Before we get to our regular monthly performance review, we want to update you on the year-end capital gains distribution estimates for our portfolio funds.
As longer term followers of our portfolios know, we review the year-end tax distribution estimates for our funds around this time to aid in any year-end tax planning. In the case of large year-end distribution, it can make sense to hold off buying a fund until the distribution is paid, particularly with high tax rate short term capital gains. Sometimes it can make sense to sell before the distribution and buy a different fund.
A good place to start in this somewhat complicated issue is to read what we have written in the past on year-end distributions. This article has links to more of our articles about year-end taxes. Keep in mind that dodging year-end tax distributions doesn’t matter with IRA accounts.
So far about 80% of our funds have made estimates and there are no significant year-end distributions to report. All the funds appear to be making distributions of less than 2% of the fund price ($200 on a $10,000 investment) and most of that will be at low-tax long-term capital gains rates. Given the status of tax rates going forward, realizing long term gains at low rates is not a bad idea anyway. All other things being equal, this means you will be selling the fund at a lower price in the future (fund prices fall to reflect the distribution) which could mean paying lower taxes if rates are higher on gains at that time. Of course, check with your tax professional for specific advice.
The below table shows the funds we own that are known to be paying distributions this year, but keep in mind these estimates can change (that’s why they’re called estimates)..We are still waiting on reports from SATMX and HOVLX and will note the estimates for those funds when we get them.
In general you can ignore ETFs when it comes to year-end tax distributions except in some strange cases (notably with inverse funds that use leverage). Our investing style tends to favor funds that will not be paying big year-end dividends as we focus on out of favor funds with little hot money. The record date is the date on which, if you own the fund, you’ll own the taxable year-end distribution.
In November, our Conservative portfolio was down -1.12% while our Aggressive portfolio fell -0.14%. The benchmark Vanguard 500 (VFINX) fund was unchanged for the month while Vanguard Total Bond Index (VBMFX) was down -0.57%. Foreign stocks as measured by the iShares MSCI EAFE Index ETF (EFA) were fell -4.82% in November.
Greater exposure to bonds and foreign stocks with larger stakes in safer stock sectors and value oriented stocks hurt returns of the Conservative Portfolio relative to the S&P 500, while the Aggressive Portfolio benefited more from riskier smaller cap stocks doing well. TheConservative Portfolio is a bit more diversified that theAggressive Portfolio, which is notable because it is possible the types of funds investors add to diversify and to lower risk may underperform less diversified, US stock heavy portfolios over the next few years.
The best performing stock fund categories last month were energy, up 4.8%, small growth, up 4.1%, precious metals, up 4.0%, and Japan, up 3.5% (in stark contrast to the drop in other foreign markets). The worst performing stock categories were European funds, down -5.6%, foreign down about 4% (with value-oriented funds doing worse than growth funds), Asian funds down 2.8%, and telecom funds down 2.7%.
The US dollar was strong in November, despite fears that recent Federal Reserve actions to create more money will cause inflation and pummel the dollar. The rising dollar helped sink foreign funds – the place most investors have been putting their money lately (as we noted a few weeks ago). Apparently the troubles in Europe didn’t go away as counties like Greece, Ireland, and Spain are back in regular circulation in the financial press.
The only real scare in the U.S. was in the municipal bond market. Late in November prices plunged on many muni bond funds, making them among the worst performers for the month, down in the 3 to 4% range (though many of these funds fell more than this amount in just a few days). Unlike the last crash in muni bonds, which was much more severe, we aren’t swooping in to pick these ‘bargains’ up just yet. Most of this municipal bond mini crash was related to longer term interest rates moving up, and many muni bond funds have longer durations than taxable bond funds. Long term government bond funds fell nearly 2% in November, explaining much of the decline in munis. Frankly municipal bonds have become a little too popular with investors over the last year as a place to find great deals. We’re more likely to move into longer term federal government bonds if rates keep heading up.
As for our specific holdings:
PowerShares DB US Dollar Index (UUP) rose 5.05% in November, better than the an S&P 500 index fund by 5.1%.
Our long/short fund PowerShares DB Commodity Dble (DEE) gained 1.53% last month, better than the S&P 500 index fund by 1.5%. Commodities finally took a small tumble on worries about global growth.
Mortgage Bond focused Doubleline Total Return Bond (DLTNX) increased 0.20% in November, better than the bond market index fund by 0.8%.
Our Large Cap Growth fund PRIMECAP Odyssey Stock (POSKX) increased 0.52% for the month, 0.5% ahead of the S&P 500 index fund
Vanguard Short-Term Bond ETF (BSV) slipped -0.40% still better than the bond market index fund by 0.2% because interest rates went up hurting longer term bond funds more.
