My Newsletter has provided quarterly Model Portfolios since 2000. When tracked over several years time, the specific funds recommended have proven to have been excellent choices along with the specific allocation recommendations suggested.
Every calendar quarter, I re-assess my Newsletter's prior Model Portfolios to see if anything has changed enough to recommend revisions.
For many investors, sometimes myself included, it can be difficult to implement the recommended changes. Switching one's investments around involves some effort and may subject one to a certain amount of anxiety as to whether the decisions will ultimately turn out to have been the correct ones.
Furthermore, if the changes involve selling/exchanging an existing fund within a taxable account, one must weigh the implications for one's taxes - sales may generate additional capital gains tax and even push one into a higher tax bracket. Therefore, it is usually best to try to make the majority of portfolio changes within a tax-deferred account.
Additionally, some investors may hold funds that have exit fees. My advice is to avoid such funds altogether, but if you are already invested in these, it's an additional thing to consider before making changes.
Given these drawbacks, as well as others, I try to keep portfolio changes to a minimum. And, it is another reason I subsequently report portfolio performance in my Newsletters assuming at least a one-year holding period, but preferably, at least three.
In the great majority of cases, most of the funds I have recommended down through the years have usually proven to have good long-term outcomes regardless of whether or not one's allocations to them were altered along the way. But in many cases, the recommended changes would have been highly advantageous in improving portfolio performance results.
I believe that in investing, relatively small changes are the happy middle ground between huge changes vs. hardly ever making any changes at all.
Overall Allocation Recommendations for Stocks, Bonds, and Cash
I see little reason for much change in one's overall allocations at this juncture. I continue to see stocks as generally overvalued, and, while bonds will likely not produce noteworthy returns, they will still be of considerable value in providing a relatively stable anchor for a portfolio as well as offering the potential for marginally better returns than cash.
For Moderate Risk Investors
|Asset||Current (Last Qtr.)|
For Aggressive Risk Investors
|Asset||Current (Last Qtr.)|
For Conservative Risk Investors
|Asset||Current (Last Qtr.)|
Specific Stock Fund/ETF Recommendations
Our recommended percentage allocation to each stock fund category remains the same as in my January Newsletter. However, I have dropped two of our specific, previously recommended funds because we feel they may not perform as well as either the replacement fund we now recommend or the remaining funds within the same category. The reasons for each change are explained following this table.
|Our Specific Fund and Allocation
Recommendations Now (vs Last Qtr.)
(vs Last Qtr.)
|-Fidelity Low Priced Stock (MUTF:FLPSX) 10% (10%)||
|-Fidelity Overseas (MUTF:FOSFX) 5 (5)
-Vanguard Europe Index (MUTF:VEURX) 5 (5)
-Vanguard Pacific Index (MUTF:VPACX) 10 (10)
-Tweedy Brown Global Val (MUTF:TBGVX) 5 (5)
-Vanguard Emerging Markets Idx (MUTF:VEIEX) 10 (10)
-DFA Internat Small Cap Val I (MUTF:DISVX) 5 (5)
(See Notes 1 and 2.)
|-Vanguard Dividend Growth (MUTF:VDIGX) 7.5 (0) (New!)
-Vanguard 500 Index (MUTF:VFINX) 7.5 (7.5)
|-Vanguard Growth Index (MUTF:VIGRX) 7.5 (7.5)
-Fidelity Contra (MUTF:FCNTX) 7.5 (5)
|Large Growth||15 (15)|
|-Vanguard Equity Inc (MUTF:VEIPX) 10 (7.5)
-Vanguard US Value (MUTF:VUVLX) 7.5 (5)
|-Vanguard Energy (MUTF:VGENX) 2.5 (2.5)||
- Vanguard ETFs (exchange traded funds) are often practically identical to similarly named Vanguard "Investor" index funds with even lower expense ratios and without the higher minimums required for the "Admiral" funds. Therefore, these ETFs can be substituted for any Vanguard stock or bond index fund shown in tables. E.g. the Vanguard FTSE Europe ETF (NYSEARCA:VGK) can be substituted for VEURX.
