Monthly Archives: August 2021

August 1, 2021

By David Snowball

Dear friends,

As we announced in June, the Observer is on hiatus for the month of August.

Hmmm … you know, it’s gone fishin’.



This is my first scheduled break from publishing in 25 years, and Chip’s first in nearly a decade. We took the opportunity for our first out-of-town trip – back to Chip’s native state of New York – in 18 months. We celebrated the marriage of Chip’s son David (in the company of her father, David) on the 17th and spent a bit of time with her family.

Thereafter we headed north to the Finger Lakes region of New York, famous for the quality of its Reisling wines and rural charm. That turned out to be a mixed blessing. There are over 130 wineries operating within a 20-mile radius of Seneca Lake and we quickly discovered that there was (a) no reliable guide to the wineries and their strengths, and (b) remarkable variability in the competence of the winemakers.

You could imagine what you’d get in a fairly small region become famous for the quality of its hamburgers. Little mom ‘n’ pop operations would appear by the dozen, hoping to get into the action. Some of them would be … well, not very good at their basic function and all of them would be under pressure to serve up something new, distinctive and remarkable (taco burgers, Hawaiian burgers, burgers wrapped around hotdogs).

Our winery experience was a lot like that. A handful of deeply regrettable places, a bunch of perfectly competent journeyman vintners, and just a few really exceptional experiences. Among the latter were the wines and snacks at the Konstantin Frank Winery (Dr. Frank earned his Ph.D. in Viticulture from Odessa, Ukraine in 1930 and launched “the vinifera revolution” – wine made from old, non-hybridized European grape species in 1957), the Hermann J. Wiemer Winery (founded in 1979 and probably the region’s most-award winning; their Rieslings really were transcendent) and even the Fulkerson Winery (a modest operation started in 1989 by Sayre Fulkerson, a sixth-generation farmer in the region, with a range of really fine wines on the sweet end of the spectrum).

Pair those with very low Covid rates, a hike through the Watkins Glen Gorge, time spent with friends, and with first-rate dinners at Ports Café and the Belhurst Castle, and you’ve got yourself a really first-rate break!

With just a tiny bit of mutual fund stuff

My son, Will, turned 21 in July. If you check in on the “About Us” page, you’ll see the two of us in London when he was 10. He spent his 21st birthday in Las Vegas in the company of his mom and a friend.

In celebration, we opened a Roth IRA for Will with an initial investment of $2,100. Assuming the market’s historic 10% long-term returns – which I’m not at all assuming for the remainder of the 2020s – that single investment would compound to $150,000 over the next 45 years. He and I are already talking about the necessity of early and regular investment, at least once his education is complete.

We chose the T. Rowe Price Retirement 2060 Fund (TRTFX) for his first investment. Currently, about 98% invested in equities, it will slowly transition to 55% equity around the time of Will’s long-distant retirement. The fund invests in other T. Rowe Price funds and the whole Retirement Series received the industry’s only Gold rating from the Morningstar analysts. The individual fund has a five-star rating at Morningstar and has earned the MFO’s Great Owl designation for consistently top-decile risk-adjusted returns.

Why T. Rowe Price Retirement 2060? Three factors drove the decision:

  1. The Series is really, really good. About half of my own retirement is invested in the 2025 version of the fund, which is also Gold / five star / Great Owl.
  2. The T. Rowe Price system minimizes manager risk since multiple funds, often with multiple managers, are selected by an Investment Committee (headed by Wyatt Lee) which also has multiple managers.
  3. The other strong contender, Baillie Gifford Long Term Global Growth (BSGLX), is not currently available through TDAmeritrade, our default brokerage. The Baillie Gifford fund was strongly endorsed by Dan Wiener of The Independent Adviser for Vanguard Investors. Dan uses the fund in almost all of his firm’s client accounts and, like 2060, it’s a five-star Great Owl fund.

TDAmeritrade has been purchased by Charles Schwab, though the integration of the firms seems to be going slowly. Our hope is that, by year’s end, the integration will be complete and some of the funds available at Schwab but not yet at TD might become available to us. If that happens, we’ll likely supplement the 2060 fund with the Baillie Gifford one.