Vanguard European ETF (VGK) sank -7.81% in November, worse than the an S&P 500 index fund by -7.8%.
Our international diversified fund Scout International Discovery (UMBDX) fell -3.30% last month, worse than the an S&P 500 index fund by -3.3% (though better than the foreign stock index).
UMB Scout Worldwide (UMBWX) dropped -3.09% in November, worse than the an S&P 500 index fund by -3.1% (but again better than many foreign funds).
Health Care Select SPDR (XLV) fell -2.89% in November, 2.9% worse that the S&P 500 Index fund.
November 2010 Performance Review
Before we get to our regular monthly performance review, we want to update you on the year-end capital gains distribution estimates for our portfolio funds.
As longer term followers of our portfolios know, we review the year-end tax distribution estimates for our funds around this time to aid in any year-end tax planning. In the case of large year-end distribution, it can make sense to hold off buying a fund until the distribution is paid, particularly with high tax rate short term capital gains. Sometimes it can make sense to sell before the distribution and buy a different fund.
A good place to start in this somewhat complicated issue is to read what we have written in the past on year-end distributions. This article has links to more of our articles about year-end taxes. Keep in mind that dodging year-end tax distributions doesn’t matter with IRA accounts.
So far about 80% of our funds have made estimates and there are no significant year-end distributions to report. All the funds appear to be making distributions of less than 2% of the fund price ($200 on a $10,000 investment) and most of that will be at low-tax long-term capital gains rates. Given the status of tax rates going forward, realizing long term gains at low rates is not a bad idea anyway. All other things being equal, this means you will be selling the fund at a lower price in the future (fund prices fall to reflect the distribution) which could mean paying lower taxes if rates are higher on gains at that time. Of course, check with your tax professional for specific advice.
The below table shows the funds we own that are known to be paying distributions this year, but keep in mind these estimates can change (that’s why they’re called estimates)..We are still waiting on reports from SATMX and HOVLX and will note the estimates for those funds when we get them.
In general you can ignore ETFs when it comes to year-end tax distributions except in some strange cases (notably with inverse funds that use leverage). Our investing style tends to favor funds that will not be paying big year-end dividends as we focus on out of favor funds with little hot money. The record date is the date on which, if you own the fund, you’ll own the taxable year-end distribution.
In November, our Conservative portfolio was down -1.12% while our Aggressive portfolio fell -0.14%. The benchmark Vanguard 500 (VFINX) fund was unchanged for the month while Vanguard Total Bond Index (VBMFX) was down -0.57%. Foreign stocks as measured by the iShares MSCI EAFE Index ETF (EFA) were fell -4.82% in November.
Greater exposure to bonds and foreign stocks with larger stakes in safer stock sectors and value oriented stocks hurt returns of the Conservative Portfolio relative to the S&P 500, while the Aggressive Portfolio benefited more from riskier smaller cap stocks doing well. The Conservative Portfolio is a bit more diversified that the Aggressive Portfolio, which is notable because it is possible the types of funds investors add to diversify and to lower risk may underperform less diversified, US stock heavy portfolios over the next few years.
The best performing stock fund categories last month were energy, up 4.8%, small growth, up 4.1%, precious metals, up 4.0%, and Japan, up 3.5% (in stark contrast to the drop in other foreign markets). The worst performing stock categories were European funds, down -5.6%, foreign down about 4% (with value-oriented funds doing worse than growth funds), Asian funds down 2.8%, and telecom funds down 2.7%.
The US dollar was strong in November, despite fears that recent Federal Reserve actions to create more money will cause inflation and pummel the dollar. The rising dollar helped sink foreign funds – the place most investors have been putting their money lately (as we noted a few weeks ago). Apparently the troubles in Europe didn’t go away as counties like Greece, Ireland, and Spain are back in regular circulation in the financial press.
The only real scare in the U.S. was in the municipal bond market. Late in November prices plunged on many muni bond funds, making them among the worst performers for the month, down in the 3 to 4% range (though many of these funds fell more than this amount in just a few days). Unlike the last crash in muni bonds, which was much more severe, we aren’t swooping in to pick these ‘bargains’ up just yet. Most of this municipal bond mini crash was related to longer term interest rates moving up, and many muni bond funds have longer durations than taxable bond funds. Long term government bond funds fell nearly 2% in November, explaining much of the decline in munis. Frankly municipal bonds have become a little too popular with investors over the last year as a place to find great deals. We’re more likely to move into longer term federal government bonds if rates keep heading up.
As for our specific holdings: