New User?November 2008 performance review
The Conservative Portfolio fell -3.08% in November.
Compared to October, November was a gangbuster month for stocks. The S&P fell only 7.18%, the Nasdaq and Russell 2000 dropped by double-digits, and the Dow posted a 4.86% loss. Government bonds were the only true winner. The Lehman Brothers US Government Long Bond Index gained a blistering 11.78% as interest rates on government bonds plunged to record lows caused by investors panic buying the safest investment around. Too bad Lehman didn’t own more government bonds - they might still be in business. What did Lehman load up on near the end? Commercial real estate – REITs were about the worst performing area last month with a roughly 25% drop.
While none of our portfolios performed as poorly as the S&P 500, our ’downward participation’ is climbing due to our increased stakes in stocks. Over the last 12 months however, our worst performing portfolio did a full 10 percentage points better than the S&P 500.
Frankly, we should be doing better in our higher risk accounts even with the larger stock stakes. We’ve been shorting the hardest hit areas in the market – real estate and emerging markets. In fact we’ve been shorting real estate since the top of the real estate bubble in our Daredevil portfolio. Unfortunately the few fund options around to put such timely calls to work deliver little long term gains– these ETFs are more useful as trading vehicles that offer protection from short, sharp drops.
The good news is our just-published annual year end <a href="http://maxadvisor.com/newsletter/reports/MAX.2008.distribution.report.pdf">capital gains report</a> has no fund taxable distributions worth taking great pains to avoid (Bridgeway Balanced BRBPX being the most noteworthy). Those adding new money should wait until the record dates pass nonetheless – there is no use drawing a taxable distribution that can be avoided by waiting a few days. Much of the good tax news is because the market is down, but we have also gotten out of hotter funds that could be realizing gains after forced sales by other performance chasing investors. Moving into out-of-favor funds and categories tends to be pretty tax efficient (in addition to being performance-enhancing).
On the tax issue, this is a good time to realize some losses if you have some gains from previous sales this year. Some of the Powerfunds are probably down since you bought them and some are replaceable with similar funds. Buy one as you realize the loss in another fund (watch out for tax rules buying the same exact fund back shortly after selling it). Many Vanguard ETFs have Vanguard open end funds that are essentially the same. Check the fund alternate list for ideas, but this strategy is best done with ETFs and similar index funds. Today there are several ETFs that do the same thing in many categories – thank you mutual fund industrial complex for overproducing… For more on mutual funds and taxes, <a href="http://maxadvisor.com/newsletter/farchives/000659.php">click here</a>.
In November Harbor Bond (HABDX) wasn’t quite so impressive compared to the overall bond market. The fund was up 1.34% compared to the 3.26% market return. Anybody light on US government bonds relative to the market index would have underperformed last month.
Nakoma Absolute Return (NARFX) didn’t have as good a month at it did in October but the essentially flat return was way better than the market.
Bridgeway Balanced BRBPX was a little disappointing with a 4.73% drop. Market volatility has made option writing problematic.
Healthcare continues to offer a little less downside than stocks. If this keeps up eventually healthcare stocks will get too expensive relative to the market.
Healthcare Select SPDR (XLV) was down 6.32% in October.
Janus Global Research (JARFX) continued to underperform with a 10.10% drop.
The Aggressive Portfolio fell -4.36% in November.
Compared to October, November was a gangbuster month for stocks. The S&P fell only 7.18%, the Nasdaq and Russell 2000 dropped by double-digits, and the Dow posted a 4.86% loss. Government bonds were the only true winner. The Lehman Brothers US Government Long Bond Index gained a blistering 11.78% as interest rates on government bonds plunged to record lows caused by investors panic buying the safest investment around. Too bad Lehman didn’t own more government bonds - they might still be in business. What did Lehman load up on near the end? Commercial real estate – REITs were about the worst performing area last month with a roughly 25% drop.
While none of our portfolios performed as poorly as the S&P 500, our ’downward participation’ is climbing due to our increased stakes in stocks. Over the last 12 months however, our worst performing portfolio did a full 10 percentage points better than the S&P 500.
Frankly, we should be doing better in our higher risk accounts even with the larger stock stakes. We’ve been shorting the hardest hit areas in the market – real estate and emerging markets. In fact we’ve been shorting real estate since the top of the real estate bubble in our Daredevil portfolio. Unfortunately the few fund options around to put such timely calls to work deliver little long term gains– these ETFs are more useful as trading vehicles that offer protection from short, sharp drops.
The good news is our just-published annual year end <a href="http://maxadvisor.com/newsletter/reports/MAX.2008.distribution.report.pdf">capital gains report</a> has no fund taxable distributions worth taking great pains to avoid (Bridgeway Balanced BRBPX being the most noteworthy). Those adding new money should wait until the record dates pass nonetheless – there is no use drawing a taxable distribution that can be avoided by waiting a few days. Much of the good tax news is because the market is down, but we have also gotten out of hotter funds that could be realizing gains after forced sales by other performance chasing investors. Moving into out-of-favor funds and categories tends to be pretty tax efficient (in addition to being performance-enhancing).
On the tax issue, this is a good time to realize some losses if you have some gains from previous sales this year. Some of the Powerfunds are probably down since you bought them and some are replaceable with similar funds. Buy one as you realize the loss in another fund (watch out for tax rules buying the same exact fund back shortly after selling it). Many Vanguard ETFs have Vanguard open end funds that are essentially the same. Check the fund alternate list for ideas, but this strategy is best done with ETFs and similar index funds. Today there are several ETFs that do the same thing in many categories – thank you mutual fund industrial complex for overproducing… For more on mutual funds and taxes, <a href="http://maxadvisor.com/newsletter/farchives/000659.php">click here</a>.
Nakoma Absolute Return (NARFX) didn’t have as good a month at it did in October but the essentially flat return was way better than the market.
The precipitous drop in Japanese stocks abated. Vanguard Pacific Stock ETF (VPL) fell ‘just’ 4.56% in November.
Healthcare continues to offer a little less downside than stocks. If this keeps up eventually healthcare stocks will get too expensive relative to the market.
Healthcare Select SPDR (XLV) was down 6.32% in October.
In November Harbor Bond (HABDX) wasn’t quite so impressive compared to the overall bond market. The fund was up 1.34% compared to the 3.26% market return. Anybody light on US government bonds relative to the market index would have underperformed last month.
Janus Global Research (JARFX) continued to underperform with a 10.10% drop.
October 2008 performance review
The Conservative Portfolio fell -7.27% in October.
October was a month where there was, to quote Martha and the Vandellas, ‘nowhere to run to, nowhere to hide’. The S&P 500 dropped a whopping 16.8% – and would have been down far more were it not for the sharp 1,000+ point surge in the Dow during the last few days of the month. The S&P 500 is now lower than it was when we launched our model portfolios in April 2002. With this backdrop, we’re satisfied with our 27% to 71% since inception return range across our model portfolios.
We used the early weakness in the month to place trades in each model portfolio. Our trade alert went out on October 10th, a day on which the market closed lower than it did at the end of October. While the funds we bought generally did well, some of the closed end municipal and junk bond funds truly exhibited some wild moves up as investors suddenly noticed the ridiculous discounts these types of funds were trading at during the panic selling days of October. Please note our performance calculations here assume buying the funds from our trade at the end of October as we have done since we launched these model portfolios. Had we included the returns of these funds since the actual trade date, our published performance for each portfolio would have been significantly higher. Our closed end stock and bond fund picks were up around 5%, 18%, 24%, 36% and 51% since October 10th.
Unless you were shorting something, chances are you were down in October. Even government bonds – up until know the absolute best place to be during this bear market - were down as interest rates rose on fears endless government bailout initiatives will certainly result in higher interest rates. Normally the fear behind rising rates is inflation, this time it’s just supply and demand of bonds.
