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Copyright 2018 Tom Madell, PhD, Publisher
Oct. 2018. Published Oct. 1, 2018.
How My Model Portfolio Funds Are Doing Against Their Competition
By Tom Madell
Okay, I give up. For years now, I have been suggesting that broad stock market index funds that invest in the entire market, rather than targeting specific stocks, may not always continue to be the best place to invest your money, especially as some of these funds seem to have become more and more overvalued. But, as I've also said in a few of my recent Newsletters, it's been nearly impossible to beat these stock market indices for a number of years now.
So anyone who did have most or all of their investments in stock funds mirroring the broadest indices, such as US total stock market funds and S&P 500 index funds, is to be congratulated. But many of us continue to invest in various other type of funds, both indexed and managed. If so, how your funds/ETFs have done compared to other funds in their same categories remains quite important.
In this brief article, I will examine, mainly through 2 tables, the performance of all our current Model Portfolio stock and bond funds in terms of where they stand in relation to other choices one might have made as well as 3 very broad index funds. The period of comparison I have chosen is over the last 9 months; of course other periods could have been chosen but likely the results, reported below, would have been similar. (Data as of 9-27).
Note that the data in column 3 is the year-to-date performance of the Model Portfolio fund. The data in column 4 represents the average performance of the competition, that is that for all funds in the same general category.
and +10.5% for VTSMX (US) Stocks and -2.6% for VGTSX (International) Stocks
| Our Specific Model Stock Portfolio Funds |
Fund Category |
Fund Year-to-Date Return |
Average Fund Category Return |
| -Vanguard Extended Market Idx (VEXMX) |
Mid-Cap Blend or |
10.4% | Mid-Blend 5.7% Small-Blend 7.8% |
| -Vang. International Growth (VWIGX) -Vang. Pacific Index (VPACX) -Vang. Emerging Markets Idx (VEIEX) -Vang. Europe Index (VEURX) |
Foreign Large Growth Diversified Pacific Asia Emerging Markets Europe |
+3.3 -1.2 -8.6 -1.0 |
+0.3 -4.2 -9.1 -1.2 |
-T. Rowe Price Dividend Growth (PRDGX) -Vang. 500 Index (VFINX) -Oakmark Investor (OAKMX) |
Large Blend |
8.8 10.4 5.9 |
8.4 |
-Vang. Growth Index (VIGRX) -Fidelity Contra (FCNTX) |
Large Growth |
15.4 17.3 | 15.7 |
-Vang. Equity Inc (VEIPX) -Vang. Value ETF (VTV) -T. Rowe Price Eq. Inc (PRFDX) |
Large Value |
3.9 6.1 3.6 |
4.5 |
|
|
+8.3 -4.8 | 6.1 -1.2 |
VGTSX is the Vanguard Total International Stock Index Fund.
As you can see, the Vanguard Total Stock Market Index, consisting only of US stocks, beat most of our specific choices of funds, as well as their fund category averages. However, my Growth stock fund choices did much better than the index fund and my mid-cap/small cap choice was nearly equal to it. Of the remaining 8 funds, 5 out of 8 beat their category averages.
The story is different for international funds (non-US stocks): 3 of 4 of my selections beat the return of the Vanguard Total International Stock Index Fund, which includes stocks from foreign countries. Further, all 4 beat their category averages. Thus, in spite of mostly negative returns (except for Vanguard International Growth), my International fund picks were better performing (i.e. less negative) than the broad index fund.
Unlike for stock funds, our bond fund selections mainly came out ahead of the broad market fund, that is, Vanguard Total Bond Market Index, which, too, was negative. In fact, out of 14 specific selections, 11 came out ahead of the index fund, 2 trailed, while 1 was the same. However, against their category averages, just 5 came out ahead, 7 trailed, while 2 were almost the same. The main drag on our bond funds were the 2 domestic PIMCO funds, PTTRX and PRRIX, as well as the 2 Vanguard funds in these same categories. This data is shown in Table 2.
and -1.7% Return for VBMFX for (US) Bonds
| Our Specific Model Bond Portfolio Funds |
Fund Category |
Fund Year-to-Date Return |
Average Fund Category Return |
| -PIMCO Total Return Instit (PTTRX) -Harbor Bond Fund (HABDX) -Vanguard Total Bond Market ETF (BND) |
Intermediate Bond |
-1.9% -1.5 -1.7 | -1.4% |
| -DoubleLine Tot Ret Bond I (DBLTX) -DoubleLine Tot Ret Bond N (DLTNX) -Dodge & Cox Income (DODIX) |
Intermediate Bond |
-0.1 -0.2 -0.5 |
-1.4 |
-Vang. Intermed.-Tm Tax-Ex (VWITX) |
National Muni Interm |
-0.6 | -0.5 |
-Vang. Sh. Term Inv. Grade (VFSTX) |
Short Term Bond |
+0.1 | +0.4 |
| -Vang. Inflation Prot. Sec (VIPSX) -PIMCO Real Rate Instl (PRRIX) -Harbor Real Return Instl (HARRX) |
Inflation Protected |
-0.9 -1.0 -1.0 |
-0.7 |
-Vang. High Yield (VWEHX) |
High Yield Bond |
+1.4 | +1.8 |
|
|
+1.7 -2.1 | -1.7 -4.2 |
Of course, overall allocations to stocks vs. bonds vs. cash are important too. In Jan. of this year, I recommended a 58% allocation to stocks for Moderate Risk investors vs. only a 26% allocation to bonds. Given stocks excellent performance thus far this year (except for International funds) vs. the negative performance for bonds, maintaining a high allocation to stocks continued to be advantageous for investors.
