Year-End Review Of Equity Assets And 2020 Plan


Considering how 2018 ended, I was surprised how well stocks did in 2019, despite history that shows the third year of a president’s term is one of the better ones. Taking into account my low equity allocation, a 12.48% return wasn’t bad (2019 Performance).

One reason my equity allocation is below my 40-45% range is a decision this month to move my BDCs and Convertible Securities assets from Equity to Fixed Income since both are more driven by interest rate movement than earnings or other typical equity factors. The other was worrying too much about having my income pass the Medicare MAGI limit that would trigger higher premiums. I probably avoided about $1600 in premium increases and lost maybe $20,000 in potential capital gains. There is an investment adage that says, “Don’t let the tax tail wag your investment dog!” In a sense, I did that.

Another reason I like a sub 50% equity ratio is I just retired and invested well enough before that point where I should not have to touch my investments once I start collecting Social Security sometime later this year or closer to my FRA (July 2021). I did an article on whether that should mean I have a high equity ratio since downturns won’t affect my income (Setting one’s Equity ratio).

I do take risks in how I allocate within the equity universe. As my linked article explains, Mid-Cap, Small-Cap provide higher ROI but have more risk. EM stocks have both higher risk and low correlation to US stocks so by my focusing on those areas, I believe I can match US Large Cap returns with a lower equity ratio. Of course, overall performance depends on how well our Fixed Income assets perform, which we also take more risk than I suspect the average FI investor takes (Fixed Income Review).

Data by YCharts

Defining My Terms

The following charts are grouped by categories I chose to divide my assets by and type of account.

Account Level Statistics

Purpose Weight Yield
Growth 69.12% 1.80%
Value 8.15% 2.04%
REIT 11.34% 5.35%
Income 1.85% 5.37%
Factor 9.55% 1.91%
Average 2.30%

As mentioned above, I tried to minimize dividend income in 2019 if held in a taxable account. Most of the REITs were added in December after their last 2019 “ex” date. Most of the equities were also held by the non-taxable accounts.

Taxable Morgan* IRA/Roth 401(k) Gift
ETF 7.60% 3.61% 16.52% 0.00% 0.00%
MF 0.00% 9.79% 1.52% 50.36% 5.00%
REIT 1.25% 0.00% 0.60% 0.00% 0.00%
CEF 0.00% 0.00% 2.92% 0.00% 0.00%
STK 0.00% 0.00% 0.82% 0.00% 0.00%

* This is our Morgan Stanley taxable account. I broke it apart from the Fidelity taxable accounts as I am allowing MS to call the shots for that account. Gift is my Charitable Gift Trust.

I labeled each asset based on the main attribute it provides to our holdings.

Growth: Focus is possible price appreciation, not income generation or Value stock-oriented.

Income: Focus is more on income, not price appreciation.

REITs: Since this is considered a subset of equities and combines both price and income appreciation, I broke it out.

Factor: Funds that use one or more factors, like hedging, low volatility, or ESG in selecting their universe.

Value: I decided to break Value factored Funds into their own subset. Value is defined by the Fund, not me.

Active and Index are based on whether the Fund managers are picking the holdings or if the Fund is index-based. I would expect Active funds to be riskier and have a higher ROI.

Taxable Morgan IRA/Roth 401(k) Gift
Growth 0.84% 9.33% 14.88% 44.06% 0.00%
Value 3.64% 3.04% 1.46% 0.00% 0.00%
REIT 1.25% 0.00% 3.79% 6.30% 0.00%
Income 0.00% 1.02% 0.82% 0.00% 0.00%
Factor 3.11% 0.00% 1.43% 0.00% 5.00%

Since my 401(k) hold 50% of all my equity positions and they don’t offer Value or Factor funds, that explains the near 70% weight in Growth funds.