Fortunately we were shorting something in almost all of our model portfolios. The relatively conservative Nakoma Absolute Return (NARFX) was up 3.69% for the month because of a long/short portfolio, while more inverse leveraged short ETFs helped our more aggressive portfolios. We had two funds gain 50% in October, which helped offset the drops in our more traditional holdings. Only two of our portfolios fell by double-digits (Low Minimum down 11.34%, Growth down 12.03% the latter NOT including the 51% pop in Western Asset Managed High Income Fund [MHY]) – which should no longer be purchased until it trades at a steep discount. We’re most unhappy with a 5.3% drop in Safety, a portfolio that shouldn’t fall quite that far in a month – even a month where government bonds fell 3.5% and the stock market almost 20%. We moved into junk bonds a little too early here – a fund that was down just over 10% in October - and should have sold formerly white hot Janus Global Research.
Bill Gross was up to something in October. Harbor Bond (HABDX) was down just 0.09% for the month – suspiciously good performance relative to the bond market. This was among his best month relative to bonds in general– though he has done very well in this credit crisis.
Nakoma Absolute Return (NARFX) has delivered for our safer model portfolios and is a rare example of a fund that works in wild markets. Most funds fall, and most short funds are either crummy funds or achieve nothing investors can’t achieve merely selling down some regular ‘long’ funds. Nakoma was up 3.69% for the month as commodity related stocks collapsed.
Bridgeway Balanced BRBPX did a much better job than many funds that use options. The fund was down ‘just’ 6.15% for the month.
Healthcare has slipped along with all stocks but is still a slightly better place to be in this down market – a market that makes diversification almost completely irrelevant. Healthcare Select SPDR (XLV) was down 11.48% in October.
If you want proof the latest phase down in the market is being driven by foreign and commodity-oriented stocks, take a look at Janus Global Research (JARFX) which fell a sharp 22.24%.
Junk bonds fell almost as much as stocks as investors think defaults will surely climb by leaps and bounds as the economy erodes. Current yields on high yield bonds may never have been so high relative to the low default rate.
Metropolitan West High Yield (MWHYX) slid 10.57% for the month.
The Aggressive Portfolio fell -7.68% in October.
October was a month where there was, to quote Martha and the Vandellas, ‘nowhere to run to, nowhere to hide’. The S&P 500 dropped a whopping 16.8% – and would have been down far more were it not for the sharp 1,000+ point surge in the Dow during the last few days of the month. The S&P 500 is now lower than it was when we launched our model portfolios in April 2002. With this backdrop, we’re satisfied with our 27% to 71% since inception return range across our model portfolios.
We used the early weakness in the month to place trades in each model portfolio. Our trade alert went out on October 10th, a day on which the market closed lower than it did at the end of October. While the funds we bought generally did well, some of the closed end municipal and junk bond funds truly exhibited some wild moves up as investors suddenly noticed the ridiculous discounts these types of funds were trading at during the panic selling days of October. Please note our performance calculations here assume buying the funds from our trade at the end of October as we have done since we launched these model portfolios. Had we included the returns of these funds since the actual trade date, our published performance for each portfolio would have been significantly higher. Our closed end stock and bond fund picks were up around 5%, 18%, 24%, 36% and 51% since October 10th.
Unless you were shorting something, chances are you were down in October. Even government bonds – up until know the absolute best place to be during this bear market - were down as interest rates rose on fears endless government bailout initiatives will certainly result in higher interest rates. Normally the fear behind rising rates is inflation, this time it’s just supply and demand of bonds.
Fortunately we were shorting something in almost all of our model portfolios. The relatively conservative Nakoma Absolute Return (NARFX) was up 3.69% for the month because of a long/short portfolio, while more inverse leveraged short ETFs helped our more aggressive portfolios. We had two funds gain 50% in October, which helped offset the drops in our more traditional holdings. Only two of our portfolios fell by double-digits (Low Minimum down 11.34%, Growth down 12.03% the latter NOT including the 51% pop in Western Asset Managed High Income Fund [MHY]) – which should no longer be purchased until it trades at a steep discount. We’re most unhappy with a 5.3% drop in Safety, a portfolio that shouldn’t fall quite that far in a month – even a month where government bonds fell 3.5% and the stock market almost 20%. We moved into junk bonds a little too early here – a fund that was down just over 10% in October - and should have sold formerly white hot Janus Global Research.
Nakoma Absolute Return (NARFX) has delivered for our safer model portfolios and is a rare example of a fund that works in wild markets. Most funds fall, and most short funds are either crummy funds or achieve nothing investors can’t achieve merely selling down some regular ‘long’ funds. Nakoma was up 3.69% for the month as commodity related stocks collapsed.
Healthcare has slipped along with all stocks but is still a slightly better place to be in this down market – a market that makes diversification almost completely irrelevant. Healthcare Select SPDR (XLV) was down 11.48% in October.
Bill Gross was up to something in October. Harbor Bond (HABDX) was down just 0.09% for the month – suspiciously good performance relative to the bond market. This was among his best month relative to bonds in general– though he has done very well in this credit crisis.
The biotech boom has slipped along with the market but is still doing relatively well. SPDR Biotech (XBI) was down 11.04% - better than most growth stocks which were down about 17% in October.
If you want proof the latest phase down in the market is being driven by foreign and commodity-oriented stocks, take a look at Janus Global Research (JARFX) which fell a sharp 22.24%.
Sometimes our timing is impeccable and what actually happens matches our predictions. It is looking like we caught the top of the commodity bubble. We noted a few months ago “we could see a 50% plus return here soon”. Voila: DB Commodity Double Short ETN (DEE) rose a whopping 51.35% in October as oil and other commodities continued to collapse. We’re now up 158% in this leveraged inverse ETF – a major reason this portfolio has performed well compared to the market over the last year.
September 2008 performance review
The Conservative Portfolio fell -5.96% in September.
The S&P 500 dropped 8.91% in September, which was the second-worst single month for the index since we launched our model portfolios in April of 2002. (The worst month ever was September of that same year). While the Nasdaq was down just over 12%, investors in U.S. markets had a (gulp) relatively easy time of it. Foreign markets fell about 15% in September with emerging markets down around 20%.
Non-U.S. Government bonds have been as scary as stocks lately. The total bond market was down 1.34% last month - not too bad but considering that interest rates drifted lower a drop is not what would be expected. The real problem was in higher-risk bonds. Emerging market debt, which we haven’t owned in our model portfolios for years, was down almost 10%. High-yield (junk) bonds were down 7%. Mortgage-related debt continued to fall, and even “safe” municipal bonds were slipping. Our lower-risk bond-oriented portfolios suffered their worst one-month declines in September. Panic hit money market funds after one large fund “broke the buck.” Municipal money market funds started to yield 5% tax-free as buyers vanished. This may have turned into the panic of the century but the government started guaranteeing money market funds against default. Factoring in recent developments, the government is backing just about any kind of counterparty credit risk and is spending hundreds of billions to prop up financial institutions. Apparently there is no such thing as a free market.
We’d like to say the government intervention put a floor under stocks, but October is turning out to be far worse than September. The pessimism has gotten so high that we decided it was time to increase our stake in higher-risk bonds and stocks across all of our portfolios – a trade we sent out on October 10th, the day the Dow dipped below 8,000. This will not be our last trade if the market continues to deteriorate – though we are more aggressive now than we have been in years. We have trades planned all the way down to Dow 5,000.
Our model portfolios all fell in September, with declines ranging from 4% to 8%. This compares favorably with the S&P 500’s 8.91% hit, though we were disappointed in our more conservative portfolios last month. For the year, our portfolios are down from 4.2% to 12.5% compared to the S&P 500s 19.2% drop. Our strategy of buying when investors are running and selling when markets get hot has been working – our since inception total returns range from 42.2% to 85.38% compared to the S&P 500’s 14.36%.
Harbor Bond (HABDX) was hit hard for a relatively conservative bond fund in September - the fund dropped 3.88%. Bill Gross clearly went into some riskier debt, which has proved a little premature. We made the same mistake incidentally. So far, October isn’t looking much better for Harbor Bond.
Nakoma Absolute Return (NARFX) was almost flat for the month with a 0.32% drop. We’ll take flat in this market.
The Aggressive Portfolio fell -5.84% in September.
