The conservative portfolio was up 1.14% in October. While the bond funds did well on generally lower interest rates, the real action was in stocks, particularly larger-caps, internationals, and telecoms. SSgA International Growth Opportunities (SINGX) was up 3.48%, Vanguard U.S. Value up 2.61%, and Vanguard Telecom Services ETF (VOX) was up 3.77%.
We are making trades in the Conservative portfolio, effective November 30th, 2006.
Because of the relative complexity of these trades we have created an easy-to-use <a href="http://maxadvisor.com/newsletter/worksheets/conservativetrades1106.pdf">trade worksheet</a>. Subscribers who invest in the Conservative Portfolio can download, print out, and fill in the worksheet to help them determine how much of their holdings need to be bought and sold to match our post-trade portfolios and to rebalance. You can download the Conservative Portfolio Worksheet by <a href="http://maxadvisor.com/newsletter/worksheets/conservativetrades1106.pdf">clicking here</a>. Please note that the document is an Adobe PDF. If you need to download Adobe Acrobat reader, you can find it by <a href="http://www.adobe.com/products/acrobat/readstep2.html">clicking here</a>.
<b>Sales</b><ul>
<li><b>Sell entire</b> sector: telecom allocation: Vanguard Telecom Services ETF (VOX) from 5% to 0%</ul>
<b>Buys:</b><ul>
<li><b>Buy new</b> large-cap growth allocation: Janus Research (JARFX) to 5%</ul>
<b>Why:</b> Sector funds only belong in low-risk portfolios when they are blatantly out of favor and represent good value compared to the rest of the market (adjusting for growth potential). Even then, higher-risk, sub-sector funds (like funds and ETFs that invest in biotech and internet) almost never belong in a low-risk portfolio.
Telecom stocks – which in general are lower-risk and higher-dividend than many other types of stocks – are up about 20% since we added the Vanguard Telecom Services ETF (VOX) to this portfolio eight months ago. We can no longer comfortably keep such a sector fund in a low-risk portfolio.
As we noted when we bought this fund a few months ago, “Similar to why we once had a utility sector fund in this and other portfolios, we are now adding a telecom fund. This category has a favorable rating in our favorite funds report because it is one of the most out of favor with fund investors. As partial proof, this fund has less than $50 million in assets, compared to close to two billion in top utility ETFs, which are now in favor after a few years of strong performance. Unlike other categories we find attractive, this fund is relatively safe, sports a high dividend for income, and is a reasonable choice for a small allocation in a safer portfolio.”
This fund could go up more, as telecom stocks are still relatively undervalued compared to other areas. Recession fears and dividend appeal are still a factor, and more importantly, fund investors have yet to swamp these funds with gobs of new money. The safe returns in Vanguard Telecom Services, however, have been made. If gains continue we will likely sell this holding from our higher-risk portfolios as well.
The days of smaller-cap stocks killing larger-cap stocks are over, and if you’re seriously looking at larger-cap growth stocks you should consider Janus. Although we criticized this company and their funds in 2000, we’ve been open to the company’s turnaround and have been recommending some of their funds in our favorite funds report (and in articles on MAXfunds.com) over the last few years. Other fund analysts who loved the family at the top turned negative in 2002 amidst the scandals, and have not looked back. Hell hath no fury like a fund analyst scorned. Janus Research (JARFX) is a new fund (launched 2/25/05) and is still very small (around $100 million). Compare this to the days when a new Janus fund would bring in well over a billion before it was even fully open and trading.
<b>Redemption fee information:</b>
There are no short-term redemption fees associated with current trades in the Conservative Portfolio. Please check with your broker if you do not buy directly from the funds to see if you are beyond the time period of any broker-imposed, short-term penalty fees before selling.
The aggressive growth portfolio gained 2.46% in October – our strongest performing portfolio. While the bond funds did well on generally lower interest rates, the real action was in stocks, particularly larger-cap and telecoms.