Taxable Morgan IRA/Roth 401(k) Gift
Active 1.69% 9.79% 4.24% 18.27% 0.00%
Index 7.16% 3.61% 17.33% 32.09% 5.00%
Stock 0.00% 0.00% 0.82% 0.00% 0.00%

Right now, most assets are index-based as I feel it is a rare Fund that will beat its benchmark. The low stock percent was I didn’t want to spend time while working worrying about the next GE or Enron. That percent is somewhat misleading as some REITs are individual stocks, like National Health Investors (NYSE:NHI). Now that I am writing Put options, this percent will go up if I have to take ownership.

The following graphs are all from PortfolioVisualizer. I could not do a 2019 ROI since some ETFs I own didn’t exist prior to 2019. These charts represent the 12/31/19 allocations.

As you can see, we are heavily weighted into the MC and SC stocks. We also have more international exposure than most investors.

This compares our sector allocations with ACWI, a worldwide equity ETF. The scales are slightly different but REITs appears to be the only sector we don’t line up closely with ACWI sector weights.

Asset Level Descriptions

Asset Name Symbol Weight Yield Type Style Purpose
US Equity Sustainable FGTUS 2.579% 1.49% MF Index Factor
INTL Equity Sustainable FGTINT 2.419% 3.32% MF Index Factor
Advisors Short ETF DWSH 1.692% 0.15% ETF Active Factor
iShares MSCI AW Min Vol ACWV 1.421% 2.36% ETF Index Factor
WisdomTree Intl Hedged IHDG 0.808% 1.48% MF Index Factor
Invesco MC LV ETF XMLV 0.626% 2.43% ETF Index Factor
Small Cap Index DDSAF 11.548% 1.43% MF Index Growth
MidCap Index DDMAF 10.212% 1.33% MF Index Growth
Large Cap Active DDLAF 7.622% 1.71% MF Active Growth
Intl Active DDIAF 7.137% 3.08% MF Active Growth
Large Cap Index DDLAF 4.029% 1.71% MF Index Growth
iShares Total US Equity ITOT 3.773% 1.73% ETF Index Growth
Small Cap Active DDSAF 3.509% 1.43% MF Active Growth
VIPER Van Total Mkt VTI 2.426% 1.75% ETF Index Growth
All World ETF ACWI 2.351% 1.92% ETF Index Growth
iShares MSCI SC SCZ 2.309% 2.04% ETF Index Growth
iShares SC Growth IJT 2.150% 0.94% ETF Index Growth
Harding INTL EQ HLMIX 1.645% 1.59% MF Active Growth
Oakmark INTL OAYIX 1.518% 1.93% MF Active Growth
iShares Core EAFE IEFA 1.166% 3.04% ETF Index Growth
John Hancock Seaport I JSFDX 1.155% 1.07% MF Active Growth
John Hancock Intl Growth GOGIX 1.117% 0.67% MF Active Growth
Causeway Emerging Markets CEMIX 1.032% 2.03% MF Active Growth
iShares Russ 1000 GRW ETF IWF 0.835% 0.99% ETF Index Growth
Market Sectors Africa AFK 0.752% 2.31% ETF Index Growth
Fidelity EM Discovery FEDDX 0.715% 1.05% MF Active Growth
Royce MicroCap RMT 0.633% 7.57% CEF Active Growth
iShares Core EM IEMG 0.546% 2.64% ETF Index Growth
Templeton EM Fund EMF 0.527% 4.30% CEF Active Growth
Loomis LC Growth LSGRX 0.317% 0.51% MF Active Growth
VIPER Van Total Mkt VTI 0.092% 1.75% ETF Index Growth
Tortoise MLP TORIX 1.024% 4.47% MF Active Income
Pembina Pipeline PBA 0.824% 6.48% STK Stock Income
REITS Fund DDRTS 6.298% 5.00% MF Index REIT
Cohen REITs-PFD Fund RNP 1.764% 6.25% CEF Active REIT
Super REIT DIV SRET 1.425% 7.88% ETF Index REIT
Hoya Cap Housing HOMZ 0.643% 2.00% REIT Index REIT
Netlease ETF NETL 0.610% 4.19% REIT Index REIT
National Health NHI 0.604% 5.16% REIT Active REIT
VIPERS LC Value VTV 3.640% 2.59% ETF Index Value
iShares SC Value SLYV 1.462% 2.14% ETF Index Value
iShares Russell 1000 Value ETF IWD 1.063% 2.25% ETF Index Value
JPM Value Advantage JVASX 0.845% 1.46% MF Active Value
Neuberger Int MC Value NINLX 0.650% 0.00% MF Active Value
Well Fargo MC Value WFMIX 0.487% 0.84% MF Active Value

Author’s Note: Sorted by Purpose & Weight. Some assets listed multiple times if held across account types. All the MFs with a ticker starting with “DD” are not publicly traded and only available inside my 401(k) plan.

