Show all posts
Showing posts with label Style-box. Show all posts
Monday, June 1, 2015
Strategic and Flex Portfolio Performance Through April 2015
Thursday, April 2, 2015
Performance Data for Model Portfolios Through February 2015
With the U.S. stock market significantly outperforming most other asset classes in 2014, there is temptation to load-up on U.S. holdings in our portfolios. I still strongly recommend diversification. There is Nobel Prize-winning research supporting the "asset allocation" methods I employ. My goal is to have folks strike the optimal risk/reward balance.
Here is what has been happening in my Strategic and Flex models:
Here is what has been happening in my Strategic and Flex models:
| US and Foreign Indexes | 3 mo | 1 yr | 3 yr | 5 yr | 10 yr | 2008 | |
| Stock Markets (50-40-10) | 2.2% | 8.0% | 12.6% | 11.4% | 6.7% | -39.7% | |
| S&P 500 | 2.3% | 15.5% | 18.0% | 16.2% | 8.0% | -37.0% | |
| MSCI EAFE | 2.8% | 0.0% | 9.4% | 7.8% | 4.8% | -43.4% | |
| US OE Diversified Emg Mkts | -2.2% | 2.8% | 0.5% | 3.4% | 7.1% | -54.4% | |
| Barclays Agg Bond--US | 1.2% | 5.1% | 2.8% | 4.3% | 4.8% | 5.2% | |
| Barclays Agg Bond--Global | -1.7% | -2.8% | -0.1% | 2.4% | 3.6% | 4.8% | |
| Aggressive | 2.3% | 6.9% | 12.4% | 11.1% | 6.3% | -36.3% | |
| 95 Flex V | 1.0% | 4.5% | 10.3% | 10.0% | -19.1% | ||
| 95 Strategic II | 2.3% | 7.6% | 14.7% | 14.6% | 9.5% | -35.6% | |
| 95 Schwab index | 3.3% | 6.7% | 14.1% | 12.8% | 7.3% | -37.2% | |
| WealthFront 9 | 1.4% | 7.0% | 9.7% | 9.9% | 7.3% | -38.0% | |
| Moderately Aggressive | 2.1% | 6.2% | 11.1% | 10.4% | 6.2% | -32.0% | |
| 80 Flex V | 0.9% | 4.3% | 9.8% | 9.7% | -16.9% | ||
| 80 Strategic II | 2.1% | 6.3% | 12.3% | 12.5% | 8.8% | -30.0% | |
| 80 Schwab index | 2.9% | 6.5% | 12.1% | 11.4% | 6.7% | -32.1% | |
| Moderate | 1.5% | 4.9% | 8.6% | 8.6% | 5.9% | -23.1% | |
| 60 Flex V | 0.5% | 4.3% | 9.0% | 9.3% | -13.1% | ||
| 60 Flex IV | 0.8% | 2.7% | 6.7% | 8.3% | -13.0% | ||
| 60 Strategic II | 1.7% | 5.8% | 10.3% | 10.9% | 8.1% | -23.9% | |
| 60 Schwab index | 2.5% | 6.6% | 9.9% | 9.8% | 6.1% | -25.6% | |
| Goldman Sachs Income Builder | 1.3% | 4.9% | 10.0% | 10.5% | 6.6% | -23.3% | |
| American Funds Balanced Port | 1.8% | 8.0% | 11.4% | 10.8% | 6.9% | -28.2% | |
| Moderately Conservative | 0.9% | 3.5% | 6.0% | 6.8% | 5.4% | -13.3% | |
| 40 Flex V | 0.2% | 4.7% | 8.7% | 9.2% | -13.1% | ||
| 40 Strategic II | 1.3% | 6.2% | 9.7% | 9.7% | 7.7% | -17.7% | |
| 40 Schwab Index | 2.1% | 6.1% | 7.5% | 8.0% | 5.3% | -18.8% | |
| Conservative | 0.4% | 2.1% | 3.4% | 5.0% | 4.8% | -2.5% | |
| 20 Flex V | -0.2% | 4.4% | 7.6% | 8.6% | -5.2% | ||
| 20 Strategic II | 0.9% | 5.2% | 7.5% | 7.6% | 6.7% | -10.5% | |
| 20 Schwab index | 1.7% | 5.4% | 4.9% | 5.9% | 4.3% | -11.7% | |
| NOTE 1: Past performance is no guarantee of specific future results. This data is presented by Potomac Wealth Strategies, LLC. This data is from Morningstar and should be accurate, but it has not been independently verified. | |||||||
| NOTE 2: "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies. They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors. | |||||||
| NOTE 3: "XX Schwab index" models are low-cost portfolios. They are comprised of index funds available free of transaction charges to my clients at Schwab. This is what many might recommend due to low-costs and portfolio efficiency. | |||||||
| NOTE 4: Nothing on this blog post represents investment advice to any individual or organization. If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation. | |||||||
Friday, December 19, 2014
Index Funds vs. Actively-Managed Funds: Which Is Better?
