The Conservative portfolio was up 5% in May, beating April’s return of 3.31%, which had been the largest return in a month since we started the portfolio. The Portfolio is now up 9% since its April ’01 inception. We’re pleased with this return considering the fact that the stock market as a whole is down 20% for the same period. 

Bonds and stocks were strong this month, but it was safer government bonds that delivered the big returns. Investors didn’t favor higher risk bonds like they have in recent months. Stocks were the main driver of returns in this portfolio.

On the topic of higher risk bonds, the Vanguard High Yield Corporate fund (VWEHX) closed to new investors last Friday. We are maintaining our investment in this fund and from now on are going to provide alternates to new investors rather than trade out of a fund simply because new investors can’t buy it. Our alternative choice for new portfolio builders is the SSgA High Yield Bond fund (SSHYX). This fund is available at almost every discount broker for no transaction fee (unlike the Vanguard fund) and the minimum is only $1,000. The fund is at about the same risk profile as the Vanguard fund, and is appropriate for this risk level portfolio. 

Every fund in the portfolio was up, with the American Century Utility Income fund leading the way with an 8.26% gain. We’ve been allocating money to utility stocks in almost every portfolio last year as we felt the area was undervalued. This year Utilities are one of the strongest sectors of the market.

The FMI Sasco Contrarian Value fund was up 8.2%, followed by the Vanguard Dividend Growth was up 7.15%. There was renewed interest in high dividend paying stocks in light of the new tax cut, and value stocks started catching up with the growth stocks that have been leading the market so far this year.

International bonds are still red hot, this month taking the American Century International Bond fund up 6.05%. The fund is now up over 30% since we added it to the portfolio and a major reason our lower risk portfolios are outpacing the market and similar low-risk diversified investments.

Our theory proposed last month about Bill Gross extends itself to this month as his fund was up “only” 1.67% when longer-term government bonds where up closer to 5%.

The Aggressive Growth portfolio was up 7.4% in May, led by a strong showing in our smaller-cap holdings. Every fund in the portfolio was up this month as the portfolio’s more growth oriented approach has been benefiting from recent market strength. 

This portfolio is beating the S&P500 and Dow over the last year and is now up 5.09% since April 2002. The U.S. stock market is down over 15% during the same period. The portfolio is up 17.13% for the three months ending May 31st, beating the S&P500 and Dow and proving it can beat those indexes in up markets as well as down.

Emerging markets were strong (with the SSgA Emerging Markets fund up 6.6% for the month) but not as strong as U.S. Microcap stocks. The Bridgeway Ultra Small Tax Adv fund was up 13.68% last month, and is up 18.54% since April 2002. 

The Artisan International Small Cap fund was up 7.83% for the month and is up 22.4% for the trailing 3 months. 

Emerging market bonds won’t quit. The Fidelity New Markets Income fund was up 4.28% for the month and is up over 25% since we put it in the portfolio, making it our strongest performer.

The weakest performer was the Northeast Investors fund, a junk bond fund that has been playing it chicken lately and under-performing hotter more speculative bond funds. While we wish we took a bit more risk in this area 6 months ago, but we’re not about to up the risk at this late stage in the game of the junk bond rally.

Telecom continued its recent strength, with the Gabelli Global Telecom fund up 8.79% for the month.

Japan seemed to have turned around in recent months, though not sharply yet. The T. Rowe Price Japan fund was up 3.6% for the month, not much for a U.S. stock fund but a good sign for Japan.

The Conservative portfolio was up .68% in March. Stocks were up in March, with the S&P 500 and Dow up about 1% and 1.5% respectively. Long-term US government bonds were down about 1.2% in March, but all our bond fund choices were up in this portfolio. We don’t feel longer term US government bonds are the place to be right now. If rates climb fast, our bond fund choices will likely lose money also, just not as badly as we think government bonds will fall. We’re considering investing in a variable rate fund here shortly.

REITs and Junk bonds were strong. We keep waiting for REITs to fall, but they don’t which makes us which we had larger allocations than 5% to the sector. We used to recommend higher allocations to REITs, but after they ran up in price we pared back. Today’s low interest environment makes REITs yield hard for investors to pass up, keeping prices high. We’re not going to increase allocations here without a significant dip. 

Junk bonds have been on a solid run for a few months now, and are currently one of the top asset classes. We do not plan on increasing weights here. 

The only fund that was down in the portfolio was the Vanguard Dividend Growth fund, which dropped .48%. While we are not particularly enamored with this fund, which was the result of the conversion of their old Utility Income fund, the tax loss carryforward on the books as well as the low fee will make this one of the best dividend income funds over coming years. We own this fund in this portfolio for income and growth, we don’t want to see most of the meager stock dividends going to management fees.

Utilities seem to be turning around, with our just added American Century Utility Income fund up 1.75%, outpacing the market. This is one of the few areas where an income seeking investor can get a decent yield, but the risk is higher than with bonds. If these stocks go nowhere over the next decade, you’ll still make more in yield than you will owning government bonds which recently paid under 4%.

The Aggressive growth portfolio was up .34% in March. Stocks were up in March, with the S&P 500 and Dow up about 1% and 1.5% respectively. Long-term US government bonds were down about 1.2% in March. 

The Fidelity New Markets Income fund jumped another 2.12% locking in emerging market bonds as a top asset class over recent years. The last 10 years have been spectacular for emerging market debt and terrible for emerging market equity, we may shift around more to the out of favor equity.

Artisan International Small Cap has been our strongest equity fund in this model portfolio – our weakest model portfolio over the last 12 months. Last month the fund was down -.31%, as foreign markets slipped. 