The S&P 500 dropped 8.91% in September, which was the second-worst single month for the index since we launched our model portfolios in April of 2002. (The worst month ever was September of that same year). While the Nasdaq was down just over 12%, investors in U.S. markets had a (gulp) relatively easy time of it. Foreign markets fell about 15% in September with emerging markets down around 20%.
Non-U.S. Government bonds have been as scary as stocks lately. The total bond market was down 1.34% last month - not too bad but considering that interest rates drifted lower a drop is not what would be expected. The real problem was in higher-risk bonds. Emerging market debt, which we haven’t owned in our model portfolios for years, was down almost 10%. High-yield (junk) bonds were down 7%. Mortgage-related debt continued to fall, and even “safe” municipal bonds were slipping. Our lower-risk bond-oriented portfolios suffered their worst one-month declines in September. Panic hit money market funds after one large fund “broke the buck.” Municipal money market funds started to yield 5% tax-free as buyers vanished. This may have turned into the panic of the century but the government started guaranteeing money market funds against default. Factoring in recent developments, the government is backing just about any kind of counterparty credit risk and is spending hundreds of billions to prop up financial institutions. Apparently there is no such thing as a free market.
We’d like to say the government intervention put a floor under stocks, but October is turning out to be far worse than September. The pessimism has gotten so high that we decided it was time to increase our stake in higher-risk bonds and stocks across all of our portfolios – a trade we sent out on October 10th, the day the Dow dipped below 8,000. This will not be our last trade if the market continues to deteriorate – though we are more aggressive now than we have been in years. We have trades planned all the way down to Dow 5,000.
Our model portfolios all fell in September, with declines ranging from 4% to 8%. This compares favorably with the S&P 500’s 8.91% hit, though we were disappointed in our more conservative portfolios last month. For the year, our portfolios are down from 4.2% to 12.5% compared to the S&P 500s 19.2% drop. Our strategy of buying when investors are running and selling when markets get hot has been working – our since inception total returns range from 42.2% to 85.38% compared to the S&P 500’s 14.36%.
Nakoma Absolute Return (NARFX) was almost flat for the month with a 0.32% drop. We’ll take flat in this market.
Harbor Bond (HABDX) was hit hard for a relatively conservative bond fund in September - the fund dropped 3.88%. Bill Gross clearly went into some riskier debt, which has proved a little premature. We made the same mistake incidentally. So far, October isn’t looking much better for Harbor Bond.
October 2008 Trade alert!
We know it is difficult to buy after losing significant money in the worst market drop since the Great Depression. Most fund investors are either sitting still or selling. We can’t do that at MAXadvisor – it is against our philosophy.
Broadly speaking, this trade increases our stake in riskier funds – both stock and bond - in all portfolios. We are selling safer funds and adding risk because we feel over the next 2-5 years this move will let us continue our S&P 500-beating returns in our model portfolios.
Those that want to know where we stood last year near market highs should consult our archives from <a href=” http://maxadvisor.com/newsletter/archives.php “>last year</a>. It will likely make you more comfortable with this hard-to-stomach buy.
We will have more specific written information on this trade on our site by Monday. For now you can review all the trade details online. If you are following our model portfolios, you can make these trades as soon as feasible for you (as always be aware of short term redemption fees, tax implications, etc).
This will not be our last trade if global stock markets continue to drop – we have yet to bring emerging market funds back into the portfolios – markets which are now down far more then the S&P 500.
We're making trades in the Conservative portfolio, effective 10/31/2008:
<b>Sales:</b>
• REDUCE Harbor Bond (HABDX) from 25% to 15%
• REDUCE Dreyfus Bond Mkt Idx Bas (DBIRX) from 20% to 10%
<b>Buys:</b>
• INCREASE Vanguard Telecom Serv ETF (VOX) from 5% to 10%
• NEW ALLOCATION BlackRock MuniAssets Fund (MUA) to 15%
Pessimism is rising with collapsing stock and non-Government bonds markets. We’re using the near 50% drop in stocks and significant hit to higher-risk bonds as an opportunity to cut back on investment grade bonds and move into equities and distressed bonds.
Vanguard Telecom Services ETF (VOX) is an ETF we once owned for big gains. With the recent collapse the relatively safe high dividends here should lead to a market-beating recovery down the road. With above-money market yield dividends even if the recovery takes a long time this VOX should be a good investment.
Municipal bonds have been hit hard recently with troubles emerging in state financing. The real destruction has been in closed-end muni bonds, commonly sold with a sales commission built in by brokers to investors looking for safe income. These investors are panic selling their muni bond funds, likely with stop loss orders, and creating massive discounts to NAV. Closed-end funds, unlike traditional open-end funds, have an intraday market price like a stock but also an underlying NAV like open-end funds and ETFs. While closed-end funds are generally riskier than open-end funds because many use leverage (though NUV does not), there is the potential to make more as markets improve and the historically wide discounts to NAV shrink to more normal levels.
NOTE: Please be careful buying closed-end funds. With market volatility the way it has been many of these funds have moved spectacularly – 20% - 80% - in one day. Do not buy any closed-end fund we recommend if it is trading at a premium to NAV (check <a href="http://www.etfconnect.com/">etf-connect.com</a>) or goes up significantly more than similar funds in a short period of time. Please choose an alternative in such a case.
We know it is difficult to buy after losing significant money in the worst market drop since the Great Depression. Most fund investors are either sitting still or selling. We can’t do that at MAXadvisor – it is against our philosophy.
Broadly speaking, this trade increases our stake in riskier funds – both stock and bond - in all portfolios. We are selling safer funds and adding risk because we feel over the next 2-5 years this move will let us continue our S&P 500-beating returns in our model portfolios.
Those that want to know where we stood last year near market highs should consult our archives from <a href=” http://maxadvisor.com/newsletter/archives.php “>last year</a>. It will likely make you more comfortable with this hard-to-stomach buy.
We will have more specific written information on this trade on our site by Monday. For now you can review all the trade details online. If you are following our model portfolios, you can make these trades as soon as feasible for you (as always be aware of short term redemption fees, tax implications, etc).
This will not be our last trade if global stock markets continue to drop – we have yet to bring emerging market funds back into the portfolios – markets which are now down far more then the S&P 500.
We're making trades in the Aggressive Growth portfolio, effective 10/31/2008:
<b<Sales:</b>
• SELL ALL Vanguard Intm Bd Idx (VBIIX) from 10% to 0%
• REDUCE Harbor Bond (HABDX) from 15% to 5%
<b>Buys:</b>
• NEW ALLOCATION Vanguard Pacific Stock ETF (VPL) to 5%
• NEW ALLOCATION Vanguard Telecom Serv ETF (VOX) to 10%
• NEW ALLOCATION Western Asset Managed High Income Fund (MHY) to 5%
Pessimism is rising with collapsing stock and non-Government bonds. We’re using the near 50% drop in stocks and widespread fear as an opportunity to cut back on investment grade bonds and move into stocks and distressed bonds.
The Japanese stock market is collapsing to near 2002 lows when we last increased our stake in Japan funds. We were a little too early getting back into Japan recently, we’re confident that this is a good time to increase our stake in Vanguard Pacific Stock ETF (VPL).
Vanguard Telecom Services ETF (VOX) is an ETF we once owned for big gains. With the recent collapse the relatively safe high dividends here should lead to a market-beating recovery down the road. With above-money market yield dividends even if the recovery takes a long time this VOX should be a good investment.
High yield (junk) bonds have been in a near free-fall recently, behavior that has been magnified by closed end funds.
Closed-end funds, unlike traditional open-end funds that we ordinarily own in our newsletter, have an intraday market price like a stock, but an underlying NAV like open-end funds and ETFs. Since there is no fund company creating or redeeming shares at NAV as is the case with ordinary open-end funds or a system to effectively do the same as is the case with ETFs, closed-end funds can trade at huge discounts to actual underlying fund values during times of panic selling.
While these funds are generally riskier than open-end funds because many use leverage (MHY does not), there is the potential to make more as markets improve and the historically wide discounts to NAV shrink to more normal levels.