- Although not included in the Model Portfolio, you may want to consider two other (or additional) international ETFs: the WisdomTree Europe Hedged Equity ETF (NYSEARCA:HEDJ) and the WisdomTree Japan Hedged Equity ETF (NYSEARCA:DXJ). These ETFs, unlike the recommended Vanguard Europe and Pacific funds, tend to do better when the US dollar is strong, as it has been since roughly mid-2011.
I have added Vanguard Dividend Growth, replacing the Fidelity Large Cap Stock (MUTF:FLCSX), which after two years in the Portfolio, has suffered from severe recent underperformance. Vanguard Dividend Growth has been an excellent performer, regularly beating the S&P 500 and its Large Blend category competitors over extended periods with its current long-time manager. Even taking into account distributions which reduce after-tax performance, it excels. The main drawbacks appear to be its relatively large exposure to the underperforming Industrials sector and the overvalued Health sector.
We are also eliminating the T. Rowe Price Value (MUTF:TRVLX) because, while the pretax returns have generally been excellent, the after-tax returns have suffered over the last five years due to large distributions.
You might wonder why we aren't recommending the T. Rowe Price Blue Chip Growth Fund (MUTF:TRBCX) within the Large Growth category, given my positive appraisal in my April Newsletter. As discussed in my January Newsletter, I consider the Health sector one of the most overvalued stock fund categories at this time and already for quite a while, doing especially poorly over the last year. Yet this fund has its largest position there. This appears to be why the fund is off to a poor start this year and has been underperforming our currently recommended Large Growth funds with a considerably lower commitment to the category.
Specific Bond Fund/ETF Recommendations
|Our Specific Fund
Now (vs Last Qtr.)
(vs Last Qtr.)
|-PIMCO Total Return Instit (MUTF:PTTRX) 15% (25%), or
-Harbor Bond Fund (MUTF:HABDX) (See Note 1.)
-PIMCO Total Return Active ETF (NYSEARCA:BOND) 2.5 (5)
-Vanguard Total Bond Market ETF (NYSEARCA:BND) 5 (0) (New!)
|-DoubleLine Tot Ret Bond I (MUTF:DBLTX) 10 (7.5), or
-DoubleLine Tot Ret Bond N (MUTF:DLTNX)
(See Note 2.)
|-Vang. Intermed.-Tm Tax-Ex (MUTF:VWITX) 17.5 (17.5)||
|-Vanguard Sh. Term Inv. Grade (MUTF:VFSTX) 10 (10)||Short-Term
|-Vanguard GNMA (MUTF:VFIIX) 5 (0) (New!)||Interm.
|-Vanguard High Yield (MUTF:VWEHX) 10 (10)||
|-PIMCO For. Bd (USD-Hdged) Adm (MUTF:PFRAX) 25
- When possible, select PTTRX; HABDX is only recommended if you cannot meet PTTRX's minimum.
- The two funds are the same but have different minimums; select DBLTX if possible because of lower expense ratio.
I have been an extremely long-term investor in the PIMCO Total Return Instit., allocating a high percentage of our Model Bond Portfolio to the fund. In the past, this has almost always been a boon to our bond results. And my confidence in the fund has been largely unwavered in spite of losing its legendary manager, Bill Gross, in 2014.
However, over the last five years, the fund's performance has been decidedly mediocre in spite of the excellence of its three new managers. Perhaps right now, with the overall bond market unable to get very far since early 2015, there are lesser opportunities within the fund's usual domain of investments. Rather, more specialized types of bond fund categories may now be a better choice.
We will still keep a sizeable portion of the portfolio invested in the fund, together with its, perhaps, more nimble ETF cousin, BOND. However, we are now recommending new positions in the broad index, the Vanguard Total Bond Market ETF and in the Vanguard GNMA Fund, both available at a significantly lower cost.
Disclosure: I am/we are long AS DESCRIBED BELOW.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have positions in virtually all the ETFs/funds mentioned, except for those labeled "New" in whose case I plan to initiate a position within the next 30 days.