Two bits of mutual fund news that don’t matter

First, Bill Stromberg has announced his impending retirement as CEO of T. Rowe Price Group after 35 years of honorable service. His retirement is effective in December and he’ll be succeeded by Rob Sharps, a 24 year veteran of the firm and the firm’s president. The news doesn’t matter because Price is remarkably skilled at handling such transitions. Even when one of the firm’s few “irreplaceable” superstar managers leaves, they’re replaced by folks who smoothly maintain the five-star, risk-conscious performance that’s typical of Price’s culture.

Second, skeptics of Cathy Woods will soon be able to put their money where their doubts are. There’s a new ETF under review by the SEC which is dedicated to shorting her flagship ARKK ETF. Technically Short ARKK ETF (SARK) will seek the inverse of the daily performance of the ARKK ETF. It will be managed by Matt Tuttle of Tuttle Capital Management which lives to run out oddball ETFs including FOMO, SPAC and New Issue, Fat Tail Risk, De-SPAC and Short De-SPAC.

The news doesn’t matter for two reasons. (1) The fund targets the inverse of ARKK’s daily returns, which makes it toxic for anyone with a holding period of more than … oh, 36 hours, max. And (2) the opposite of ARKK is pretty much any well-run, broadly diversified, value-oriented fund. Which is to say, pretty much any fund currently worth considering.

Thanks …

For the month off!

Take care. We have a lot in the pipeline and we’re looking forward to sharing in September!

david's signature


Launch Alert: T. Rowe Price Retirement Blend Funds

By David Snowball

On July 28, 2021, T. Rowe Price launched its fourth set of target-date funds, the Retirement Blend Series. The Retirement Blend strategy has been in operation since 2018 but has been available only through collective investment trusts. The new fund series complements the existing Retirement and Target Series (as well as the Retirement Hybrid series that’s available only through a collective investment trust). All four series invest, primarily, in other T. Rowe Price funds. Retirement and Target invest, primarily but not exclusively, in actively managed funds. According to Morningstar, T. Rowe Price is the largest manager of active target-date products in the U.S., with over $300 billion in active target-date strategy assets under management, as of March 31, 2021.

The new Series will be managed by Wyatt Lee (with whom we spoke in June), Kimberly DeDominicis, and Andrew Jacobs Van Merlen whose share responsibility for the other series as well.

Retirement and Target series differ in their glide paths, that is, their long-term asset allocation plan. The Retirement and new Retirement Blend funds have a more aggressive allocation and the Target funds a slightly less aggressive one.

Retirement / Retirement Blend


The glidepath stipulates only the very broadest allocation decisions: stocks versus bonds. One Investment Committee has the responsibility for strategic allocations (domestic vs. international, small versus large, value versus growth) within those broad bands and for choosing the funds (e.g., New Horizon, Small Cap Index or Small Cap Value) which offers the most attractive risk-return profile for implementing the team’s judgments. Another, the Asset Allocation Committee, makes the shorter-term tactical decisions about overweighting asset classes or sectors.

At their target date, the Retirement and Blend funds have a neutral weighting of 55% equity which Target will sit at 42.5%. That neutral weight is subject to change, either because T. Rowe Price’s research convinces them that a different long-term allocation should be applied across the entire Series, as happened in 2020 when equity exposure was broadly raised to account for the effects of greater longevity, or a different short-term tactical allocation is implemented to account for some market disruption or another. The tactical shifts can increase or reduce exposure to an asset class by up to 5%.

The distinctiveness of the Retirement Blend Series is its greater reliance on passive funds and corresponding lower expense ratio.

Manager Wyatt Lee explained during a June interview that he has “four levers to add value

  1. The broad, long-term allocations within the glidepath
  2. Diversification with glidepath
  3. Some tactical changes in the normal allocation
  4. Selecting of the underlying investments.”

Retirement and Retirement Blend will be identical on levers 1 – 3. On level 4, Retirement Blend will rely on passive products to gain their Core Equity, Investment Grade Bond, and Treasury exposures. That will allow for somewhat lower expense ratios while preserving the ability of active managers to add value in diversifying areas where they have a record of outperforming their passive benchmarks. Within the fixed income sleeve, diversifying areas include high yield and emerging market debt.