NOTE: Please be careful buying closed-end funds. With market volatility the way it has been many of these funds have moved spectacularly – 20% - 80% - in one day. MHY falls under this category and should not be bought until the price settles down to at least a 15% discount. Do not buy any closed-end fund we recommend if it is trading at a premium to NAV (check <a href="http://www.etfconnect.com/">etf-connect.com</a>) or goes up significantly more than similar funds in a short period of time. Please choose an alternative from one of the other portfolios in such a case.
august 2008 performance review
The Conservative Portfolio climbed 0.64% in August.
August was a good month for U.S. stocks and bonds, a crummy month for …well just about everything else around the world. So far, September is not turning out as peachy.
The S&P 500 was up 1.45% in August, while the Nasdaq climbed 1.81% and the small-cap Russell 2000 index rose 3.61%. Unfortunately for many fund investors these days, foreign stocks fell about 4%, with emerging market stocks falling around 8% (although much of this was just the U.S. dollar staging a comeback). For much of the last two years, fund investors have been piling into foreign funds. Longer-term government bonds performed well, climbing 2.3% as investors ran from higher-risk investments. The total bond market as measured by now barely breathing Lehman Brothers was up around 0.95%.
Our Powerfund Portfolios returns ranged from 0.22% to 1.59% for the month. Our main performance drags in August were foreign and global funds. They were generally down except for newly added Artisan Global Value (ARTGX), which posted a 2.88% gain. We’ve been running our portfolio light in foreign stocks and bonds lately. That move has been helping our returns; however, our recent move back in to Japan has proved to be a little early so far.
In addition to the ongoing collapse in all things lending-related, the big story recently in the market is the sharp drop in any investment that could be categorized as “alternative.” In fact, if it was an investment touted for its diversification benefits, it was probably down in August. At the top of the list would be oil, which now seems to be dropping in price almost every day regardless of OPEC cuts or hurricane activity. Bubbles…they just have a mind of their own.
Harbor Bond (HABDX) climbed 0.85%, a move more in line with the overall bond market in August. Bill Gross' move into higher-yield bonds has hurt the fund recently, but his large stake in Fannie and Freddie debt performed well when the government stepped in and saved the troubled agencies. (But that’s looking ahead to September).
Nakoma Absolute Return (NARFX) seems to need the market to go down for it to go up. While the flat return over the last twelve months certainly beats the 11% loss to the S&P 500 during the same time period, we’re not seeing that steady climb we’d like to see in any fund that is short and long. Nevertheless, this fund is among the best long short mutual funds around. The fund was down 1.67% for the month.
Healthcare is finally on a winning streak. The Healthcare Select SPDR (XLV) was up 2.02% in August and 1.66% over the last three months compared to an almost 8% drop in stocks. Apparently investors like the fact that big healthcare names don’t have to worry about ‘rolling over’ their short-term commercial paper or their CDO portfolio…
The Aggressive Portfolio climbed 1.18% in August.
August was a good month for U.S. stocks and bonds, a crummy month for …well just about everything else around the world. So far, September is not turning out as peachy.
The S&P 500 was up 1.45% in August, while the Nasdaq climbed 1.81% and the small-cap Russell 2000 index rose 3.61%. Unfortunately for many fund investors these days, foreign stocks fell about 4%, with emerging market stocks falling around 8% (although much of this was just the U.S. dollar staging a comeback). For much of the last two years, fund investors have been piling into foreign funds. Longer-term government bonds performed well, climbing 2.3% as investors ran from higher-risk investments. The total bond market as measured by now barely breathing Lehman Brothers was up around 0.95%.
Our Powerfund Portfolios returns ranged from 0.22% to 1.59% for the month. Our main performance drags in August were foreign and global funds. They were generally down except for newly added Artisan Global Value (ARTGX), which posted a 2.88% gain. We’ve been running our portfolio light in foreign stocks and bonds lately. That move has been helping our returns; however, our recent move back in to Japan has proved to be a little early so far.
In addition to the ongoing collapse in all things lending-related, the big story recently in the market is the sharp drop in any investment that could be categorized as “alternative.” In fact, if it was an investment touted for its diversification benefits, it was probably down in August. At the top of the list would be oil, which now seems to be dropping in price almost every day regardless of OPEC cuts or hurricane activity. Bubbles…they just have a mind of their own.
Nakoma Absolute Return (NARFX) seems to need the market to go down for it to go up. While the flat return over the last twelve months certainly beats the 11% loss to the S&P 500 during the same time period, we’re not seeing that steady climb we’d like to see in any fund that is short and long. Nevertheless, this fund is among the best long short mutual funds around. The fund was down 1.67% for the month.
Healthcare is finally on a winning streak. The Healthcare Select SPDR (XLV) was up 2.02% in August and 1.66% over the last three months compared to an almost 8% drop in stocks. Apparently investors like the fact that big healthcare names don’t have to worry about ‘rolling over’ their short-term commercial paper or their CDO portfolio…
Harbor Bond (HABDX) climbed 0.85%, a move more in line with the overall bond market in August. Bill Gross' move into higher-yield bonds has hurt the fund recently, but his large stake in Fannie and Freddie debt performed well when the government stepped in and saved the troubled agencies. (But that’s looking ahead to September).
After July’s monumental 20.14% jump, SPDR Biotech (XBI) lost 6.18% in August. We’re definitely watching for a sale here, but investors are in generally favoring anything a country mile from the financial services highway pileup. And that means healthcare.
July 2008 Performance Review
The Conservative Portfolio dipped -0.68% in July.
You have to be impressed by the government’s recurring ability to stop the market from completely falling apart. In July, we most certainly would have seen the demise of Fannie and Freddie had it not been for the swift reassurance to the market that the “S” in GSE (Government Sponsored Entities) not only stands for “Sponsored” but in fact stands for Supported, maybe even Saved.
Perhaps it’s just easy for the government to talk big when you have the world’s richest tax base backing you up. Either way, the S&P 500 fell just 0.84% in July. The Dow climbed 0.43%. The Nasdaq was actually up 1.42% on strength in smaller cap and biotech stocks. All investment-grade bonds were essentially flat for the month. Higher-risk bonds – notably mortgage-related debt – continued to drop, making their yield over safe bonds more attractive. International stocks were much weaker as the great foreign investing boom continues to unwind. The MSCI EAFE index was down 3.21%.
In such an environment, we’re quite happy with the performance of our Powerfund Portfolios with returns that ranged from -0.68% to positive 2.49%. Our moves last month into junk bonds hurt a little. Our funds that short, particularly the new riskier ones, helped a lot. One of these new short funds posted gains of over 20% in July, as did our biotech sector ETF - among our biggest one-month gains ever. It typifies how bizarre market behavior has been lately that a fund that shorts and one that is long can both be up over 20% in the same month.
Harbor Bond (HABDX) had another weak month relative to bond indexes with a 0.51% drop – proof that Bill Gross has moved into higher risk credits a little too early.
Nakoma Absolute Return (NARFX) was back to delivering market beating returns with a 2.03% jump for the month of July. We noted we’d need to see commodity-related stocks tank for this fund to pick up. They did and it did.
Healthcare is finally in high gear. What started as just mild outperformance a few months ago is going like gangbusters now. Healthcare Select SPDR (XLV) was up a solid 5.01% in July.
The 1.81% drop in the Vanguard Growth ETF (VUG) was surprising given the move up in the Nasdaq, but this fund is large-cap weighted so missed much of the bounce in smaller-cap stocks.
Anything foreign or global had a pretty bad month in July, and Janus Global Research (JARFX) was no exception dropping 4.18%. Janus as a company may have gotten a little too attached to commodity related stocks in the boom, something to watch because they did the same thing with tech stocks in the late 1990s.
The Aggressive Portfolio jumped 2.06% in July.
You have to be impressed by the government’s recurring ability to stop the market from completely falling apart. In July, we most certainly would have seen the demise of Fannie and Freddie had it not been for the swift reassurance to the market that the “S” in GSE (Government Sponsored Entities) not only stands for “Sponsored” but in fact stands for Supported, maybe even Saved.