I often write about this in e-mails. Now I'm blogging about it again, as a couple of clients have raised the issue of "index funds" recently...
Mutual funds come in basically two varieties: actively-managed (the normal kind), and
passively-managed (the so-called "index" funds). I prefer actively-managed funds--but only great ones--for most of the portfolios I craft for my clients.
Actively-managed funds are run by a manager (usually with a team, or sometimes a team of several managers and their staff of traders and analysts). The fund, as directed by the manager's strategic portfolio plan, will invest as well as it can in the area(s) of focus. For example, the Yacktman Focused Fund I use a lot aims to invest in stocks of large, well-run, financially-sound American companies that are trading at prices below what the fund thinks is "fair value". If it does well, like Yacktman Focused fund has for a long time, the fund will outperform the benchmark index to which it compares itself (the S&P500 index, in this case).
Actively-managed funds are run by a manager (usually with a team, or sometimes a team of several managers and their staff of traders and analysts). The fund, as directed by the manager's strategic portfolio plan, will invest as well as it can in the area(s) of focus. For example, the Yacktman Focused Fund I use a lot aims to invest in stocks of large, well-run, financially-sound American companies that are trading at prices below what the fund thinks is "fair value". If it does well, like Yacktman Focused fund has for a long time, the fund will outperform the benchmark index to which it compares itself (the S&P500 index, in this case).
But actively-managed funds, as a category or breed, usually do not outperform the benchmark. Estimates are that ~80% of actively-managed funds fail to beat their benchmarks--successful investing is not easy, and the costs of running a mutual fund eat into the hard-fought outperformance a successful manager achieves. So, many investors and advisors feel the better choice is to simply "invest in the benchmark". Well, we can't actually buy part of an index, but "index funds" replicate their target benchmark index very closely, and well-run index funds can do so with efficiencies and economies-of-scale that make the funds very low-cost.
Fund performance data is reported net-of-fees (not my advisory fee, mind you, but net of the funds' internal management fees). So when you see Yacktman Focused Fund compared to, say, the Vanguard 500 Index fund, it should be comparing apples to apples (net of fees). If Yacktman has beaten Vanguard by 3.15% per year over the past decade, that's accounting for the 1.25% annual internal fee Yacktman takes and the 0.17% fee taken by Vanguard 500 Index fund. So the Yacktman Focused Fund has a 1.08% fee differential to make up for just to be even with Vanguard 500 Index fund. Since Yacktman beat Vanguard by 3.15% per year net of fees, it means the managers actually outperformed by 4.23 percentage points per year over that 10-year span.
That kind of cost-justification is the bottom-line that should be sought by investors and advisors. Of course, if 80% of actively-managed funds don't cost-justify like that (or anywhere near like that), then it's a good bet to go with an index fund... unless the investor, or their advisor, knows how to find the funds that are likely to cost-justify.
I use actively-managed funds. I'm one who enjoys the research/vetting part of this job, and I have great tools/resources to help me. I believe I find the best actively-managed funds for each category and put together portfolios that beat their benchmarks over most or all significant time periods. Hence my "80 Strategic II" portfolio for moderately-aggressive long-term investors, for example. It has the following track record compared to its "blended benchmark" (proportionate amounts of the S&P500 and other indexes for bonds and for foreign stocks):
Span 80 Strategic II ModAggr Benchmark
3mo 0.46% -0.32%
1yr 7.00% 7.01%
3yr 15.02% 13.41%
5yr 12.64% 9.61%
10yr 8.94% 6.45%
2008 crash -30.02% -32.03%
2009 rebound +41.45% +23.56%
No guarantees this will continue, but the point is that finding and using the few actively-managed funds that do outperform over the long-haul has been a better choice then using index funds.