Mr. Wyatt believes that, over time, the more active approach of the Retirement series will lead to higher returns than the more passive approach of the Retirement Blend series but there’s no guarantee of that and the leadership of one approach over the other will likely vary with time. Since the inception of the Retirement Blend strategy as a collective trust, for example, the more active funds have outperformed by about 60 bps but over the past twelve months, it’s been a draw.

Here’s the snapshot of the three series, through the lens of a single target-date fund.

  Equity exposure Expense ratio
T. Rowe Price Target 2025 50% 0.58% on $490 million
T. Rowe Price Retirement 2025 65% 0.61% on $17 billion
T. Rowe Price Retirement Blend 2025 65% 0.38% at launch

Price is really good at this game

In a July 2021 discussion of T. Rowe Price’s target-date funds, Morningstar’s Jason Kephart made this observation:

T. Rowe Price Retirement is their flagship target-date fund series. It’s overseen by what we consider one of the top teams for asset-allocation research and execution in the industry … we’re pretty confident in that team overseeing it, and it’s also including a collection of T. Rowe Price’s really well-regarded active equity funds, active bond funds. So, really, what’s going to drive this series is that stock selection and bond selection, and they’re among one of the best stock-selecting firms in the industry.

Morningstar’s faith in the strength of the T. Rowe Price teams led them to upgrade the target-date series to an analyst rating of Gold, a judgment likely strengthened by subsequent fee reductions.

The topnotch management team on the T. Rowe Price Retirement target-date series has capably begun the transition to its new equity glide path, the result of an exhaustive research effort that demonstrated the firm’s vast capabilities. Confidence in the team’s execution drives a Morningstar Analyst Rating upgrade to Gold for the series’ two cheapest share classes, while the two more expensive are rated Bronze. (An Upgrade for the T. Rowe Price Retirement Target-Date Series, 3/10/2021)

Price has the only Gold-rated target-date funds investing primarily in active underlying funds, including their own and the MassMutual funds they subadvise. As of July 2021, 30 of Price’s 40 target-date funds have earned four- or five-star ratings from Morningstar; the remainder are three-star or too young to be rated. Twelve of them have earned MFO’s Great Owl designation for consistently top-decile risk-adjusted returns.

Bottom line

T. Rowe Price has also been an innovator with research-driven solutions driving their asset allocation funds. Some of that research centered on asset class performance, some on investor needs and preferences.

The Retirement Series offered the prospect of additional gains driven by the skill of its active investment management team. The Retirement Blend series offers the guarantee of lower expenses for returns that might modestly lag those of its Retirement siblings. Both offer fundamentally attractive packages, with the choice between them driven by simple investor preference.

Website: T. Rowe Price Retirement Funds, which gives you access to the series.

Retrospection is a Hard Metric to Match

By Charles Lynn Bolin

I turned 66 last week and bought a retirement home in Colorado last month. By most measures, I am prepared for retirement with pensions, social security, and savings. I continue to work for several reasons including the uncertainties of markets facing seismic shifts. In the 50 years since I was in high school, so much has changed, both good and bad. These secular trends that have occurred in my life have significance for young and old investors. As Bear Bryant said, “Offense sells tickets, but defense wins championships.”

In Section #1 I look at seven long term trends that will impact stock market prices over the coming decade(s), in Section #2 I summarize Vanguard’s Long-Term View of Investments in the coming decade(s), and in Section #3, I look at funds that may fit into Vanguard’s outlook for performance. Key points are summarized after each heading so readers can skip to the sections of interest.

1. Retrospection

Key Point: The seven long term trends covered in this article are 1) slowing economic growth, 2) stagnant profit growth, 3) massive stimulus which will wear off, 4) end of the bond bull market with associated low interest rates, 5) impact of corporate buybacks on asset inflation and volatility, 6) high leverage which increases instability, and 7) taxes that are heading higher.

In the ten years following my high school graduation, the stock market had average annual returns of 0.3% plus inflation. During the past fifty years, there have been seven bear markets with the stock market falling 25 to 55 percent in all but one. In ten years separate years we saw one day drops in the S&P 500 of more than 5 percent. Through these 50 years, the stock market has returned 7 percent plus inflation; that is, the “real” returns from the US market over the past 50 years has been 7%. For the past ten years, the S&P 500 has returned nearly 13 percent annualized plus inflation with almost all of the gains due to increases in valuation. The past ten years has seen unusually high returns due to higher valuations without much growth in the economy or profits.

