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The ETF Monkey Vanguard Core Portfolio: 2016 Q1 Update

This article is an update to the following articles: On July 1, 2015, I wrote an article for Seeking Alpha introducing The ETF Monkey Vanguard Core Portfolio . On January 4, 2016, I wrote the 2015 year-end update for the portfolio. On February 11, 2016, following the severe market decline during the first part of 2016, I wrote a follow-up article that detailed a rebalancing transaction that I executed to bring the portfolio back in line with my target weightings. In this article, I will report on the performance of the portfolio for the quarter ended March 31, 2016. Evaluating the Portfolio: Q1 2016 Here is the corresponding Google Finance page for the portfolio as of the market’s close on 3/31/16. Have a look, and then I will offer a few comments. Click to enlarge First, as a reference point, the S&P 500 index closed at 2,043.94 on December 31, 2015 and 2,059.74 on March 31, 2016, for a gain of .77% for the period. Second, the portfolio received dividends totaling $208.56 during this period, bringing the cash balance in the portfolio to $251.53. This came from the 3 ETFs as follows: Vanguard Total Stock Market ETF ( VTI) – $132.00 Vanguard FTSE All-World ex-US ETF ( VEU) – $45.88 Vanguard Total Bond Market ETF ( BND) – $30.68 So how did the portfolio perform? All told, not too badly. The closing value of the portfolio was $49,076.43 as of March 31 vs. $48,348.37 on December 31, for a gain of 1.51%. Therefore, the portfolio outperformed the S&P 500 by .74% over this period. Let’s break down the performance, and reasons, by asset class. Domestic Stocks – During the period, VTI grew from $27,120.60 to 28,825.50, an increase of $1,704.90. Subtracting the $1,382.85 added from the February 11 rebalancing leaves us with a net gain of $322.05. Add in the $132.00 of dividends and VTI gained $454.05 on a base of $27,120.60, a gain of 1.67%. This is a slight outperformance when compared to the S&P 500 index. Foreign Stocks – During the period, VEU grew from $12,588.90 to 13,376.50, an increase of $787.70. However. removing the $761.40 added in the rebalancing transaction leaves us with a net gain of only $26.30. Add in the $45.88 of dividends and VEU gained $72.18 on a base of $12,588.90, a gain of .57%. As compared to the U.S. market, this reflects the continued underperformance of foreign markets. Bonds – During the period, the value of BND declined from $8,076.00 to $6,623.20. However, if we add back the $1,648.20 used in the rebalancing transaction, BND actually increased in value by $195.40. Add in the $30.68 of dividends received and BND gained $226.08 on a base of $8076.00, a fairly stunning increase of 2.80%. This reflected a firming of bond prices as the signs of economic malaise during Q1 appeared to lead the market to conclude that interest rates would remain low for a longer period of time than previously anticipated, including the likelihood of the Fed having to modify it’s goal of raising rates as often in 2016. No Transactions or Rebalancing This Period Here’s how the portfolio stood in terms of its asset allocations at 3/31/16. Click to enlarge As can be seen, due to my February 11 rebalancing and the strong performance of the domestic stock market through March 31, domestic stocks are a little overweight and bonds are underweight. As noted in my rebalancing article, I did this on purpose. I am going to monitor this as time moves forward. My preference will be to increase the bond weighting by using dividends that I will receive moving forward. However, if the weightings get severely out of line, I may have to effect another rebalancing transaction. Summary and Conclusion The portfolio did very well during the quarter, outperforming the S&P 500, my chosen benchmark, by approximately 3/4 of a percentage point. Sadly, it is still down a little over 3% from its inception date of June 30, 2015. As can be seem from the graphic, weakness in foreign stocks is the main culprit, as these entered a very weak period almost immediately following the establishment of the portfolio. Still, it is my belief that a disciplined allocation to foreign stocks will prove beneficial over the long term. Disclosure: I am not a registered investment advisor or broker/dealer. Readers are cautioned that the material contained herein should be used solely for informational purposes, and are encouraged to consult with their financial and/or tax advisor respecting the applicability of this information to their personal circumstances. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.

