On 3/13/15 & 3/16/15 we made trades in both Powerfund Portfolios:

Aggressive Portfolio:

• Sell All: American Century Utilities (BULIX), which was 5% of total portfolio.
• Sell All: DoubleLine Floating Rate N (DLFRX), which was 10% of total portfolio.
• Rebalance: In our real money portfolios, we're Selling About 60% of  PowerShares DB Crude Oil Double Short (DTO) to rebalance the position back to 4% of the total portfolio after the ETF's big run-up, during which the position grew to roughly 10% of the portfolio in real money terms. Watch your own allocation - you may need to trade more or less to get to a 4% allocation.
• Buy New: SPDR® Barclays International Treasury Bond ETF (BWX) for a new 15% position
• Click here to access the Aggressive portfolio trade trade calculator.

Conservative Portfolio:

• Sell All: American Century Utilities (BULIX), which was 6% of total portfolio.
• Sell All: DoubleLine Floating Rate N (DLFRX), which was 10% of total portfolio.
• Buy New: SPDR® Barclays International Treasury Bond ETF (BWX) for a new 16% position
• Click here to access the Conservative portfolio trade trade calculator. 

We are rebalancing a few real-money positions with this trade to get closer to our target allocations. In our Aggressive Portfolio we purchased about 20% more shares of iShares MSCI BRIC Index (BKF). In our Conservative Portfolio we sold about 5% of our position in Vanguard Long-Term Bond Index ETF (BLV) and about 15% of the positions of Vanguard MegaCap Growth (MGK).

You may or may not be far off on your allocations here and can skip the BKF, BLV, and MGK rebalance trades. Note these three funds are NTF (no transaction fee or commission) at TD Ameritrade if held at least 30 days, and will not trigger any short-term capital gains for us – but fees and capital gains should be considered when making a relatively small rebalance trade. 

In general you should not rebalance a position if it triggers a short-term capital gain for a position that is only a few percentage points out of whack. Use your own discretion but err on the side of low cost and low tax – we generally sell seriously unbalanced holdings completely, which minimizes the need for frequent rebalance trades. Review your other positions for rebalance (or even tax loss generating) opportunities periodically. We show the target and real money allocation percentages on the portfolio pages.

Why We Traded

The oil bubble is largely gone and we needed to cut back on our oil short to protect gains, so we’re paring the Aggressive portfolio’s DTO holding. 

We’re adding Barclays International Treasury Bond ETF to both portfolios. The eurohas sunk and it’s a good time to start adding investment grade, unhedged foreign bond funds with the possibility of increasing the position on further euroweakness.  

Utilities have become too popular recently and we need to depart this category for the time being – goodbye to the entire stake in long time holding American Century Utilities (BULIX) from both portfolios. 

Doubleline Floating Rate N (DLFRX) is also a goner from both portfolios. Junk bonds of all sorts should be mostly avoided at this time, including floating rate bank loan-ish funds.

Redemption Fee Information

We won’t see any short-term redemption fees from this trade or short-term capital gains taxes since we've owned these funds for over a year.  Still, keep an eye on your own purchase history, which could be more recent than ours, and consider altering your trades for your own tax and fee advantage. 

This is particularly important in regards to DTO which is up over 200% during the last year. 

There are no short-term redemption fees charged by BULIX. 

DLFRX, which owns sometimes illiquid, low-grade bank loans, charges a 1% fee on shares held less than 90 days. Make sure you’ve owned the fund at least 90 days before selling -  junk bonds almost certainly won’t collapse in the next few weeks, so waiting a little while to make the sale shouldn't make a major difference.

In general, any mutual fund (not an ETF) purchased through a third party broker like TD Ameritrade, E*Trade, or Schwab for ‘no transaction fee’ should be held 180 days to avoid any fees charged by the broker.  Also note that NTF ETFs at TD need to be held at least 30 days to avoid a commission on the sale.

Please Note:

MAXadvisor LLC partners and clients currently own, may continue to own, or have sold, some or all of the positions mentioned in this trade alert and may be buying or selling shares in the funds and ETFs or essentially similar funds at any time.

Content on this website is for informational purposes only and not intended to be specific to a user's investment objective, financial situation, or risk tolerance. This information should not be considered as a solicitation or recommendation and should not be the only basis for any investment decision.

MAXfunds.com does not provide any tax or legal advice. Investors should consult with their own advisors for such guidance.

Read additional disclosure information by clicking here.

So far, so good. 2015 is off to a nice start. At least for us. The S&P 500 was down 3% while both of our portfolios were up just over 2%. That's a 5% performance gap, and it's only been four weeks. Bonds were hot, and most foreign markets did well relative to the U.S. for a change.