Valuations and Secular Markets

P/E remains significantly above the level justified by low inflation and low interest rates. Ed Easterling, Crestmont Research

In retrospect, during the past 36 years, the Vanguard Wellington, a balanced growth fund, returned 10.7%, almost as much as the 11.7% of the S&P 500, while the conservative Vanguard Wellesley returned a respectable 9.4%. During this period, the markets experienced the Black Monday stock market crash of 1987, the bursting of the Technology Bubble and Housing Bubble/Financial Crisis, and the COVID-induced recession. Part of the success of the mixed asset funds was due to rising bond prices as interest rates declined.

Figure #1: Growth of S&P 500, Long Bonds, Vanguard Mixed Asset Funds Since 1985

Source: Created by the Author Using Portfolio Visualizer

Ed Easterling, founder of CrestmontResearch, explains these long-term secular markets in Unexpected Returns: Understanding Secular Stock Market Cycles and Probable Outcomes: Secular Stock Market Insights (2005). Mr. Easterling defines secular markets partly by extremes in valuations. By his definition, we are in a cyclical bull market within a secular bear market that began in 2000 because valuations never reached the historical averages as shown in Figure #2.

Figure #2: Secular Stock Markets Explained by Crestmont Research

Mr. Easterling shows the impact of normalizing current valuations over different time periods in Table #1. The conclusion should be that stock market returns during the coming decade(s) will be much lower than the past decade(s).

Table #1: Returns for Normalized Valuations for Different Time Periods

Source: Crestmont Research

I like the approach of Benjamin Graham who advocated owning between 25% and 75% stocks based on valuations, or John Bogle who reduced his allocation to stocks at the height of the Technology Bubble as described in his book, Enough: True Measures of Money, Business, and Life. Columbia Thermostat follows the approach of adjusting allocations based on valuations. At the time of this writing, the S&P 500 stands at 4,375. Columbia Threadneedle released its updated allocation table on May 1st, available at Columbia Thermostat Fund Allocation Update, for the Columbia Thermostat Fund (COTZX/CTFAX). It currently stands at 10 percent allocation to stocks until the S&P 500 falls to 3,743 or 14 percent. They state:

The updates to the S&P 500 Index levels in the table below are calculated based on cyclically adjusted price-to-earnings (P/E) ratio for the prior seven-year period. If the P/E ratio is in the top 25%, we determine that the market is “expensive” and use the full version of the table. As a result of last year’s historic rise, we are currently in the top ninth percentile of P/E—well within the top 25% that designates an expensive market. 

Trend #1: Slowing Economic Growth

But the post-pandemic boom, fueled by pent-up demand for services, trillions in extra savings and trillions more in government aid, will fade. The CBO now projects growth will slow to 1.1 percent in 2023 and an average of 1.2 percent in 2024 and 2025 — the slowest sustained growth the United States has seen outside of a recession, according to Commerce Department data going back to 1929.

What happens to the economy when $5.2 trillion in stimulus wears off?

Figure #3 shows real gross domestic product annual growth (blue line) has fallen from 3.0% in the first two decades following my high school graduation to 1.7% for the past two decades. The current growth rate is more than 40 percent lower than 40 years ago. As the quote from the Washington Post above says, the CBO now projects slow growth of close to 1 percent after the stimulus wears off.

Figure #3: Annual Growth of GDP, Real GDP, and Wilshire 5000

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

Trend #2: Stagnant Profit Growth.

Corporate profits (before taxes) have not grown significantly in 10 years.

Figure #4: Corporate Profits Before Tax

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

Trend #3: Massive Stimulus is Driving Asset Prices.

Massive stimulus has reduced the impact of the financial crisis and COVID-induced recession, but has also lowered interest rates, increased liquidity, and resulted in driving up asset prices. It raises the possibility of another Minsky Moment, where economic stimulus and necrosis of the bond market sets the stage for a dramatic fall. Tapering will remove a driving force from the markets over the next few years.