Fidelity’s Low-Priced Stock Fund Manager Delivers Market-Beating Returns

John Tillinghast, manager of the Fidelity Low-Priced Stock Fund, (MUTF: FLPSX ) ” owns one of today’s best investment records ,” according to a profile proceeding a recent interview published in Barron’s. In the 26 years he has managed the fund, it returned an average of 13.7% annually (more than 4% higher than the S&P 500). Tillinghast is restricted by the fund’s charter to buying stocks priced at under $35 per share. He explains: “the original idea was that low-priced stocks weren’t well-followed by Wall Street” and “$35 is just above the average price of stocks listed on the New York Stock Exchange.” Tillinghast “look[s] for a highly visible discount to fair value… and management that is fair and honest” and holds “large stock ownership” in the company. He observed that the fund holds about 9% cash at present, down from 11% last year, because “in the past year or two, I have gone from being a little standoffish about small stocks to thinking that there are a decent number of opportunities, but they are still not abundant.” Speaking about political developments that may affect the foreign stocks making up about 35% of the fund, such as Japan’s recession, Tillinghast commented: “My approach to cycles is to pay less attention to the statistics, but to have a general notion of where we are in the cycle, and what that means for valuations,” noting that “In Japan, there are still a lot of cheap companies with great balance sheets.” Regarding energy stocks, Tillinghast has “an index-like weighting” because of uncertainty in the sector, which he describes as “brutally tough for a value investor.” Comparing conditions that favor value versus growth approaches, he said: for a sustained outperformance of value, you need more dispersion in valuations,” but “when everything is priced the same, it’s lousy for value investors and for active management in general.”

Best Performing Bond ETFs Of Q1

Chances for the 33-year bull run in the bond market to fall flat in 2016 increased when the Fed enacted a rate hike in December 2015 after almost a decade. But in reality, bonds kept bouncing throughout the first quarter on a low-yield environment in most developed markets across the world. Thanks to China-led global market worries and the 12-year plunge in oil prices, the global market went berserk to start this year. All these buried risk-on sentiments and boosted relatively safer fixed-income securities in the quarter, pulling bond yields down. In fact, the impact of the global financial market turmoil was so deep-rooted that the Fed halved its number of rate hike estimates for 2016 from four to two in its March meeting. Also, Fed chair Yellen reaffirmed a ‘cautious’ stance on future policy tightening. Needless to say, the very move dragged down the U.S. benchmark bond yields and pushed up its prices. Notably, yields on 10-year Treasury notes dropped 41 bps to 1.83% (as of March 30, 2016) in the quarter, leading U.S. Treasury valuation to soar. Meanwhile, deflationary threats led the central banks of Japan and Eurozone to widen their already ultra-easy monetary policies. At its January-end meeting, BoJ set its key interest rate at negative 0.1%. BoJ then hinted at further cuts in interest rates if the economy fails to improve desirably. In Europe, the ECB president Mario Draghi turned super dovish in March by raising the monthly bond purchase size to EUR 80 billion from 60 billion previously. Also, ECB lowered the deposit facility rate to negative 0.4%, down from the previous rate of negative 0.3%. It also cut its main refinancing rate and marginal lending rates by 0.5% each to zero percent and 0.25%, respectively. Quite expectedly, the twin boosters of easy money policy globally and a delayed rate hike in the U.S. made fixed-income securities a winner in the first quarter. It would thus be interesting to note the ETFs that were the leaders in the bond space during the quarter. Returns are as per xtf.com . 25+ Year Zero Coupon U.S. Treasury Index Fund (NYSEARCA: ZROZ ) ZROZ follows the BofA Merrill Lynch Long US Treasury Principal STRIPS Index, which focuses on Treasury principal STRIPS that have 25 years or more remaining to final maturity. It charges just 15 basis points in expenses while the 30-day SEC yield is 2.62% currently (as of March 29, 2016). ZROZ has added 14.3% so far this year (as of March 30, 2016). The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook. DB German Bund Futures ETN (NYSEARCA: BUNL ) German bonds and the related ETFs also made an impressive rebound as these offer safety. Following extremely lower yields due to accommodative ECB policies, “German government bond yields are set to record their biggest quarterly fall in 4-1/2 years ” on March 31, 2016. The note looks to provide investors exposure to the U.S. dollar value of the returns of a German bond futures index, replicating the performance of a long position in Euro-Bund Futures. The note is up 14.3% so far this year (as of March 30, 2016). Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) The fund seeks to match the performance of the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. This means that this benchmark zeroes in on fixed income securities that are sold at a discount to face value, and then the investor is paid the face value upon maturity. The fund charges 10 bps in fees. This Zacks Rank #2 ETF yields 2.71% annually. The fund has returned 13% so far this year (as of March 30, 2016). DB Japanese Govt Bond Futures ETN (NYSEARCA: JGBL ) Very low bond yields following Bank of Japan’s decision to push key interest rates to the negative territory to engineer the sagging economy were behind JGBL’s surge. Many analysts are of the view that ” negative bond yields are here to stay in 2016″ for Japanese bonds. The product looks to track the DB USD JGB Futures Index, which is intended to measure the performance of a long position in 10-year JGB Futures. JGBL advanced about 9.9% so far this year (as of March 30, 2016). PIMCO 15+ Year U.S. TIPS ETF ( LTPZ ) The fund tracks the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index and is up 9.6% so far this year (as of March 30, 2016). As U.S. inflation improved in the quarter, TIPS ETFs came into the limelight. Original Post