Our Conservative portfolio was up 2.01%. Our Aggressive portfolio was up 2.21%. Benchmark Vanguard funds for January 2015: Vanguard 500 Index Fund (VFINX) down 3.01%; Vanguard Total Bond Market Index Fund (VBMFX) up 2.31%; Vanguard Developed Markets Index Fund (VTMGX) up 0.90%; Vanguard Emerging Markets Stock Index (VEIEX) up 0.67%; Vanguard Star Fund (VGSTX) a total global balanced portfolio down 0.41%.

But before we start bragging (again), the time to sell our oil short, PowerShares DB Crude Oil Dble Short (DTO), which has been driving much of our returns in recent months, is nearing — especially because double inverse funds can lose their gains quickly (as we've seen in the last few days with a sharp reversal in oil). While oil is not going to reach $100 a barrel for years to come, it doesn't mean we need to be short oil forever. The easy money has been made.

Speaking of easy money, the other big driver of our returns is long-term investment grade bonds — the most interest rate sensitive. Most investors favored less interest rate sensitive bonds as surely the great interest rate rise would be upon us. But rates keep heading down. Our Vanguard Long-Term Bond Index ETF (BLV) was up 6.57% in January, while Vanguard Extended Duration Treasury (EDV) popped 14.25%. This on top of 20.27% and 45.10% returns in 2014, respectively. The benchmark bond index shot up by 2.31% in January — more than the year's yield in one month as rates plunged. Our two bond funds that don't take on much interest rate risk, Vanguard Mortgage-Backed Securities (VMBS) and DoubleLine Floating Rate N (DLFRX), wasted this golden opportunity with sub-1% gains.

While interest rates are not going back to levels hit in the 1980s, 1990s, or even most of the 2000s anytime soon, like oil, we're running out of upside here (unless there are years of deflation ahead). Quite frankly, at the moment we're scratching our head for new investing ideas. Some should appear in as 2015 progresses, but we're in what could be called a transitional period between bargains in the recently falling and overvaluation in the previously hot.

Almost forgot to note our stock funds. While they were mostly down in January, all beat the S&P 500 except for Satuit Capital Micro Cap (SATMX), down 3.58%. This was mostly because foreign stocks did well. Our stock side certainly helped overall performance, but January was about shorting oil and being way out on the lonely side of the yield curve.

Our biggest loser in the first month of 2015 was the gold short Gold Short (DZZ). Gold should be doing an oil pretty soon. Once thing the world is relearning: when commodity prices go up, supply eventually rises and demand falls. They are not mining iPhone 6s out of the ground, after all.

The U.S. stock market, fueled at least partially by (what now seems like) permanently low interest rates and a lack of investment opportunity abroad, is on to new highs again. The strange thing is that oil is plunging, non-U.S. economies are weak, and recent Black Friday sales were lackluster. You'd almost think we were in another global recession.

Our Conservative portfolio was up 1.37% in November. Our Aggressive portfolio gained 2.50%. Benchmark Vanguard funds for November 2014: Vanguard 500 Index Fund (VFINX) up 2.68%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.65%; Vanguard Developed Markets Index Fund (VTMGX) up 0.08%; Vanguard Emerging Markets Stock Index (VEIEX) down 1.00%; Vanguard Star Fund (VGSTX) a total global balanced portfolio up 1.62%.

These recent bad economic indicators can largely be dismissed. The commodity bubble is re-popping while investors run and actual oil production rises from past high prices. Neither OPEC or Russia wants to cut production; the latter needs the money badly. It's also possible post-Thanksgiving sales are going to be a slowly dying concept as many high-spending consumers prefer to click for deals whenever they come up, not get in fights over deep discounts on TVs in stores.

And it's really just the U.S. market at this point doing well. We're even caught a little off guard by how poorly everything you are supposed to add to a portfolio to diversify away from U.S. stock and bond risk has done. It's been several years now of foreign stock market underperformance to U.S. markets. And that's the good part of the diversification. The 'alternative investments' popular over the last decade to protect against the collapse of civilization have been a bust.

Oil is the most noteworthy of the sullied commodities, plunging around 40% from the relatively recent highs of around $100 a barrel (and far more from the 2008 commodity bubble peak). This of course boosted our double short oil ETF PowerShares DB Crude Oil Dble Short (DTO), 33% this last month alone. We will have to get out of this ETF at some point because these short funds are terrible longer term holdings. If we could be short oil forever with no price erosion we'd do it, but the way these funds work, if the price of oil remains stable, in three years we'll be down 50% or more. The same goes for long commodity funds as well. There is no good long-term way to invest long or short in commodities.