Figure #5: Total Value of the Assets of all Federal Reserve Banks vs Wilshire 5000

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

Trend #4: End of the Bond Bull Market

Real yields (adjusted for inflation) on ten-year Treasuries have come full circle from being nearly zero in the 1970’s to eight percent in the early 1980’s back down to zero for parts of the last decade. Funds that have benefited over the past 40 years from investing in long duration bonds will not have this benefit in this decade.

Figure #6: Real 10 Year Treasury Yields

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

Trend #5: Corporate Buybacks Increase Valuations Financed with Cheap Debt

Lance Roberts shows in Aaand It’s Gone…The Biggest Support for Asset Prices that corporations have been the only significant net buyers of stocks for the past decade. Corporations have been issuing debt to take advantage of low interest rates and buying back their own shares which increases the earnings per share. Profits are rising, but the earnings per share is due to a higher debt to equity ratio. Corporate share buybacks tend to occur more during strong economic growth and decrease during times of slow growth. Buybacks slowed in 2018 through 2020, but have been increasing for the past three quarters. We can expect corporate buybacks to decline when the stimulus tapers and growth slows.

Figure #7: Cumulative Net Purchases of US Corporate Equities

Trend #6: Leverage Is Driving Asset Prices and Increases Market Instability

Low interest rates have made it cheaper to buy stock on margin. The increase in margin is another driver of stock market increases over the past decade as shown by the negative free cash in margin accounts. Conversely, a declining market encourages the quick exodus from margin as can be observed prior to the 2020 bear market.

Figure #8: Free Cash in Margin Accounts vs S&P 500

Source: Created by the Author Using data from FINRA

Trend #7: Taxes Are Heading Higher

Federal debt and deficits have been climbing to the extent that Federal Debt to GDP is near the levels following World War II. High debt levels reduce the amount of capital available for investing in future growth. Technology and lower taxes combined have not grown the economy enough to create a balanced budget. This is not sustainable, so spending has to be cut or taxes raised.

Figure #9: Federal and Household Debt to GDP

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

The Federal deficit is now more than 10 percent of GDP. Growth is likely to remain slow, pressure will build to cut spending and/or increase taxes.

Figure #10: Federal Deficit as Percent of Gross Domestic Product

Source: Created by the Author Using the St. Louis Federal Reserve FRED Database

President Biden has proposed raising the capital gains taxes which is likely to remove some of the incentives for corporate share buybacks.

President Joe Biden proposed doubling capital gains taxes for investors making over $1 million to fund his American Families Plan. While some high-income investors may consider selling assets to avoid paying a 39.6% rate, the current tax code allows for different strategies to minimize capital gains taxes. Biden’s plan will change as it moves through Congress, and both chambers will have to approve it via vote before the president can sign it into law.

Inside Biden’s Capital Gains Tax Plan

Table #2 shows the capital gains tax rates for the past 50 years. It fell in 1997 for individuals and 2018 for corporations.

Table #2: Historical Capital Gains Tax Rates

Date Individuals Corporations
1971 32.5% 25.0%
1972–1974 35.0% 25.0%
1975–1977 35.0% 30.0%
1978 33.8% 30.0%
1979 35.0% 30.0%
1980–1981 (June 9) 28.0% 28.0%
1981 (after June 9 )–1986 20.0% 28.0%
1987–1992 28.0% 34.0%
1993–1997 (May 6) 28.0% 35.0%
1997 (after May 6)–2003 (May 5) 20.0% 35.0%
2003 (after May 5)–2012 15.0% 35.0%
2013–2017 20.0% 35.0%
2018-2021 20.0% 21.0%

Source: Historical Capital Gains Rates

Another tax change coming is the global minimum tax which was recently discussed by Treasury Secretary Janet Yellen. Income, sales, royalties, property and value added taxes (VAT) are the common methods for collecting taxes. Most of the world uses VAT with the US using income and sales more as primary taxes. This encourages corporations operating globally to “optimize” taxes, sometimes leading to relocating headquarters to countries with lower taxes and using tax havens. The global minimum taxes are an attempt to equalize taxes globally, reducing the incentive for countries to “race to the bottom” by keeping taxes artificially low.

A group of 130 nations has agreed to a global minimum tax on corporations, Treasury Secretary Janet Yellen announced Thursday, part of a broader agreement to overhaul international tax rules.