Incidentally, the 16% allocation to cash for Moderate Risk investors would have produced a positive return YTD if invested in a high quality money market fund such as Vanguard Prime as opposed to bonds.
New Model Portfolios Beginning Oct. 2018
Until recently, you could count on many of your stock funds providing a dividend payout that was close to, or better than, that available by just holding money in a decent money market fund. Thus, even if stocks didn't appreciate NAV-wise, you could still do better in your stock funds than in holding some money out of the market. But with interest rates rising, good money market funds are now paying at least 2% and rising. Most stock funds, especially relatively risky ones, are likely to be paying less than this. Therefore, money market funds are a bit more attractive than before.
Most bond funds are likely also paying a bit more now in dividends thanks to higher rates, but most will tend to go down in NAV as higher rates typically translate into lower bond prices. Thus, as shown over the last year or more, bonds are unlikely to be a good investment for now other than serving as a buffer for possible losses elsewhere in your portfolio. Overall, though, taking both short- and long-term factors into consideration, I see little reason to make many changes to these three overall categories.
All my specific fund choices remain the same as in the July portfolio. After many years of investing, I have arrived at most of these funds in my own personal portfolio, which is sometimes slightly different than the Model Portfolios. For those funds that have worked the best for me, I see no reason to change. In some cases with my Model Portfolio funds, I have only recommended them starting fairly recently. Even if they are trailing in the above tables, I haven't held or recommended them for long enough to yet get a good sense whether they are going to pan out reasonably well or not.
Overall Allocations to Stocks, Bonds, and Cash
Recommended For Moderate Risk Investors
| Asset | Current (Last Qtr.) |
| Stocks | 57% (57%) |
| Bonds | 24 (25) |
| Cash | 19 (18) |
Recommended For Aggressive Risk Investors
| Asset | Current (Last Qtr.) |
| Stocks | 73% (73%) |
| Bonds | 14 (14) |
| Cash | 13 (13) |
Recommended For Conservative Risk Investors
| Asset | Current (Last Qtr.) |
| Stocks | 20% (20%) |
| Bonds | 35 (35) |
| Cash | 45 (45) |
Model Stock Portfolio
| Our Specific Fund and Allocation Recommendations Now (vs Last Qtr.) |
Fund Category |
Recommended Category Weighting Now (vs Last Qtr.) |
| -Vanguard Extended Market Idx (VEXMX) 9 (9%) |
Mid-Cap/ |
9% (9%) |
-Vang. International Growth (VWIGX) 11 (11) (A) (See Note 1.) -Vang. Pacific Index (VPACX) 10 (10) (A) (See Note 2.) -Vang. Emerging Markets Idx (VEIEX) 10 (11) (A) -Vang. Europe Index (VEURX) 7 (7) (M) |
|
38 (39) |
-T. Rowe Price Dividend Growth (PRDGX) 5 (5) (M) -Vang. 500 Index (VFINX) 6 (6) -Oakmark Investor (OAKMX) 5 (5) (A) |
|
16 (16) |
-Vang. Growth Index (VIGRX) 5 (5) -Fidelity Contra (FCNTX) 6 (6) |
Large Growth |
11 (11) |
-Vang. Equity Inc (VEIPX) 5 (5) (M) -Vang. Value ETF (VTV) 5 (3) (A) -T. Rowe Price Eq. Inc (PRFDX) 4 (4) |
Large |
14 (12) |
|
Sector |
12 (13) |
Notes:
- A stock or bond fund shown with (C), (M), or (A) indicates it has characteristics that may make it most suited for Conservative, Moderate, or Aggressive investors, respectively.
- 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. Vanguard FTSE Pacific ETF (VPL) can be substituted for VPACX; Admiral funds can also be substituted when available, e.g. VPADX.
Model Bond Portfolio
| Our Specific Fund and Allocation Recommendations Now (vs Last Qtr.) |
Fund Category |
Recommended Category Weighting Now (vs Last Qtr.) |
| -PIMCO Total Return Instit (PTTRX) 13% (17%), or -Harbor Bond Fund (HABDX) (See Note 1.) -Vanguard Total Bond Market ETF (BND) 3 (3) |
Diversified |
16% (20%) |
| -DoubleLine Tot Ret Bond I (DBLTX) 8 (6), or -DoubleLine Tot Ret Bond N (DLTNX) (See Note 2.) -Dodge & Cox Income (DODIX) 12 (11) |
Interm. |
20 (17) |
-Vang. Intermed.-Tm Tax-Ex (VWITX) 12 (12) (See Note 3.) |
Muni |
12 (12) |
-Vang. Sh. Term Inv. Grade (VFSTX) 5 (4) |
Short-Term Corp. |
5 (4) |
-Vang. Inflation Prot. Sec (VIPSX) 3 (3) -PIMCO Real Rate Instl (PRRIX) 9 (9), or -Harbor Real Return Instl (HARRX) (See Note 4.) |
Inflat. Prot. |
12 (12) |
| -Vang. High Yield (VWEHX) 13 (13) |
High Yield |
13 (13) |
| -PIMCO For. Bd (USD-Hdged) Adm (PFRAX) 19 (19) -Vang. Emerging Mkt Govt. Bd (VGOVX) 3 (3) |
Internat. |
22 (22) |
Notes:
- When possible, select PTTRX, although the minimum initial investment is quite high; HABDX is nearly identical if you want a lower minimum.
- The two funds are the same but have different minimums; select DBLTX if possible because of lower expense ratio.
- Muni bonds are only suitable for taxable accounts. Invest in a fund with bonds specific to your own state, if available, for the greatest tax savings.
- When possible, select PRRIX, although the minimum initial investment is quite high; HARRX is nearly identical if you want a lower minimum.
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