Perhaps it’s just easy for the government to talk big when you have the world’s richest tax base backing you up. Either way, the S&P 500 fell just 0.84% in July. The Dow climbed 0.43%. The Nasdaq was actually up 1.42% on strength in smaller cap and biotech stocks. All investment-grade bonds were essentially flat for the month. Higher-risk bonds – notably mortgage-related debt – continued to drop, making their yield over safe bonds more attractive. International stocks were much weaker as the great foreign investing boom continues to unwind. The MSCI EAFE index was down 3.21%.
In such an environment, we’re quite happy with the performance of our Powerfund Portfolios with returns that ranged from -0.68% to positive 2.49%. Our moves last month into junk bonds hurt a little. Our funds that short, particularly the new riskier ones, helped a lot. One of these new short funds posted gains of over 20% in July, as did our biotech sector ETF - among our biggest one-month gains ever. It typifies how bizarre market behavior has been lately that a fund that shorts and one that is long can both be up over 20% in the same month.
Nakoma Absolute Return (NARFX) was back to delivering market beating returns with a 2.03% jump for the month of July. We noted we’d need to see commodity-related stocks tank for this fund to pick up. They did and it did.
Healthcare is finally in high gear. What started as just mild outperformance a few months ago is going like gangbusters now. Healthcare Select SPDR (XLV) was up a solid 5.01% in July.
Harbor Bond (HABDX) had another weak month relative to bond indexes with a 0.51% drop – proof that Bill Gross has moved into higher risk credits a little too early.
The boom in biotech stocks is almost moving into bubble territory. SPDR Biotech (XBI) jumped a whopping 20.14% in July. This puts the one-year return at 36.86%. Compare that to the S&P 500’s negative 11% one-year return.
Anything foreign or global had a pretty bad month in July, and Janus Global Research (JARFX) was no exception dropping 4.18%. Janus as a company may have gotten a little too attached to commodity related stocks in the boom, something to watch because they did the same thing with tech stocks in the late 1990s.
The 1.81% drop in the Vanguard Growth ETF (VUG) was surprising given the move up in the Nasdaq, but this fund is large-cap weighted so missed much of the bounce in smaller-cap stocks.
June 2008 Performance review
The Conservative Portfolio dropped -2.22% in June.
The strength we saw in most stock indexes in May turned to weakness in June. Before all was said and done the Dow was down around 10% for the month, with other broad indexes following suit. The Nasdaq dropped 9.11% in June, the Russell 2000 small cap index 7.7%, and the S&P 500 8.43%. With July’s continued carnage we’re now in bear market territory – a 20% drop from a market peak – in all of the big indexes. None of our model portfolios was down more than 5% in June.
Foreign stocks have offered no salvation; in fact some European stock indexes are now at three year lows. Fortunately we’ve been pretty light on foreign stocks – and stocks in general – in the Powerfund Portfolios for much of the last two years. Bonds were flat for the month but longer term U.S. government bonds offered some protection with a 1.55% return as recently rising interest rates turned back down on general fears of a long economic slowdown trumped inflation fears.
At the top of the list of problems are continued troubles in the housing market. REITs – or real estate investment trusts – plunged anew, wiping out what little gains they made earlier this year after last year’s drop. Investors are starting to realize that commercial real estate is not immune from the real estate bubble troubles – why anybody thought this trouble was confined to the residential real estate is a mystery. Today many bank stocks are down 80% or more from their highs. Fannie and Freddie – the two giant government sponsored enterprises at the center of the real estate bubble – are now holding on by a thread, or so stockholders seem to think. Sooner or later we’ll see how much of a sponsor the U.S. government really is.
We’re using this latest drop as a buying opportunity and increased our stock fund allocations across all portfolios at the end of June.
Harbor Bond (HABDX) fell 0.91% in June, which shows that Bill Gross has moved into riskier debt this year as June was a month mostly very safe government bonds performed well. We’re now moving back into Junk bonds and expect higher risk debt to beat safe government debt over the next few years.
Nakoma Absolute Return (NARFX) had a solid June with a 2.27% gain. We mildly concerned that oil stocks were going to continue to rise, hurting this funds shorts and adding more risk that we wanted from this portfolio. However with the market tanking and more trouble in financials this fund’s shorts have so far worked out well. Three is nothing like making a nice positive return in a dark month for stocks. Keep in mind this is not some 100% short / inverse fund it can make money in up markets as well.
Bridgeway Balanced (BRBPX) had another good month with a mere 2.86% fall. Given the upside Bridgeway Balanced has shown in positive months for stocks, this fund has been adding value even though it is down 1.58% over the last 12 months (the S&P 500 is down over 13% over the same period).
Healthcare stocks continued to offer some relative performance benefits compared to the market as investors apparently are now a little less worried about healthcare profits going forward Healthcare Select SPDR (XLV) was down 5.11% for the month.
Growth stocks continued to lead the market with ‘just’ a 6.73% drop in June in Vanguard Growth ETF (VUG). That’s not a good return in absolute terms, but relative to value stocks and the market in general it’s acceptable and drives home the point that growth stocks have been and still are leading the market.
The Aggressive Portfolio fell -4.69% in June.
The strength we saw in most stock indexes in May turned to weakness in June. Before all was said and done the Dow was down around 10% for the month, with other broad indexes following suit. The Nasdaq dropped 9.11% in June, the Russell 2000 small cap index 7.7%, and the S&P 500 8.43%. With July’s continued carnage we’re now in bear market territory – a 20% drop from a market peak – in all of the big indexes. None of our model portfolios was down more than 5% in June.
Foreign stocks have offered no salvation; in fact some European stock indexes are now at three year lows. Fortunately we’ve been pretty light on foreign stocks – and stocks in general – in the Powerfund Portfolios for much of the last two years. Bonds were flat for the month but longer term U.S. government bonds offered some protection with a 1.55% return as recently rising interest rates turned back down on general fears of a long economic slowdown trumped inflation fears.
At the top of the list of problems are continued troubles in the housing market. REITs – or real estate investment trusts – plunged anew, wiping out what little gains they made earlier this year after last year’s drop. Investors are starting to realize that commercial real estate is not immune from the real estate bubble troubles – why anybody thought this trouble was confined to the residential real estate is a mystery. Today many bank stocks are down 80% or more from their highs. Fannie and Freddie – the two giant government sponsored enterprises at the center of the real estate bubble – are now holding on by a thread, or so stockholders seem to think. Sooner or later we’ll see how much of a sponsor the U.S. government really is.
We’re using this latest drop as a buying opportunity and increased our stock fund allocations across all portfolios at the end of June.
Nakoma Absolute Return (NARFX) had a solid June with a 2.27% gain. We mildly concerned that oil stocks were going to continue to rise, hurting this funds shorts and adding more risk that we wanted from this portfolio. However with the market tanking and more trouble in financials this fund’s shorts have so far worked out well. Three is nothing like making a nice positive return in a dark month for stocks. Keep in mind this is not some 100% short / inverse fund it can make money in up markets as well.
Healthcare stocks continued to offer some relative performance benefits compared to the market as investors apparently are now a little less worried about healthcare profits going forward Healthcare Select SPDR (XLV) was down 5.11% for the month.
Tech stocks fell with the market but considering they tend to fall harder than the market we can’t complain with a 9.93% drop in our Technology SPDR (XLK).
Harbor Bond (HABDX) fell 0.91% in June, which shows that Bill Gross has moved into riskier debt this year as June was a month mostly very safe government bonds performed well. We’re now moving back into Junk bonds and expect higher risk debt to beat safe government debt over the next few years.
Biotech stocks fell about half as much as the market in June, which is amazing considering that investors tend to run from higher risk stocks in sharply down markets. Biotech stocks are about as far as you can get from consumer spending in the market, partially explaining the relatively good returns. SPDR Biotech (XBI) fell 4.22% in June but is still up 12.87% over the last 12 months – compare to the S&P 500’s over 13% drop over the same time period.