Yellen did not announce the actual rate at which the GMT would be set, but the Biden administration has pushed for at least 15%.

The GMT would effectively end the practice of global corporations seeking out low-tax jurisdictions to move their headquarters.

130 nations agree to support U.S. proposal for global minimum tax on corporations

Closing of tax loopholes and more tax increases can be expected to continue.

2. Vanguard’s Long-Term View

Key Point: Vanguard’s view is that funds with more international exposure and value orientation will outperform in the coming decade(s).

Along the theme of this article, Vanguard published A Tale of Two Decades for U.S. and non-U.S. Equity: Past Is Rarely Prologue which I can align with:

The past 10 years have been tremendous for U.S. stocks relative to their international peers, largely because investors expected the U.S. to grow faster and it did. Now, however, higher valuations and slower earnings growth in the U.S. relative to the past decade make future outperformance unlikely. As a result, we expect that investors who maintain globally diversified equity portfolios will be rewarded in the years ahead.

The ownership structure of Vanguard favors the investors. The company is more oriented to buy and hold investors and has some of the lowest costs for funds. I trust their analysis to be less biased or promotional than most sources. In Asset Bubbles and Where to Find Them, Vanguard believes that the broad market is highly valued but that value stocks are undervalued. They expect value to outperform growth over the coming decade as described in Why U.S. value stocks are poised to outperform growth (April 2021).

The broad market may be overvalued, though not severely. Yet forthcoming Vanguard research highlights one part of the U.S. equity market that gives us pause: growth stocks. Low-quality growth stocks especially test our “plausible future income” scenario. For some high-profile companies, valuation metrics imply that their worth will exceed the size of their industry’s contribution to U.S. GDP. Conversely, our research will show that U.S. value stocks are similarly undervalued.

Vanguard’s projected returns over the next decade as discussed in Beyond the Pandemic: What to Expect from Stocks, Bonds (June 2021) are more generous than most that I have seen.

Figure #11: Vanguard Model of Returns in the Coming Decade

Source: Vanguard

3. Funds for the Next Decade

Key Point: Funds covered in this section include Target Retirement Funds, Mixed Asset Funds with high international exposure, Global Equity Funds, and Value Funds.

…the tectonic plates of market fundamentals are tightly bound and seeking realignment. Relatively high inflation and relatively high stock and bond valuation are very unlikely to coexist indefinitely.

The inflation rate will likely recede, and the current market trend is likely to continue. But it’s also a good time to have portfolios strapped to the parachute of diversification.

Be sure to diversify risk in this environment, not simply to diversify asset classes.

Ed Easterling’s July 2021 newsletter

The performance metrics in the following tables are from Mutual Fund Observer. The allocations and three-year Tax Cost Ratio are from Morningstar. The three-year after-tax return is calculated by the author based on these values.

Target Retirement Funds

For target retirement funds, I track Fidelity Freedom, Fidelity Freedom Index, T. Rowe Price Retirement, T. Rowe Price Target, and Vanguard Target Retirement without fully appreciating the differences. To explore this further, I used MFO Premium’s MultiSearch to compare the Fidelity and Vanguard index funds for the Glide Path with metrics shown for the past three years. The fund groups are similar with the main differences in red. First, Vanguard starts dropping the allocation to stocks as an investor is about twenty years from retirement. Second, Fidelity continues to drop the allocation to stocks for an investor who is in near retirement down to the Target Retirement Income Fund (FIKFX) of 19 percent while Vanguard drops quickly to 33 percent but then the Target Retirement Income Fund (VTINX) has 30 percent allocated to stocks. Investors may want to consider a bucket approach of several funds with different Target Dates to match withdrawal needs.

Table #3: Glide Path of Vanguard and Fidelity Target Date Funds

Source: Created by the Author Using Lipper Global Datafeed data and MFO Premium screeners

Next, I look at the five different fund groups that I track using the 2025 Category with metrics shown for the past five years. First, allocations to equities range from 50 to 65 percent with T. Rowe Price Retirement 202 (TRRHX) being the one outlier. The allocations to foreign stocks generally fall between 35 and 41 percent of the total allocation to stocks with Fidelity Freedom 2025 being an outlier with foreign stocks making up 53 percent of the total allocation to stocks. The funds are sorted from highest risk adjusted return (Martin Ratio) to the lowest. In other words, over the past seven years the active management of some funds did not overcome the low-cost advantage of index funds. True, TRRHX and FFTWX had slightly higher average annual returns, but also slightly higher drawdowns.