From mining stocks and the underlying commodities, the pendulum should be swinging back to the 1990s mentality where no good investor or investment advisor would ever want any commodities (from the recent position that all portfolios need some 'real' assets). We'll know when we reach that point because all the commodity funds and ETFs will close for lack of interest.

Right now we're still in the 'well, everything can't go up at once, commodities are doing poorly now but someday when the stocks are down they will be great' phase. That won't last long. What's stunning is the irrationality of the commodity (notably precious metal) investor. Unlike past slides in formerly hot investments that crashed, gold investors simply won't bail out, even after years of terrible returns.

September was a down month all around, except for those who are aggressively shorting. Although we are doing a little of that in our Aggressive portfolio, our modest short allocation didn't generate enough upside to make up for the dual slides in bonds and stocks.

Our Conservative portfolio fell 1.87%. Our Aggressive portfolio was off 1.85%. Benchmark Vanguard funds for September 2014: Vanguard 500 Index Fund (VFINX) down 1.41%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.74%; Vanguard Developed Markets Index Fund (VTMGX) down 4.19%; Vanguard Emerging Markets Stock Index (VEIEX) down 7.16%; Vanguard Star Fund (VGSTX) a total global balanced portfolio fell 1.97%.

The S&P 500 was about the best place to be last month with a mere 1.41% slide — less than our generally safer balanced portfolios. The trouble was in higher risk debt, which we are fortunately light on, longer term bonds, which we have been heavy in, and essentially all foreign markets, to which we now are allocated sufficiently to underperform the S&P 500 during a month where emerging markets fall more than five percentage points harder than the S&P 500.

Commodities were hit early and often, most notably Gold which is down near 52 week lows and now off about 40% from what certainly is looking like a bubbly peak in 2011. Bottom line: everything investors were told to fear about inflation, a falling dollar, and the urgent need to own commodities was nothing more than a Wall Street scare tactic. After years of commodity underperformance, investors are starting to bail on all things ‘hard asset'.

The month's big financial news was in bonds. Just a few days ago we cleansed our Conservative portfolio of two PIMCO funds due to management turmoil at the debt super-giant and the departure of PIMCO co-founder Bill Gross. These now Powerfund ex-holdings, PIMCO Mortgage Opportunities D (PMZDX) and PIMCO BOND ETF (BOND), were actually some of our best performing funds in September and in general did well since we purchased them just over a year ago (only BOND was managed by Gross).

As we noted last week, the goal of this trade is to get out of PIMCO funds for the time being, not to significantly alter the portfolio's overall bond and stock allocation. We still prefer mortgage bonds to say, high yield corporate (junk) bonds and emerging market bonds at this time, so we're shifting to a safe, investment grade low fee, somewhat generic, choice with Vanguard Mortgage-Backed Securities (VMBS). This new fund is a little too low-duration (insensitive to interest rates) for our taste, but since we have long-term bonds elsewhere in the portfolio it's a good choice for now.

Something fishy has been building at PIMCO for quite some time. The firm could be on shaky ground (or at least reorganizing) similar to how Janus started to fall apart near the top of the tech bubble in 2000 (something we wrote about extensively at the time).

We're not sure if the fault lies with co-founder and (dethroned) Bond King Bill Gross, the closest thing the bond industry has to a rock star, or management. Probably it's a little of both.

Gross reportedly made about $200 million a year at PIMCO, while the recently departing CIO, who was reportedly not on good terms with Gross near the end, had to scrape by with a salary of only $100 million. The firm managed almost $2 trillion at its height, but that number has been dropping steadily for a while now. Tens of billions of outflows went out PIMCO's door in 2013, more from general bond market fears than management turmoil.

We would have expected Gross to start his own firm similar to how Jeffrey Gundlach started DoubleLine after walking out on TCW funds, but it turns out he's heading over to Janus of all places. It is possible Bill Gross doesn't want anything to do with the management duties of running a fund family and just wants to prove again how thoroughly he can trounce his zero-rate environment peers — call it one last hurrah before retirement. Very low rates bond investing is a lot like poker — you have to outplay your competition to beat a low-fee index by making the right rate and credit calls that they make wrong. Gross is probably dying to beat PIMCO, DoubleLine, and Vanguard's indexes in one fell swoop.

