The ETF Monkey 2016 Model Portfolio: Q1 Update

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Includes: FEU, HDV, IEUR, SCHD, SCHP, TIP, VGK, VTIP, VYM
by: ETF Monkey

Summary

This is my first quarterly update on the performance of The ETF Monkey 2016 Model Portfolio.

After a stormy January, most segments of the markets staged a fairly strong recovery into the end of Q1.

Bolstered by a timely rebalancing transaction on January 13, the portfolio outperformed all of my benchmarks for the quarter.

In a previous article, I reported on the performance of The ETF Monkey 2016 Model Portfolio through the end of January, including the details of a rebalancing transaction I performed on January 13.

As outlined in that article, the portfolio got off to a rough start as 2016 opened. Virtually every segment of the market experienced significant declines in January and early-February. In particular were international markets affected, with emerging markets suffering the worst losses of all. Of some small consolation is that the timing of my rebalancing transaction has proved to be quite good, now that I have the benefit of looking in the rearview mirror.

So, how did the portfolio hold up for the remainder of the quarter? Let's take a look.

The Big Picture

As readers who follow me are well aware, I set up three implementations of the basic portfolio, designed such that investors with accounts at Vanguard, Fidelity, and Charles Schwab could set up a version using ETFs which they could trade free of commissions.

During Q1 2016, the average implementation experienced a gain of 1.42%. As will be seen in the individual graphics I will present later in the article, Fidelity very slightly edged out Charles Schwab as the winner, with both their gains rounding to 1.57%. The Vanguard implementation brought up the rear, with a gain of 1.11%.

To help you get a quick visual impression as to how the portfolio performed, here's a quick look at how the Vanguard implementation tracked against the S&P 500 index throughout the quarter.

The two benchmarks I selected against which to evaluate the portfolio performed as follows:

  1. The S&P 500 Index increased by .77%. The index closed at 2,059.74 on 3/31/16 vs. 2,043.94 on 12/31/15.
  2. The ETF Monkey Vanguard Core Portfolio increased by 1.51%, with a closing value of $49,076.73 on 3/31/16 vs. $48,348.37 on 12/31/15.

With an average gain of 1.42%, my 2016 model portfolio outperformed the S&P 500 index by .65%. The worst implementation outperformed by .34% and the best by .80%.

The comparison against The ETF Monkey Vanguard Core Portfolio is a little murkier. The Vanguard implementation of the 2016 model actually underperformed this benchmark by .40% while the other two implementations came out slightly ahead; by .06% to be exact. I might note that I performed a rebalancing transaction on the Vanguard Core Portfolio on February 11 that may have been even more timely than my January 13 effort for this portfolio. Remember, I am managing each portfolio separately, based on its own asset allocations, available cash and the like. Lastly, while the timing of both my rebalancing transactions, in hindsight, has proven fairly prescient, I am not claiming any particular "genius" in the matter. Basically, all I was attempting to do was follow the basic principles I set out in this article on the topic of rebalancing that I previously wrote for Seeking Alpha.

Before we get into a closer look at the three implementations themselves, here is one last big picture item; the dividends that were received in each implementation.

With that background, let's take a quick look at all three implementations of the portfolio as of the market close on March 31, 2016. I will first share the graphic, and then offer any comments I wish.

Vanguard

From my examination, it appears that the real culprit with respect to the performance of the Vanguard implementation was the drastic underperformance of the Vanguard Asset Allocation ETF (NASDAQ:VTIP) as compared to its two competitors, the iShares TIPS Bond ETF (NYSEARCA:TIP) and the Schwab U.S. TIPS ETF (NYSEARCA:SCHP). Whereas VTIP only returned 1.61% during the period, TIP and SCHP each returned 4.52%. In other words, TIPS, an asset class that formed the basis for one of my key theses when developing the 2016 model, performed as advertised during the quarter, beating the overall returns from my choice for the bonds asset class. However, VTIP did not hold up its end of the bargain, so to speak.

On the positive side, Vanguard's competitors in the Europe and REIT asset classes performed strongly, making up some of the deficit.

Fidelity

Just one note for Fidelity.

I called out the exceptionally strong performance of the iShares Core High Dividend ETF (NYSEARCA:HDV) in this article. This particular vehicle continued to impress throughout the quarter, registering an impressive gain of 6.27% as compared to the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) and the Schwab US Dividend Equity ETF (NYSEARCA:SCHD) which came in at 3.42% and 3.97%, respectively.

Charles Schwab

The weakest link in the Charles Schwab implementation was the SPDR STOXX Europe 50 ETF (NYSEARCA:FEU). As can be noted, it suffered a decline of 5.44% as compared to the Vanguard FTSE Europe ETF (NYSEARCA:VGK) and the iShares Core MCSI Europe ETF (NYSEARCA:IEUR) which declined a more modest 2.69% and 2.70%, respectively. In contrast, Schwab's ETFs in the emerging markets and REITS asset classes were strong performers, leaving the overall implementation in a virtual tie with the Fidelity implementation as the best performer.

Summary and Conclusion

All told, I am happy with the performance of the portfolio throughout the first quarter. As revealed in my earlier article at the end of January, the portfolio held up relatively well defensively during the worst of the downturn. This allowed me to reallocate a small amount of funds from the defensive asset classes in the portfolio into the asset classes that had been severely beaten down. This is exactly what a good portfolio should do for you.

In terms of the six themes on which I built the portfolio, I feel like the portfolio did well on four of them during Q1 and the jury is still out on themes #2 and #3, involving international exposure in general and Europe in particular. But, I did not build the portfolio with just one quarter in mind, so we will have to wait a little longer to see if these other themes ultimately play out as the theory suggested.

I will share one little "teaser" for now. The ETF Monkey Retirement Portfolio outperformed all the implementations of my 2016 model portfolio during Q1 2016. But, that will hopefully be the subject of another update. Stay tuned.

Until next time, I wish you . . .

Happy investing!

Disclosure: I am/we are long HDV, TIP, VYM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult with their personal tax or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

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