Table #4: Performance of Target Date 2025 Funds – Seven Years

Source: Created by the Author Using MFO Premium screeners

So what is the difference between the Fidelity Freedom Index 2025 Fund (FQIFX) and Fidelity Freedom 2025 Fund (FFTWX)? The primary differences are the following two excerpts added to the non-index (FFTWX) Summary Prospectus Primary Investment Strategies:

The Adviser, under normal market conditions, will use an active asset allocation strategy to increase or decrease asset class exposures relative to the neutral asset allocations reflected above by up to 10% for equity funds, bond funds and short-term funds to reflect the Adviser’s market outlook, which is primarily focused on the intermediate term. The asset allocations in the glide path above are referred to as neutral because they do not reflect any decisions made by the Adviser to overweight or underweight an asset class.

The Adviser may also make active asset allocations within other asset classes (such as commodities, high yield debt (also referred to as junk bonds), floating rate debt, real estate debt, and emerging markets debt) from 0% to 10% of the fund’s total assets individually, but no more than 25% in aggregate within those other asset classes. Such asset classes are not reflected in the neutral asset allocations reflected in the glide path above.

Mixed Asset Funds with High International Exposure

Table #5 contains the Mixed Asset Funds that I track with more than 30 percent allocated to stocks of which at least 30 percent are foreign, and with low to moderate valuations. They are sorted from highest allocation to stocks to lowest.

Table #5: Allocations of Mixed Asset Funds with High International Exposure

Name Symbol Cash & Bonds U.S. Stocks Foreign Stocks Other Stocks Foreign/ Stocks
iShares Core Aggressive Alloc AOA 21 45 34 0 79  43
ClearShares OCIO ETF OCIO 31 45 23 1 68  34
Vanguard Global Wellington VGWAX 32 38 29 2 67  43
SPDR® SSgA Global Allocation GAL 32 35 30 2 66  46
KL Allocation Institutional GAVIX 36 27 37 1 64  58
Vanguard Managed Allocation VPGDX 36 34 29 1 63  46
Vanguard STAR Inv VGSTX 37 41 21 1 63  34
Vanguard LifeStrategy Mod Grwth VSMGX 38 36 25 0 61  41
iShares Core Growth Allocation AOR 40 34 26 0 60  43
Fidelity Multi-Asset Income FAYZX 30 34 17 19 51  33
BlackRock 40/60 Target Alloc BAMPX 54 30 15 1 45  33
Vanguard LifeStrategy Cnsrv Gr VSCGX 58 25 17 1 41  41
T. Rowe Price Retire Balanced TRRIX 60 26 14 0 40  34
Vanguard Global Wellesley Inc VGYAX 58 16 24 3 40  60
iShares Core Moderate Alloc AOM 61 22 17 1 38  43

Source: Created by the Author Using Morningstar

Table #6 contains the MFO metrics for three years with Morningstar’s Tax Cost Ratio. I approximate the After-Tax Return, but this is specific to individual investor’s tax circumstances. The funds shaded green are the lowest risk as measured by the Ulcer Index. The funds shaded blue had more than 10 percent annualized returns. I identified T. Rowe Price Retire Balanced (TRRIX) as a One Stop Mutual Funds with Good Multi-Year Metrics.

Table #6: Performance (3 Years) of Mixed Asset Funds with High International Exposure