Without getting into too much speculation yet about the increasingly bizarre world of highly-compensated fixed income mutual fund managers controlling the world's debt markets, here is what we know and always have known at MAXfunds: you don't want to be in a mutual fund that is experiencing big investor outflows because selling portfolio holdings to meet redemption requests can drive prices (and therefore performance) down, which can lead to even more redemptions and lower prices and worse performance.

There is no telling if things at PIMCO will get worse (or even if things are currently all that bad). There are many, many 401(k) plans that have Gross's erstwhile Total Return fund as one of a few options in the bond area — and the reason that many plan administrators chose it was Bill Gross himself. They may eventually dump the fund. That's a long term problem for PIMCO.

How much of the hundreds of billion at PIMCO are there only because of Gross? We're about to find out. There doesn't seem to be a compelling reason to stay. Performance has been lackluster recently even with Gross, probably largely because of reversing asset flows. Why pay an above-index-fund rate for whomever PIMCO taps to take Gross' place? The new manager will be in charge of a huge portfolio that is hard to manage.

Hopefully for the bond market (and interest rates in general) PIMCO's outflows will be quickly reinvested into large bond funds at competitors. But won't it be the strange if the great interest rate upward adjustment happens not because of the Fed or inflation, but because of management disruptions and panic selling in the bond market?

Bill Gross should be managing his 'new' Janus Global Unconstrained Bond Fund soon — a tiny $12 million dollar in assets fund that was created — a little suspiciously in hindsight — earlier this year (and has been sitting largely in cash since).

We're thinking of buying this new fund in our model portfoios, and have already started buying in our managed accounts, even though at 1.07% for the retail class it's expensive for a bond fund ('I' class JUCIX is slightly more reasonable at 0.84%). Unless Gross gets barred from the business, this fund will likely bring in tens of billions in a few months. It's very difficult for a fund to underperform a benchmark with that sort of inflow.

We will certainly have more to say on this in coming months. Stay Tuned.

Apparently iPhone 6 expectations are enough to drive the market higher, even in the face of questionable economic growth abroad and ongoing global political problems. As long as the app economy keeps humming and interest rates remain low, investor optimism could continue. It seems the only record left to break is the old high in the NASDAQ, circa March 10th 2000. The tech-heavy benchmark finished that day at a delirious 5,048.62 — a mere 10% rise from today's level. If only Pets.com stuck around long enough to make an app with GPS tracking of your dog food order…

Of course today's NASDAQ trades at relative bargain P/E levels — the fundamentals finally caught up with the 2000s expectations (this hasn't happened in Japan, where the Nikkei is still below where it was 25 years ago, so yay America). The internet stocks finally monetized all those eyeballs with ads. We'll have to see if context sensitive advertising proves enough long-term profit growth to warrant today's more-modest-yet-still-high valuations.

The Powerfund Portfolios are still doing well compared to a mix of benchmarks and similar risk total portfolio funds, but without a higher stock allocation it is going to be tough to keep pace with a fast rising U.S. stock market. This is the trouble with late stage bull markets — you start making excuses a mere 2.8% monthly gain.

You almost couldn't lose in August — interest rates were down, which sent essentially all bonds higher.  Stocks had another strong month as well. Our Conservative portfolio gained 2.31% in August. Our Aggressive portfolio was up 2.80%. Benchmark Vanguard funds for August 2014: Vanguard 500 Index Fund (VFINX) up 3.99%; Vanguard Total Bond Market Index Fund (VBMFX) up 1.13%; Vanguard Developed Markets Index Fund (VTMGX) up 0.30%; Vanguard Emerging Markets Stock Index (VEIEX) up 3.57%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 2.42%.

Our growth stock funds ruled the month again. PRIMECAP Odyssey Growth (POGRX) gained 5.89% and Vanguard MegaCap Growth (MGK) rose 4.45%. India was strong leading to iShares MSCI BRIC Index (BKF)'s nearly 4% jump in August, which beat 90% of emerging market funds. Unfortunately Wasatch Frontier Emerg Sm Count (WAFMX), another of our emerging market holdings, didn't fare so well — it was our worst performing open-end fund, essentially flat for the month.

Long term interest rates plunged anew with Vanguard Extended Duration Treasury (EDV) up near 7% — our highest single performing fund, and Vanguard Long-Term Bond Index ETF (BLV) up near 4%. Bonds less sensitive to interest rates didn't perform as well, with DoubleLine Floating Rate N (DLFRX) at the bottom of our bond fund list — up just 0.21%.

No Powerfund holding fell more than 1% last month — more testament to the hot stock and bond markets. Shorting gold came up short with Gold Short (DZZ) falling 0.46%. Telecom stocks were negative with Vanguard Telecom Services ETF (VOX) off 0.65%.