Growth stocks continued to lead the market with ‘just’ a 6.73% drop in June in Vanguard Growth ETF (VUG). That’s not a good return in absolute terms, but relative to value stocks and the market in general it’s acceptable and drives home the point that growth stocks have been and still are leading the market.
June 2008 Trade Alert!
We're making trades in the Conservative portfolio. You can view the trade specifics in the before and after (pre- and post-trade) tabs for the portfolio.
We are not selling any funds that would incur a short-term transaction fee charged by the fund company as we have owned these funds for quite some time. You, however, may have purchased these funds at different times for your own account.
<b>Why we are making these trades:</b>
The stock market now officially in bear market territory – down 20% from the peak in 2007. As we have been writing for much of the last year, fund investors have become a little too enthusiastic– notably by moving large amounts of money into foreign funds. We have cut back our stock allocations and higher risk bond allocations across our portfolios and have been running relatively conservative portfolios in all of our model portfolios
We have been watching fund investor flows closely over the last few months as the market has fallen sharply and made some quick, short-lived recovery attempts. As we <a href="http://maxadvisor.com/newsletter/index.php">noted last month</a>,, fund investors have been buying high and selling low – increasing their investments around Dow 13,500 and pulling money out under 12,000.
While the recent drop has been fast, we are quite certain that when the June numbers are in it will show outflows for funds, meaning this is a good time to increase our risk levels. We are adding back higher-risk bond funds (which have slid in recent months and are down quite a bit since we last owned junk bonds in our portfolios) and increasing our overall stock allocation. We are making trades and increasing our risk level in all portfolios.
Specifically, we are adding a junk bond fund (Metropolitan West High Yield Bond - MWHYX), a Japan fund (Vanguard Pacific Stock ETF - VPL), a telecom sector fund (Vanguard Telecom Services ETF - VOX), and a new global fund (Dodge & Cox Global Stock - DODWX). Check each portfolio area to see which goes where.
We actually owned Vanguard Telecom Services ETF – VOX in several of our portfolios and rode it for a 40% plus gain in just over a year. Telecom stocks were noticed by performance chasing investors, and we sold our stake near the fund’s peak. Vanguard Telecom Services ETF has since fallen back to about where we bought it the first time.
In our more aggressive portfolios we are adding some new short funds – a speculative strategy. We are going to try to profit from what we consider to be elevated values in emerging markets and commodities. This is a very high risk short term strategy. This includes inverse ETFs like DB Commodity Double Short ETN (DEE) and UltraShort MSCI Emerging Markets ProShares (EEV). We are using the double short ETFs largely because the ‘single’ short ETFs do not trade with high volumes – probably because gamblers like more action up and down.
We are also cutting down on more conservative bond funds and some older stock funds, and increasing our stakes in others.
Has the stock market hit rock bottom? Hopefully, but the market could easily fall another 10% or more. If it does we will likely increase our risk level further and even consider dropping bonds entirely from our higher risk portfolios.
We know these trades are hard to stomach for some investors. Most investors want to cut back on stocks after the market drops sharply – just as they want to increase their allocation after a big run up. But remember, our model portfolios have beat the S&P 500 since inception in 2002 by doing the opposite of what your gut tells you to do.
Please note: While you can place this trade at anytime, for performance tracking purposes we make all trades to our model portfolio on the last day of the month. These trades will take place in our model portfolios on Monday June 30th, 2008.
We're making trades in the Aggressive Growth portfolio. You can view the trade specifics in the before and after (pre- and post-trade) tabs for the portfolio.
We are not selling any funds that would incur a short-term transaction fee charged by the fund company as we have owned these funds for quite some time. You, however, may have purchased these funds at different times for your own account.
<b>Why we are making these trades:</b>
The stock market now officially in bear market territory – down 20% from the peak in 2007. As we have been writing for much of the last year, fund investors have become a little too enthusiastic– notably by moving large amounts of money into foreign funds. We have cut back our stock allocations and higher risk bond allocations across our portfolios and have been running relatively conservative portfolios in all of our model portfolios
We have been watching fund investor flows closely over the last few months as the market has fallen sharply and made some quick, short-lived recovery attempts. As we <a href="http://maxadvisor.com/newsletter/index.php">noted last month</a>, fund investors have been buying high and selling low – increasing their investments around Dow 13,500 and pulling money out under 12,000.
While the recent drop has been fast, we are quite certain that when the June numbers are in it will show outflows for funds, meaning this is a good time to increase our risk levels. We are adding back higher-risk bond funds (which have slid in recent months and are down quite a bit since we last owned junk bonds in our portfolios) and increasing our overall stock allocation. We are making trades and increasing our risk level in all portfolios.
Specifically, we are adding a junk bond fund (Metropolitan West High Yield Bond - MWHYX), a Japan fund (Vanguard Pacific Stock ETF - VPL), a telecom sector fund (Vanguard Telecom Services ETF - VOX), and a new global fund (Dodge & Cox Global Stock - DODWX). Check each portfolio area to see which goes where.
We actually owned Vanguard Telecom Services ETF – VOX in several of our portfolios and rode it for a 40% plus gain in just over a year. Telecom stocks were noticed by performance chasing investors, and we sold our stake near the fund’s peak. Vanguard Telecom Services ETF has since fallen back to about where we bought it the first time.
In our more aggressive portfolios we are adding some new short funds – a speculative strategy. We are going to try to profit from what we consider to be elevated values in emerging markets and commodities. This is a very high risk short term strategy. This includes inverse ETFs like DB Commodity Double Short ETN (DEE) and UltraShort MSCI Emerging Markets ProShares (EEV). We are using the double short ETFs largely because the ‘single’ short ETFs do not trade with high volumes – probably because gamblers like more action up and down.
We are also cutting down on more conservative bond funds and some older stock funds, and increasing our stakes in others.
Has the stock market hit rock bottom? Hopefully, but the market could easily fall another 10% or more. If it does we will likely increase our risk level further and even consider dropping bonds entirely from our higher risk portfolios.
We know these trades are hard to stomach for some investors. Most investors want to cut back on stocks after the market drops sharply – just as they want to increase their allocation after a big run up. But remember, our model portfolios have beat the S&P 500 since inception in 2002 by doing the opposite of what your gut tells you to do.
Please note: While you can place this trade at anytime, for performance tracking purposes we make all trades to our model portfolio on the last day of the month. These trades will take place in our model portfolios on Monday June 30th, 2008.
may 2008 performance review
The Conservative Portfolio climbed 0.24% in May.
In May the hope that the worst was behind us in the mortgage crisis and in financials evaporated. Financial SPDR (XLF) – the financial sector ETF – was down 6.08% in May, while the KBW Bank ETF was down almost 8%. Oddly, REITs (real estate investment trusts) bucked the trend with a slight increase in the category as a whole, as investors continue to think this part of the real estate market won’t sink much more than it already has.
Stocks in general started strong in May then faded, and the weakness that continued into early June. For the month, the Dow was down 1.11%, the S&P 500 was up 1.3%, the small-cap Russell 2000 climbed 4.59%, and the Nasdaq gained 4.55%.
Bonds continued to slide as interest rates climbed on growing inflation fears. Long-term government bonds – about the most interest rate sensitive – were down just over 2% for the month, while the total bond index was down 0.73%.
Hot areas last month included Latin America, biotech, precious metals, telecom, natural resources, growth in general, and small-cap stocks.
All of our model portfolios posted gains except for our bond heavy Safety portfolio, but none beat the S&P 500 except the Daredevil portfolio. For the year to date, all of our model portfolios are beating the S&P 500 except for Daredevil.
With a -0.74% return in May, Harbor Bond (HABDX) performed similar to the broad bond market, helped along by higher-yield bonds but hurt by rising rates in general.
Nakoma Absolute Return (NARFX) recovered ever so slightly in May with a 0.33% gain. We’re going to have to see energy and commodity related stocks tank for this fund – which has heavy short positions - to make big gains relative to the market.
Bridgeway Balanced (BRBPX) had an unusually strong month with a 2.29% return. The pop wasn’t from the bonds in the portfolio. Increased stock market volatility in recent months has caused higher option premiums, yet with the stock market not closing far from market prices in place when options where written, the fund gets increased premium income with fewer costs and missed opportunity associated with rising stock prices.