Symbol P/E RTN 3 Year S&P500 Downside Ulcer Martin %Tax Cost Ratio After Tax Return
AOA 26 12.3 78 4.8 2.3 0.7 11.6
OCIO 22 9.9 61 3.6 2.5 1.0 8.9
VGWAX 27 11.3 63 4.1 2.5 0.6 10.7
GAL 21 9.6 72 4.9 1.7 1.0 8.6
GAVIX 32 7.4 10 2.9 2.1 2.1 5.3
VPGDX 20 8.9 59 4.3 1.8 1.7 7.2
VGSTX 23 14.6 60 3.4 4.0 1.7 12.9
VSMGX 20 11.3 55 3.2 3.2 1.0 10.3
AOR 20 10.6 57 3.4 2.8 0.8 9.8
FAYZX 28 16.6 42 2.5 6.2 1.3 15.3
BAMPX 19 10.5 34 2.2 4.3 1.5 9.1
VSCGX 14 9.2 32 2.0 4.0 1.0 8.2
TRRIX 14 9.6 40 2.5 3.4 1.9 7.8
VGYAX 23 6.8 41 2.6 2.2 0.9 5.9
AOM 13 8.9 35 2.2 3.6 0.9 8.0

Global Equity Funds

The following funds are Global Equity Funds with high exposure to foreign stocks. I include this section for readers who prefer to build their own portfolios instead of using Mixed Asset Funds. They are selected because of their relatively low Ulcer Index and high Martin Ratio.

Table #7: Allocation and Performance of Global Stock Funds

Description Symbol %U.S. Stocks %Foreign Stocks RTN 3 Year Ulcer Martin
BlackRock MSCI Global Impact SDG 31 69 22.2 3.8 5.6
Columbia Select Global Equity IGLGX 62 36 21.9 3.9 5.3
T Rowe Price Global Growth Stock RPGEX 52 44 23.8 4.8 4.7
T Rowe Price Global Stock PRGSX 52 46 25.8 4.9 5.0
Adaptive Growth Opport AGOX 63 22 18.9 5.0 3.5
BlackRock Global 100 IOO 72 27 17.9 5.1 3.3
Northern Trust Global Sustain NSRIX 64 36 15.8 5.3 2.8
Fidelity Worldwide FWWFX 63 35 19.4 5.3 3.4
Vanguard Global Equity Inv VHGEX 53 47 16.8 5.7 2.8
BlackRock MSCI ACWI ACWI 58 41 14.7 5.8 2.3
Vanguard Total World Stock VT 56 44 14.7 6.0 2.2
State Street Global Stock Market SPGM 59 41 15.1 6.1 2.3

Value Funds

I track many value funds, but Yacktman (YAFFX) stands out for its long term performance. Two noticeable things about the fund is its exposure to foreign stocks, and its willingness to move to cash when valuations are high. I include VictoryShares US EQ Income Enhanced Volatility Weighted ETF (CDC) because of its lower risk and low correlation to the S&P 500.

Table #8: Allocation and Performance of Value Funds

Name Symbol %Cash %U.S. Stocks %Foreign Stocks %Bonds
AMG Yacktman Focused YAFFX 16 45 37 3
VictoryShares US EQ Inc Enh Vol Wtd CDC 0 99 1 0
Symbol SP500 Downside SP500 Correl Ulcer Yield TTM Total Return
3 Year
Tax Cost Ratio
3 Year
After Tax Return
YAFFX 74 0.91 5.3 0.7 16.0  3.6 12.4
CDC 77 0.82 5.0 2.2 15.1  1.2 13.9


In retrospect, the changes that we have seen during the past 50 years are incredible. For investors of any age, the impact of secular markets can have a major impact on retirement. Financial education is the best solution for most investors.

I have talked with three financial advisors this year, am consolidating accounts, and trimmed back tactical funds that have lost momentum. I have shifted a portion of assets to international mixed asset funds, and have invested more in the Columbia Thermostat Fund (COTZX/CTFAX).

I attended Charles Boccadoro’s MFO Webinar this week on the new features in MultiSearch. There are some very useful features that I wish I had before starting this article. I especially like the Lipper Leaders Rankings, additional trend metrics, and the Batting Averages for rolling return metrics.

Did you know that the Vanguard Target Date Funds (VTHRX, VTWNX, VTTVX), Janus Henderson Balanced (JABAX), and T Rowe Price Spectrum Moderate Allocation (TRPBX) have all beaten their peers more than 90 percent of the time during each of the past ten years for minimum one year rolling APR? Incredible!

Best Wishes and Stay Safe!

As disclosure, I own VWIAX, FIKFX, VTWNX, FFFDX, VGWAX, GAVIX/GAVAX, FAYZX/FMSDX, VSCGX, VGYAX, COTZX/CTFAX discussed in this article.