An early December slide threatened to push the market into the red for 2011, but a late month rebound gave stocks a 1.97% return for the year (with dividends). For 2011 there was plenty of volatility for what ultimately turned out to be a near-flat year.
For 2011 our Conservative Portfolio was up a respectable 3.5% while our Aggressive Portfolio’s winners couldn’t overtake the drag of foreign markets and financials, giving us a 0.41% loss for the year. A drop of less than one-half of one percent may compare favorably to most global portfolios (the Morningstar Global Allocation category was down about 4% for 2011), but we consider it a disappointing result.
It was anything but flat for foreign stocks in 2011, with a -12.51% return for the year. This 14.48% gap is the biggest between the EAFE index and the S&P 500 this decade. Money put in a foreign stock index at the end of 2007 is now down 28.6% compared to only 6.6% for the S&P 500, and this was a time most fund investors favored foreign stocks because foreign stocks whipped US stocks in 2002-2007. If we get another year even half as bad for foreign stocks relative to US stocks the entire excess return of foreign stocks over US stocks in the 2000 decade will be gone. In fact our own increasing stakes in foreign stocks this year is largely why our Aggressive Portfolio missed the S&P 500 by a small margin in 2011 (we were a little early returning more to this now underperforming area).
Emerging markets were even harder hit, down 18.78% for the year after a steep 3.32% drop in December. Now emerging markets are also underperforming the S&P 500 since the end of 2007, but because of simply massive returns in the early part of the decade are still way ahead of larger cap US and foreign stocks for the last ten years.
Bonds were up 1.09% in December and once again delivered a return higher than expected as rates continued ever downward. 2011’s total return was good for 7.57% - the best debt performance since 2002. Considering how much lower yields were to start 2011 we just saw perhaps the greatest return above and beyond the actual bond yield of the portfolio for the decade (in other words the actual interest payments were perhaps only a bit over 4% of this year’s 7.57% return, the rest was bond price appreciation). No wonder bonds are getting all the new money (and no wonder the next ten years of bond returns are going to be lackluster).
The best performing stock fund categories last month were real estate (up 4.40%), healthcare (up 2.00%), utilities (up 1.90%), large cap value (up 1.20%), and financials (up 1.00%). We were in three of these four best performing categories.
The worst performing were natural resources (down 4.90%), Asia (down 4.70%), and emerging markets (down 3.60%).
December’s Benchmark Beaters:
Our ultra-long duration government bond fund Vanguard Extended Duration Treasury (EDV) rose 5.42% in December, better than the bond market by 4.3%.
Long/Short fund PowerShares DB Crude Oil Double Short (DTO) climbed 3.01% last month, topping the S&P 500 by 2.0% as oil slid on economic and European fears.
Health Care Select SPDR (XLV) capped off a great year by jumping another 2.95%, better than the S&P 500 by 1.9%.
Vanguard Long-Term Bond Index ETF (BLV) climbed 2.41% in December, better than the bond market by 1.3%.
American Century Utility Income (BULIX) climbed 2.19% last month, better than the S&P 500 by 1.2% as investors scared of risk piled into bonds and safer stocks.
PowerShares DB US Dollar Index (UUP) climbed 1.86% as investors retreated to the safety of the US dollar in the face of euro fears.
December 2011 Performance Review
An early December slide threatened to push the market into the red for 2011, but a late month rebound gave stocks a 1.97% return for the year (with dividends). For 2011 there was plenty of volatility for what ultimately turned out to be a near-flat year.
Our Conservative Portfolio was up 0.92% last month while our Aggressive Portfolio was down 0.26%. The benchmark Vanguard 500 (VFINX) fund delivered a 1.02% return while Vanguard Total Bond Index (VBMFX) was up 1.09%. Foreign stocks, as measured by Vanguard Tax-Managed International (VTMGX), were down 2.33% for the month while emerging market stocks, as measured by Vanguard Emerging Markets Stock Index (VEIEX), were down 3.32%.
For 2011 our Conservative Portfolio was up a respectable 3.5% while our Aggressive Portfolio’s winners couldn’t overtake the drag of foreign markets and financials, giving us a 0.41% loss for the year. A drop of less than one-half of one percent may compare favorably to most global portfolios (the Morningstar Global Allocation category was down about 4% for 2011), but we consider it a disappointing result.
It was anything but flat for foreign stocks in 2011, with a -12.51% return for the year. This 14.48% gap is the biggest between the EAFE index and the S&P 500 this decade. Money put in a foreign stock index at the end of 2007 is now down 28.6% compared to only 6.6% for the S&P 500, and this was a time most fund investors favored foreign stocks because foreign stocks whipped US stocks in 2002-2007. If we get another year even half as bad for foreign stocks relative to US stocks the entire excess return of foreign stocks over US stocks in the 2000 decade will be gone. In fact our own increasing stakes in foreign stocks this year is largely why our Aggressive Portfolio missed the S&P 500 by a small margin in 2011 (we were a little early returning more to this now underperforming area).
Emerging markets were even harder hit, down 18.78% for the year after a steep 3.32% drop in December. Now emerging markets are also underperforming the S&P 500 since the end of 2007, but because of simply massive returns in the early part of the decade are still way ahead of larger cap US and foreign stocks for the last ten years.
Bonds were up 1.09% in December and once again delivered a return higher than expected as rates continued ever downward. 2011’s total return was good for 7.57% - the best debt performance since 2002. Considering how much lower yields were to start 2011 we just saw perhaps the greatest return above and beyond the actual bond yield of the portfolio for the decade (in other words the actual interest payments were perhaps only a bit over 4% of this year’s 7.57% return, the rest was bond price appreciation). No wonder bonds are getting all the new money (and no wonder the next ten years of bond returns are going to be lackluster).
The best performing stock fund categories last month were real estate (up 4.40%), healthcare (up 2.00%), utilities (up 1.90%), large cap value (up 1.20%), and financials (up 1.00%). We were in three of these four best performing categories.
The worst performing were natural resources (down 4.90%), Asia (down 4.70%), and emerging markets (down 3.60%).
December’s Benchmark Beaters:
Our ultra-long duration government bond fund Vanguard Extended Duration Treasury (EDV) rose 5.42% in December, better than the bond market by 4.3%.
Long/Short fund PowerShares DB Crude Oil Double Short (DTO) climbed 3.01% last month, topping the S&P 500 by 2.0% as oil slid on economic and European fears.
Health Care Select SPDR (XLV) capped off a great year by jumping another 2.95%, better than the S&P 500 by 1.9%.
Vanguard Long-Term Bond Index ETF (BLV) climbed 2.41% in December, better than the bond market by 1.3%.
Satuit Capital Micro Cap (SATMX) rose 2.22%, besting the S&P 500 by 1.2%.
American Century Utility Income (BULIX) climbed 2.19% last month, better than the S&P 500 by 1.2% as investors scared of risk piled into bonds and safer stocks.
PowerShares DB US Dollar Index (UUP) climbed 1.86% as investors retreated to the safety of the US dollar in the face of euro fears.
December’s Benchmark Laggers:
Scout International Discovery (UMBDX) fell 3.86% in December, worse than the S&P 500 by 4.9%.
Vanguard European ETF (VGK) dropped 2.35% last month, worse than the S&P 500 by 3.4%.
iShares MSCI Japan Index (EWJ) fell 2.27%, worse than the S&P 500 by 3.3%.
Vanguard Europe Pacific ETF (VEA) retreated 2.15% in December, worse than the S&P 500 by 3.2%.
Royce Financial Services Fund (RYFSX) slipped -0.93% in December, lagging the S&P 500 by -1.9%.