Healthcare stocks stopped underperforming in May – though some drug stocks are near multiyear lows. Healthcare Select SPDR (XLV) was up 1.95% for the month.
Growth stocks lead the market with a 3.7% gain in Vanguard Growth ETF (VUG).
The Aggressive Portfolio climbed 0.96% in May.
In May the hope that the worst was behind us in the mortgage crisis and in financials evaporated. Financial SPDR (XLF) – the financial sector ETF – was down 6.08% in May, while the KBW Bank ETF was down almost 8%. Oddly, REITs (real estate investment trusts) bucked the trend with a slight increase in the category as a whole, as investors continue to think this part of the real estate market won’t sink much more than it already has.
Stocks in general started strong in May then faded, and the weakness that continued into early June. For the month, the Dow was down 1.11%, the S&P 500 was up 1.3%, the small-cap Russell 2000 climbed 4.59%, and the Nasdaq gained 4.55%.
Bonds continued to slide as interest rates climbed on growing inflation fears. Long-term government bonds – about the most interest rate sensitive – were down just over 2% for the month, while the total bond index was down 0.73%.
Hot areas last month included Latin America, biotech, precious metals, telecom, natural resources, growth in general, and small-cap stocks.
All of our model portfolios posted gains except for our bond heavy Safety portfolio, but none beat the S&P 500 except the Daredevil portfolio. For the year to date, all of our model portfolios are beating the S&P 500 except for Daredevil.
Nakoma Absolute Return (NARFX) recovered ever so slightly in May with a 0.33% gain. We’re going to have to see energy and commodity related stocks tank for this fund – which has heavy short positions - to make big gains relative to the market.
Bridgeway Blue Chip 35 index (BRLIX) was flat for the month, returning somewhere between the Dow and the S&P 500. Although stocks in general were up in May, the big-cap banks in this fund were a drag on performance, much like the Dow.
Healthcare stocks stopped underperforming in May – though some drug stocks are near multiyear lows. Healthcare Select SPDR (XLV) was up 1.95% for the month.
Tech stocks continued a strong comeback. Technology SPDR (XLK) was up 5.23%.
With a -0.74% return in May, Harbor Bond (HABDX) performed similar to the broad bond market, helped along by higher-yield bonds but hurt by rising rates in general.
Biotech stocks have done well relative to the market, though the sector had a scary drop even harder than the market early this year. Last month the rebound continued with SPDR Biotech (XBI), up 7.33%. Some of this was Genentech’s (DNA) rebound from a big drop in April although this ETF is not market-cap weighted so other biotech stocks were hot as well.
Growth stocks lead the market with a 3.7% gain in Vanguard Growth ETF (VUG).
April 2008 performance review
The Conservative Portfolio climbed 1.36% in April.
The growing belief with investors is not only that the worst of the credit crisis is behind us, but that it is in fact almost over. If home prices do not decline any more (fat chance) this belief would be true.
Growing optimism for risk taking in such an environment carried the S&P 500 up 4.87% in April to within about 12% of its all time high. Larger cap stocks generally beat smaller cap stocks, and large cap tech stocks were among the strongest rebounders with a 7.6% return in the NASDAQ 100 index. Natural resource funds were the second hottest with a 9% return. Surprisingly though precious metals funds fell over 5% as gold dropped even as other commodities rose. At the top of the charts was Latin American funds, with a just over 12% return, though foreign funds in general were no hotter than U.S. stocks (and in most cases colder).
Safe investments lost their luster as long-term government bonds fell 1.73%. The overall bond market was only down slightly with a negative 0.21% return while high yield (junk) bonds were up near 4%. We were talking about increasing our stakes in junk bonds and have missed at least some of the boat here.
In such an environment all of our model portfolios were up, but less than the stock indexes (though all, except Daredevil, are beating the S&P 500 for the year).
The Harbor Bond (HABDX) benchmark-beating run was back in full swing with a 0.33% return in April. As we suspected, Bill Gross has been moving into higher-risk debt, and junk bonds beat safe bonds last month.
Nakoma Absolute Return (NARFX) took a sharp fall in April with a 3.48% fall. They explain the weak showing: “Our neutral market position, short exposure in the Energy and Materials sectors and disappointing results from several long positions combined to produce the poor April results. In the past twelve months, the fund has increased 0.18%.”
Healthcare stocks missed much of the excitement in April. Healthcare Select SPDR (XLV) was up only 1.58%.
Janus Global Research performed much better than most funds last month with a 7.39% return. This fund has a lot of Brazilian and basic materials company stocks which have been red hot. We’re starting to think it’s getting close to time to take a little money off the table here. This fund is up almost 30% in the 18 months we’ve owned it, far more than the stock market in general.
The Aggressive Portfolio jumped 2.30% in April.
The growing belief with investors is not only that the worst of the credit crisis is behind us, but that it is in fact almost over. If home prices do not decline any more (fat chance) this belief would be true.
Growing optimism for risk taking in such an environment carried the S&P 500 up 4.87% in April to within about 12% of its all time high. Larger cap stocks generally beat smaller cap stocks, and large cap tech stocks were among the strongest rebounders with a 7.6% return in the NASDAQ 100 index. Natural resource funds were the second hottest with a 9% return. Surprisingly though precious metals funds fell over 5% as gold dropped even as other commodities rose. At the top of the charts was Latin American funds, with a just over 12% return, though foreign funds in general were no hotter than U.S. stocks (and in most cases colder).
Safe investments lost their luster as long-term government bonds fell 1.73%. The overall bond market was only down slightly with a negative 0.21% return while high yield (junk) bonds were up near 4%. We were talking about increasing our stakes in junk bonds and have missed at least some of the boat here.
In such an environment all of our model portfolios were up, but less than the stock indexes (though all, except Daredevil, are beating the S&P 500 for the year).
Nakoma Absolute Return (NARFX) took a sharp fall in April with a 3.48% fall. They explain the weak showing: “Our neutral market position, short exposure in the Energy and Materials sectors and disappointing results from several long positions combined to produce the poor April results. In the past twelve months, the fund has increased 0.18%.”
Healthcare stocks missed much of the excitement in April. Healthcare Select SPDR (XLV) was up only 1.58%.
Tech stocks remained hotter than the market last month, Technology SPDR (XLK) was up 6.56%
The Harbor Bond (HABDX) benchmark-beating run was back in full swing with a 0.33% return in April. As we suspected, Bill Gross has been moving into higher-risk debt, and junk bonds beat safe bonds last month.
Janus Global Research performed much better than most funds last month with a 7.39% return. This fund has a lot of Brazilian and basic materials company stocks which have been red hot. We’re starting to think it’s getting close to time to take a little money off the table here. This fund is up almost 30% in the 18 months we’ve owned it, far more than the stock market in general.
March 2008 performance review
The Conservative Portfolio dipped -0.50% in March.
By mid-March the market was not looking good, sliding to new lows as financial services stocks continued to suffer - but once again things turned around and ended basically flat for the month. The S&P 500 was down 0.43% in March – the 5th straight monthly decline. Other indexes did better; the Dow was up 0.12%, the Nasdaq 0.34%, and the Russell 2000 small cap index 0.42%. Higher quality bonds were up slightly as well, while riskier corporate debt and most of the mortgage bond market slipped.
March was a month that diversification actually hurt returns. Most stock funds and almost all stock fund categories underperformed the S&P 500. Hard hit in March was emerging market stocks in general and Asian and Latin American stocks in particular. Supposed safe-haven gold offered no shelter, with precious metals funds down about 10% and gold bullion itself down near 10% in the last half of the month. Health care stocks were weak as well, not delivering on their supposed safety from falling earnings in a slowing economy.
Surprisingly, real estate was among the best performing stock fund categories in March (though it was the second worst category over the last year right after financial services). Real estate debt continued to slide. It was real estate-oriented common stocks and REITs that turned around in March, a move that likely just be a dead cat bounce or small move up after a precipitous drop.