I believe most readers will recognize most of the names on this list so I will briefly cover only some of the above.

US & INTL Sustainable: Environment, Social, & Governance (BATS:ESG) screening is the new thing among the next generation and many large pension funds. Both of these are held in my Gift Trust account, which I thought was appropriate. Their performance matches well against SPY and ACWX.

Advisors Short ETF: This ETF started in the summer of 2018. Unlike Inverse ETFs, it shorts stocks based on an in-house algorithm. Since it launched, it has lost money but when added to a Portfolio, greatly lowered the overall risk. I have a little of this ETF in four accounts now.

WisdomTree International Hedged: Think EFA without the currency risk. Since 2014, it has outperformed EFA by 550bps.

Hoya Capital Housing & NetLease REITs: These are two new REITs with narrow focuses. Hoya owns both REITs and stocks that are dependent on the US Housing market, the largest source of consumer spending. NetLease owns all the Triple Net Lease REITs on the market. Hoya ETF.

Cohen/Steers REITs-PFD CEF: I bought this to replace RFI when its premium went too high for my taste. Because of its mix, it could be classified as an FI asset.

Large Cap & Small Cap Value ETFs: Value has not done well since 2009, its longest streak of under-performing Growth stocks. Value does provide lower risk as their Sharpe Ratios since 2000 are better than their Growth cousins.

2 Low Volatility ETFs: I switched some funds from ACWI and MDY to lower my risk while maintaining my equity exposure. It’s been a bonus that both have outperformed the basic ETF since their start.

4 Emerging Market Funds: About 2% of my equities are in EM stocks. These countries are some of the fastest growing economies but recent performance has been lagging. EM Investing.

2020 Portfolio Strategy

When is the correction coming? Will the Fed start to raise rates again in 2020? At least the new NAFTA is about to be law and some progress on trade with China is happening. By late summer, it might be clear who has the upper hand in the race to be our next president.

I plan on making all my charity donations from my Gift Trust this year and not add to it. This will allow us to use the higher Standard Deduction for the first time. Being both over 65 gets us an even larger deduction.

I plan on continuing my Put writing as both an income source and means of buying stocks below market. One reason for that is there isn’t many good fixed income investment to choose from so I have extra holdings of cash.

One thing I learned by really diving into my equity holdings is how little income they are generating, even for the non-taxable accounts. High on the agenda is getting the overall rate to at least 3% by mid-year. REITs will play a part in that. As mentioned, BDCs provided some of this equity yield but I now consider them with my Fixed Income holdings.

I am evaluating if I want to expand my overseas allocation, especially to EM countries. I also have FM on my radar as a possible entry into Frontier Countries. I am currently writing Puts as possible means of entry into that asset class. Adding to IHDG is under review as I believe the USD will stay strong.

I read several DGI contributors for ideas so I suspect some cash will flow into adding individual stocks yielding 4% or more will occur.

If you appreciate articles of this nature, please mark it ‘liked’ and click the ‘Follow’ button above to be notified of my next submission. Thanks for reading.

Disclosure: I am/we are long FGTUS, FGTINT, DWSH, ACWV, IHDG, XMLV, ITOT, WFMIX, NINLX, JVASX, IWD, SLYV, VTV, NHI, NETL, HOMZ, SRET, RNP, PBA, TORIX, VTI, LSGRA, EMF, IEMG, RMT, FEDDX, AFK, IWF, CEMIX, GOGIX, JSFDX, IEFA, HLMIX, IJT, SCZ, OAYIX. 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.

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