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October 2014 Performance Review

November 4, 2014

And poof it was gone. So much for our stock market correction, which abruptly reversed course a mere month after its start and before it became a 10% "correction" (at least for U.S. stocks). The recovery was slightly faster than the drop, and as of now has taken the stock market a tad higher than the previous peak of September 18th.

We can't complain, other than hoping for a little more of a buying opportunity. Our portfolios were boosted by bonds and short positions on commodities that performed well even as the stock market rebounded (typically we'd expect to only make money shorting commodities as the economy and stock market sink). But for some time now so-called "real" investments are preforming poorly, and not keeping up with their modest benchmark, inflation, which can't seem to get back up over 2%. Anyhoo, we had a pretty good rebound relative to our fall especially considering the rough shape of foreign markets relative to the U.S.

Our Conservative portfolio was gained 1.79% in October. Our Aggressive portfolio was up 2.90%. Benchmark Vanguard funds for October 2014: Vanguard 500 Index Fund (VFINX) up 2.42%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.94%; International Index Vanguard Developed Markets Index Fund (VTMGX) down 0.47%; Vanguard Emerging Markets Stock Index (VEIEX) up 2.31%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 1.57%.

Investors are just starting to notice that investment funds packaged with a goal of "real" returns are delivering negative "real" (inflation adjusted) returns over the last three years — even the good, cheap ones heavy in TIPs. Most are down 1-year, 3-year, 5-year, and gulp, even 10-year which includes the boom years in commodities. And let's not forget gold funds, which were down almost 20% last month alone if they invested in gold mining stocks. For some reason funds in these areas still have billions in assets — one commodity fund is down 85% from its peak and still has over a billion. These irrational commodity investors are waiting for a miracle (in the form of hyperinflation or a collapsing dollar) that just ain't coming.

U.S. stocks led the global market, with particular strength in small-cap stocks, which were rebounding from big hits. Larg-cap stocks are up around 8% for the year while small-cap stocks are flat, even with the 5%+ rebound in October.

India and China were strong, but the Russia and Brazil side of our iShares MSCI BRIC Index (BKF) stake keep the returns of the fund to just 2.26%. Utility stocks had a big month, sending American Century Utility Income (BULIX) up over 7% for the month and now +17% for the year.

Long term bonds were strong, pushing Vanguard Long-Term Bond Index ETF (BLV) up 1.92%, but the real action was in shorting oil, which was in a near free fall. PowerShares DB Crude Oil Dble Short (DTO) gained just over 20% in October. The real danger globally remains deflation, and any investment typically sold as protection from inflation is falling fast. At the top of the list is oil.

The only real losers included two from Wasatch funds: Wasatch Frontier Emerg Sm Count (WAFMX) — which closed to some new investors in 2014 — was down 1.81%, while Wasatch Long/Short (FMLSX) fell almost 1%. European stocks in general were weak, sending Vanguard European ETF (VGK) down 1.42%.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)21.49%
American Century Utility Income (BULIX)7.16%
Gold Short (DZZ)6.26%
Artisan Global Equity (ARTHX)4.51%
Vanguard MegaCap Growth (MGK)2.84%
PRIMECAP Odyssey Growth (POGRX)2.71%
[Benchmark] Vanguard 500 Index (VFINX)2.42%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)2.31%
iShares MSCI BRIC Index (BKF)2.26%
Satuit Capital Micro Cap (SATMX)2.25%
Vanguard Telecom Services ETF (VOX)2.09%
Vanguard Europe Pacific ETF (VEA)0.18%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-0.47%
Wasatch Long/Short (FMLSX)-0.98%
Vanguard European ETF (VGK)-1.42%
Wasatch Frontier Emerg Sm Count (WAFMX)-1.81%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)4.19%
Vanguard Long-Term Bond Index ETF (BLV)1.92%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.94%
Vanguard Mortgage-Backed Securities (VMBS)0.82%
DoubleLine Floating Rate N (DLFRX)0.55%

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