The Harbor Bond (HABDX) benchmark-beating run of the last year or so took a break as the fund took a slight 0.17% dip. Bill Gross has slowly been moving into higher risk debt, and higher risk debt slipped in March while safe government bonds rose in price. The other problem for many bond funds in March was GSE (government sponsored entity) mortgage debt slipped relative to actual government bonds. This means the trillions in Fannie and Freddie debt took a small hit in March - and mutual funds in general own hundreds of billions worth of this debt.
Nakoma Absolute Return (NARFX) fell 0.77% in March. The fund owns a decent size healthcare stake and a position in Legg Mason stock, which had a terrible March on the heels of their flagship fund (run by Bill Miller) falling sharply relative to the market.
Investment grade bonds remained strong in March. Dreyfus Bond Market Index (DBIRX) was up 0.32% last month, about what it gained in February.
Healthcare stocks went from mediocre to worse in March as all sides of this industry seem under pressure. Drug stocks have growing legal problems and ongoing future growth concerns and hospital chains are having trouble collecting on bills. Healthcare Select SPDR (XLV) was down 5%.
The Aggressive Portfolio dipped -0.58% in March.
By mid-March the market was not looking good, sliding to new lows as financial services stocks continued to suffer - but once again things turned around and ended basically flat for the month. The S&P 500 was down 0.43% in March – the 5th straight monthly decline. Other indexes did better; the Dow was up 0.12%, the Nasdaq 0.34%, and the Russell 2000 small cap index 0.42%. Higher quality bonds were up slightly as well, while riskier corporate debt and most of the mortgage bond market slipped.
March was a month that diversification actually hurt returns. Most stock funds and almost all stock fund categories underperformed the S&P 500. Hard hit in March was emerging market stocks in general and Asian and Latin American stocks in particular. Supposed safe-haven gold offered no shelter, with precious metals funds down about 10% and gold bullion itself down near 10% in the last half of the month. Health care stocks were weak as well, not delivering on their supposed safety from falling earnings in a slowing economy.
Surprisingly, real estate was among the best performing stock fund categories in March (though it was the second worst category over the last year right after financial services). Real estate debt continued to slide. It was real estate-oriented common stocks and REITs that turned around in March, a move that likely just be a dead cat bounce or small move up after a precipitous drop.
Nakoma Absolute Return (NARFX) fell 0.77% in March. The fund owns a decent size healthcare stake and a position in Legg Mason stock, which had a terrible March on the heels of their flagship fund (run by Bill Miller) falling sharply relative to the market.
Healthcare stocks went from mediocre to worse in March as all sides of this industry seem under pressure. Drug stocks have growing legal problems and ongoing future growth concerns and hospital chains are having trouble collecting on bills. Healthcare Select SPDR (XLV) was down 5%.
Tech stocks were the near lone strength in the market in March. We saw a 1.61% return on the Technology SPDR (XLK).
The Harbor Bond (HABDX) benchmark-beating run of the last year or so took a break as the fund took a slight 0.17% dip. Bill Gross has slowly been moving into higher risk debt, and higher risk debt slipped in March while safe government bonds rose in price. The other problem for many bond funds in March was GSE (government sponsored entity) mortgage debt slipped relative to actual government bonds. This means the trillions in Fannie and Freddie debt took a small hit in March - and mutual funds in general own hundreds of billions worth of this debt.
December 2009 performance review
The Conservative Portfolio climbed 1.35% in December.
At least the market ended the year on a positive note. The S&P 500 was up a measly 1.06% in December, but this not-so-sharp turnaround means the S&P 500 fell a ‘mere’ 37% in 2008. The Dow fared better for the year, with a 31.93% drop, but managed to retreat 0.39% in December. The Nasdaq was down just over 40% for the year and up 2.7% for the month, while the Russell 2000 small cap index did manage to get hot with a 5.80% return for the month, keeping the total loss for the year down to 33.79%. Foreign indexes were down over 40% in ’08.All of our model portfolios beat the S&P 500 in December and for the year.
Other than money markets (the ones that didn’t collapse owning Lehman debt….) the only place to earn any real easy money in 2008 was treasury bonds, the longer term versions of which scored a 22% return as interest rates plummeted in the face of a collapsing global economy (and downright deflation). Of course many pundits and experts warned against government bonds for much of the year. Not that we were smart enough to focus on government debt– we mostly owned the total bond index in 2008, with too-early moves into junk bonds as the market collapsed.
In such an environment we are happy to report all of our model portfolios beat the S&P 500 in 2008 by a country mile – a statistical term that means our worst performing portfolio fell just 66% as much as the S&P 500, or 24.59%. Our most impressive portfolio from a risk return perspective turned out to be Aggressive Growth, down just 16.23% for the year thanks to some well timed bets against commodities, a biotech ETF (which was among the best performers anywhere) and a long / short fund. We have now beaten the S&P 500 in six of the last seven calendar years (damn you 2006!) in our stock heavy portfolios (growth, aggressive growth, and daredevil).
Bill Gross had a good month in December as junk bonds and other higher risk debt recovered somewhat and interest rates fell. Harbor Bond’s (HABDX) 3.86% return (just over the total bond index) gave him a positive return for the year – back in November it was looking like a negative 2008 was in the cards – or slightly worse than the bond index.
Nakoma Absolute Return (NARFX) posted a 1.74% return in December, which left the fund with a -4.34% return for the year – spectacular compared to the market but disappointing non-the-less.
Janus Global Research (JARFX) had a very good December with a 7.37% return, but terrible performance during the market crash left this fund with a -45.49% return for the year. At the top of the list of our mistakes in 2008 was not getting out of this fund when it got red hot.
The Aggressive Portfolio jumped 4.37% in December.
At least the market ended the year on a positive note. The S&P 500 was up a measly 1.06% in December, but this not-so-sharp turnaround means the S&P 500 fell a ‘mere’ 37% in 2008. The Dow fared better for the year, with a 31.93% drop, but managed to retreat 0.39% in December. The Nasdaq was down just over 40% for the year and up 2.7% for the month, while the Russell 2000 small cap index did manage to get hot with a 5.80% return for the month, keeping the total loss for the year down to 33.79%. Foreign indexes were down over 40% in ’08.All of our model portfolios beat the S&P 500 in December and for the year.
Other than money markets (the ones that didn’t collapse owning Lehman debt….) the only place to earn any real easy money in 2008 was treasury bonds, the longer term versions of which scored a 22% return as interest rates plummeted in the face of a collapsing global economy (and downright deflation). Of course many pundits and experts warned against government bonds for much of the year. Not that we were smart enough to focus on government debt– we mostly owned the total bond index in 2008, with too-early moves into junk bonds as the market collapsed.
In such an environment we are happy to report all of our model portfolios beat the S&P 500 in 2008 by a country mile – a statistical term that means our worst performing portfolio fell just 66% as much as the S&P 500, or 24.59%. Our most impressive portfolio from a risk return perspective turned out to be Aggressive Growth, down just 16.23% for the year thanks to some well timed bets against commodities, a biotech ETF (which was among the best performers anywhere) and a long / short fund. We have now beaten the S&P 500 in six of the last seven calendar years (damn you 2006!) in our stock heavy portfolios (growth, aggressive growth, and daredevil).
Nakoma Absolute Return (NARFX) posted a 1.74% return in December, which left the fund with a -4.34% return for the year – spectacular compared to the market but disappointing non-the-less.
Japan is starting to look like a relative area of strength, but it is mostly because the currency has been strong. There may be a notion that they already put their real estate bubble behind them. Vanguard Pacific Stock ETF (VPL) rose 11.17% in December.
Bill Gross had a good month in December as junk bonds and other higher risk debt recovered somewhat and interest rates fell. Harbor Bond’s (HABDX) 3.86% return (just over the total bond index) gave him a positive return for the year – back in November it was looking like a negative 2008 was in the cards – or slightly worse than the bond index.
Janus Global Research (JARFX) had a very good December with a 7.37% return, but terrible performance during the market crash left this fund with a -45.49% return for the year. At the top of the list of our mistakes in 2008 was not getting out of this fund when it got red hot.