But for those who don't know how to find the right funds, or for retirement plan administrators that want to play it safer (not risk offering a bunch of funds that turn out to be underperformers), index funds are appropriate tools.
No guarantees this will continue, but the point is that finding and using the few actively-managed funds that do outperform over the long-haul has been a better choice then using index funds.
But for those who don't know how to find the right funds, or for retirement plan administrators that want to play it safer (not risk offering a bunch of funds that turn out to be underperformers), index funds are appropriate tools.
Saturday, May 22, 2010
Thinking Out of the Box, Literally: What About the Style Boxes?
In our last post, we met the Style Boxes. If you missed it, please read that and then come back here.
2008 was an unfortunate but inevitable example of how sticking with strategic allocation to a variety of style boxes can sometimes be of little help in avoiding portfolio declines during a "crash". And 2009 similarly showed us how sticking with our selected style boxes can keep us out of the best performing areas of the market in an big "up" year.
Portfolios that utilize a global/flexible approach, though, can offer much better returns. Or much bigger losses. It really depends on whether the manager of a global/flexible fund, the advisor running a client's portfolio, or an individual investor picks the "right" style boxes to emphasize and avoid.
This tactical allocation is more art than science, whereas the strategic allocation is more science than art. It is clear, though, that managers with long-term track records of "success" using global/flexible or tactical methods have significantly out-performed "the market" and portfolios using just strategic asset allocation.
Some examples:
A global/flexible mutual fund we love uses both strategic and tactical methods at the same time. It is usually about 60-40 stocks-bonds, and 60-40 domestic-foreign. Within the stock allocation, though, it can go anywhere it wants, and same within the bond allocation. For example, if 36% of the portfolio is to be in U.S. stocks, but the manager is wary of small-cap growth stocks and strongly favors large-cap value, he can direct the entire 36% to that style box. This fund was down only 21% in 2008 (the US market was down 37% and the foreign-developed stock market was down 43%), and it averaged over 7% per year over the past decade while the U.S. market has been at about -1% per year. This fund has a 21 year track record and has always delivered like this. Clearly, they know better than most where to be and when.
Another global/flexible mutual fund we love can go anywhere and invest in just about anything. At the worst of the 2008 crash, it was only 15% in stocks and had taken large positions in cash, gold and bonds. During the big run-up in 2009 it was around 80% in stocks. It was only down 26% in 2008, and it's 10-year track record is over 10% per year.
Still another fund we love was only down 8% in 2009, and it's averaging almost 9% per year for the last decade. This one doesn't move around the style boxes so much as it invests significantly in areas outside of the normal style boxes.
These global/flexible funds are the exception; most who try don't succeed at beating the market for very long. But they are out there, folks. You just need to know how to get 'em. Or you need an advisor to find them for you.
2008 was an unfortunate but inevitable example of how sticking with strategic allocation to a variety of style boxes can sometimes be of little help in avoiding portfolio declines during a "crash". And 2009 similarly showed us how sticking with our selected style boxes can keep us out of the best performing areas of the market in an big "up" year.
Portfolios that utilize a global/flexible approach, though, can offer much better returns. Or much bigger losses. It really depends on whether the manager of a global/flexible fund, the advisor running a client's portfolio, or an individual investor picks the "right" style boxes to emphasize and avoid.
This tactical allocation is more art than science, whereas the strategic allocation is more science than art. It is clear, though, that managers with long-term track records of "success" using global/flexible or tactical methods have significantly out-performed "the market" and portfolios using just strategic asset allocation.
Some examples:
A global/flexible mutual fund we love uses both strategic and tactical methods at the same time. It is usually about 60-40 stocks-bonds, and 60-40 domestic-foreign. Within the stock allocation, though, it can go anywhere it wants, and same within the bond allocation. For example, if 36% of the portfolio is to be in U.S. stocks, but the manager is wary of small-cap growth stocks and strongly favors large-cap value, he can direct the entire 36% to that style box. This fund was down only 21% in 2008 (the US market was down 37% and the foreign-developed stock market was down 43%), and it averaged over 7% per year over the past decade while the U.S. market has been at about -1% per year. This fund has a 21 year track record and has always delivered like this. Clearly, they know better than most where to be and when.