Junk bonds have been on a solid run for a few months now, and are currently one of the top asset classes. We do not plan on increasing weights here. Our junk bond choice for this fund, the Northeast Investor fund has not performed well in recent months compared to more aggressive funds. We still like the fund but wonder if we should move it into more conservative portfolio we run and put something a little more aggressive here. This is still one of the best long-term junk bond funds in the business, low fee and well managed.

Japan falls again, taking the T. Rowe Price Japan fund down 1.89%. This fund recently lost a manager but we don’t know of any better funds for this portfolio right now. We’re considering the Fidelity Small Company Japan fund mostly to increase risk and return here, but we may just make the move in our daredevil portfolio. Possibly the Vanguard Pacific Stock Index fund would be a replacement for this portfolio if we don’t like what happens at the T. Rowe fund in the future.

The Bridgeway Ultra Small Tax Adv fund has been our best stock fund performer over the last year for this model portfolio, and was up another 1.82% in March. 

Telecom has stalled after coming back a bit in recent months, and the Gabelli Global Telecom fund was down .52% in March.

Emerging market stocks were weak, in contrast to emerging market bonds, which were strong. The newly added SSgA Emerging Markets fund was off –2.47% for the month.

The conservative portfolio was down 0.20% for the month of January. The standout again was the American Century International bond fund (BEGBX) up 2.87% for the month. Remember two months when we said the dollar was about to start working in the favor of international investments again? We're still considering lightening up a bit on our foreign bond positions or moving to a hedged bond fund. 

The second strong area was junk bonds, with the Vanguard High Yield Corporate bond fund (VWEHX) returning around 1.5%. All bonds faired well, with the Harbor Bond fund (HABDX) up .68%.

Over the last few years you have seen bonds move in almost perfectly inverse to stocks - when stocks have a bad month, bonds go up, and vice versa. This has helped diversified portfolio's returns. Don't expect this to happen forever - stocks and bonds can both go up and down together. 

What gains we saw from bonds were rubbed out by losses in stocks. Stock funds are 40% of this fund, and all 4 funds fell, including our real estate fund. Real estate funds have been much stronger than most stock funds these last few years but we have pared them down to almost nothing in recent months as we feel real estate has had its best years for the time being.

The aggressive growth portfolio was down less than 1%. The Fidelity New Markets Income fund (FNMIX) helped yet again up 2.1%. Emerging market bonds have been the strongest bond asset class for quite some time now, even outpacing U.S. Government debt in total return. We're considering easing up on this area, as this fund is up in the deep double-digits over the last year.

Japan suffered more declines, with the T. Rowe Price Japan fund (PRJPX) down over 5%. We have seen some improvements of late in the economy, which hopefully will trickle down to the beaten down stocks, or at least get investors more enthusiastic about investing in Japan.

The beaten down telecom sector is showing some resilience, with the Gabelli Global Telecom fund (GABTX) up around 1% for the month.

The conservative portfolio was up 1.14% for the month of December, but the positive action was mostly from bond funds this month. The standout was the American Century International bond fund (BEGBX) up an astounding 6.52% for the month. Remember last month when we said the dollar was about to start working in the favor of international investments again? Basically 85% of that return was the result of the US dollar falling. For the record, with the dollar down near 20% in the last year, we're starting to think about easing up on our foreign bond position as much of the easy money has been made. The Harbor bond fund was also a winner in December, up almost 2%.

Falling from grace was the Vanguard Utilities Income fund, down just over 5%. The fund has converted to a dividend stock fund not unlike the Strong Dividend income fund, which is already in this portfolio. This switch on their part was just in time to miss a strong month for Utility stocks. The other explanation for this fund's disappointing month (a month when high dividend stocks were not particularly weak) was the manager's selling of a half billion dollars of utility stocks. You don't want to own a fund that has to make sales like that in a short time frame.

The aggressive growth portfolio was down less than .5%. This fund is proving to be surprisingly un-volatile for an aggressive growth portfolio, as its really done quite well in a bad year for stocks.

The Fidelity New Markets Income fund helped again up 2.6%, as emerging markets bonds add yet another strong month. We're starting to consider easing up on this area, as this fund is up in the deep double-digits over the last year.

Less impressive was the -6.47% showing of the Gabelli Global Telecom fund, coming off an amazing couple months that took the fund up around 30%.

For the record, the excellent Dreyfus Emerging Markets fund recently converted to load fund, a disappointing development, and one we're growing quite accustomed to in the fund industry of late, sadly. This move does not effect old investors in the fund who are grand fathered into a no load account, and can even add money no load. That said, new investors should NOT buy the fund as it now carries a sales load. We will have a replacement for new investors shortly.

The conservative portfolio was up just under 1% for the month of October. The positive action was mostly from the portfolio's stock funds, not the larger bond position, which was flat for the month. The Columbia REIT fund was the portfolios weakest position, down almost 3% for the month. Other stock funds were strong. The portfolio outperformed the "safety" portfolio mainly because of its larger stock holdings, including the recently added Vanguard Utilities Income fund which was up 3.64% for the month. Most of the weakness this month was in government bonds, which previously been strong. This portfolio is light on U.S. government bonds so the portfolio was largely unaffected.

The aggressive growth portfolio was up 3% in November . The Fidelity New Markets Income fund was up about 6%, as emerging markets bonds continue a good year compared to other asset classes. More helpful was the Gabelli Global Telecom fund, up almost 16% for the month; maybe Telecom stocks have finally bottomed (but we'll need to see some fundamental improvement in the area before we can be certain). Our biggest disappointment in the portfolio in October was the T. Rowe Price Japan fund, down over 8%. Japan still just can't seem to get its act together.