Another global/flexible mutual fund we love can go anywhere and invest in just about anything. At the worst of the 2008 crash, it was only 15% in stocks and had taken large positions in cash, gold and bonds. During the big run-up in 2009 it was around 80% in stocks. It was only down 26% in 2008, and it's 10-year track record is over 10% per year.
Still another fund we love was only down 8% in 2009, and it's averaging almost 9% per year for the last decade. This one doesn't move around the style boxes so much as it invests significantly in areas outside of the normal style boxes.
These global/flexible funds are the exception; most who try don't succeed at beating the market for very long. But they are out there, folks. You just need to know how to get 'em. Or you need an advisor to find them for you.
Friday, May 21, 2010
Thinking Out of the Box, Literally: Introducing the Style Boxes
In an earlier post, I said investors and their advisors should be thinking out of the box right now, and I meant it literally. But it was industry insider lingo, so I'll explain it more in this post and the next one over the weekend. For now, let's meet the "style boxes".
Each investment style box represents a particular slice of the investment marketplace. Picture a tic-tac-toe board. The top boxes, if we're talking about stocks, are for the large companies. The top-left box is for large "value" companies. Top-right is for large "growth" companies. The top-middle box is for large "blend" companies.
The middle row is for the mid-size companies, the bottom row for small companies. And a similar board full of style boxes can be made for companies outside the U.S., in either "developed" markets or "emerging" markets.
Same story for bonds, but the categories are different: high, medium and low quality... short, intermediate, and long duration... government (aka sovereign), municipal, and corporate... domestic, developed-foreign, and emerging markets...
Okay, so what?
Well, a typical mutual fund or private portfolio manager invests pretty much in just one style box, or maybe a few very closely-related style boxes. Since different investment styles do better or worse at different times, it is important to either allocate your portfolio to the right long-term strategic mix of style-boxes or to be able to move out of the style boxes that are going to have difficulty and into to the ones that will do well, and then back again when conditions dictate.
In 2008, all but a few style boxes were bad places to be invested. Almost everything was going down, a lot. Even the best strategic asset allocations got hammered. There is Nobel Prize-winning research showing us how much to put in and keep in which style boxes for the long-haul, and it's valid. But it was very painful in 2008 to have stayed with a strategic asset allocation because you were deliberately staying put in style boxes that were plummeting.
It could be painful like that again sooner or later, given the fundamental economic difficulties much of the developed-world economies have right now.
So, next we'll talk about ways to think and move out of "the box(es)". It might be helpful.
Each investment style box represents a particular slice of the investment marketplace. Picture a tic-tac-toe board. The top boxes, if we're talking about stocks, are for the large companies. The top-left box is for large "value" companies. Top-right is for large "growth" companies. The top-middle box is for large "blend" companies.
The middle row is for the mid-size companies, the bottom row for small companies. And a similar board full of style boxes can be made for companies outside the U.S., in either "developed" markets or "emerging" markets.
Same story for bonds, but the categories are different: high, medium and low quality... short, intermediate, and long duration... government (aka sovereign), municipal, and corporate... domestic, developed-foreign, and emerging markets...
Okay, so what?
Well, a typical mutual fund or private portfolio manager invests pretty much in just one style box, or maybe a few very closely-related style boxes. Since different investment styles do better or worse at different times, it is important to either allocate your portfolio to the right long-term strategic mix of style-boxes or to be able to move out of the style boxes that are going to have difficulty and into to the ones that will do well, and then back again when conditions dictate.
In 2008, all but a few style boxes were bad places to be invested. Almost everything was going down, a lot. Even the best strategic asset allocations got hammered. There is Nobel Prize-winning research showing us how much to put in and keep in which style boxes for the long-haul, and it's valid. But it was very painful in 2008 to have stayed with a strategic asset allocation because you were deliberately staying put in style boxes that were plummeting.
It could be painful like that again sooner or later, given the fundamental economic difficulties much of the developed-world economies have right now.
So, next we'll talk about ways to think and move out of "the box(es)". It might be helpful.
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