Artisan International Small Cap (ARTJX) jumped 4.83%, Bridgeway Blue Chip 35 (BRLIX) posted a 3.37% gain, and Vanguard Telecom Services ETF (VOX) was up 3.77%. The top spot went to Technology SPDR (XLK), up a solid 4.04% for the month. The only stock fund laggard was Healthcare Select SPDR (XLV), up a slim 0.48%.
We are making trades in the aggressive growth portfolio, effective November 30th, 2006.
Because of the relative complexity of these trades we have created an easy-to-use <a href="http://maxadvisor.com/newsletter/worksheets/aggressivegrowthtrades1106.pdf">trade worksheet</a>. Subscribers who invest in the Aggressive Growth Portfolio can download, print out, and fill in the worksheet to help them determine how much of their holdings need to be bought and sold to match our post-trade portfolios and to rebalance. You can download the Aggressive Growth Portfolio Worksheet by <a href="http://maxadvisor.com/newsletter/worksheets/aggressivegrowthtrades1106.pdf">clicking here</a>. Please note that the document is an Adobe PDF. If you need to download Adobe Acrobat reader, you can find it by <a href="http://www.adobe.com/products/acrobat/readstep2.html">clicking here</a>.
<b>Sales</b><ul>
<li>Sell entire international small-cap allocation: Artisan International Small Cap (ARTJX) from 5% to 0%
<li>Sell entire blend allocation: FMI Common Stock (FMIMX) from 15% to 0%</ul>
<b>Buys:</b><ul>
<li>Buy new sector: healthcare: SPDR Biotech (XBI) to 5%
<li>Buy new large-cap growth allocation: Janus Research (JARFX) to 10%
<li>Increase short-term bond allocation: Vanguard Short Term Corp (VFSTX) from 15% to 20%</ul>
<b>Why:</b>
Although we’ve been cutting back on Artisan International Small Cap (ARTJX) from our original 20% stake in 2002, the time has come to divest ourselves of the last 5% position. As of the end of October this stake is up 194.29% – a big driver of our market-beating returns in a portfolio that has had some bonds exposure the entire way (and lower volatility than the S&P500). (Note that this trade applies to the alternate we have in this category, Forward International Small Companies [PISRX - up an equally impressive amount].)
FMI Common Stock (FMIMX) has beaten the S&P500 over the trailing 1 year, 3 years, 5 years, 10 years, and 15 years. We’re up around 60% since early 2002 (this fund has been in our portfolio since the beginning), more than any major market index (and on par with the smaller-cap indices). With a five-year average annual return of around 14%, shareholders in this fund barely knew there was a crash in the market.
Back patting aside, much of FMI Common's impressive gains are because smaller-cap, value-oriented stocks have been all the rage for years now (though this fund has been in the top tier of its category since we’ve owned it). The fund closed on April 15th 2004. Since then we’ve been recommending Fairholme [FAIRX] as an alternate. Fairholme has actually been beating FMI Common Stock by a decent margin over the last few years – and is a slightly cheaper fund to boot.
We think aggressive investors should be light on valueoriented funds going forward, and we can do better than either of these funds. We’re more concerned about Fairholme – the only fund new subscribers can buy – due to the large inflows of cash.
The days of smaller-cap stocks killing larger-cap stocks are over, and if you’re seriously looking at larger-cap growth stocks you should consider Janus. Although we criticized this company and their funds in 2000, we’ve been open to the company’s turnaround and have been recommending some of their funds in our favorite funds report (and in articles on MAXfunds.com) over the last few years. Other fund analysts who loved the family at the top turned negative in 2002 amidst the scandals, and have not looked back. Hell hath no fury like a fund analyst scorned. Janus Research (JARFX) is a new fund (launched 2/25/05) and still very small (around $100 million). Compare this to the days when a new Janus fund would bring in well over a billion before it was even fully open and trading.
We're adding a biotech fund to the portfolio (believe it or not)! As longer-term readers of MAXfunds.com know, we have an illustrious history of badmouthing biotech funds. We kicked into high gear with our mid-2001 article titled, “Biohazard – Why I hate Biotech Funds”. This article pointed out the ridiculous valuations on stocks in the portfolios of biotech funds. To get an idea how crummy biotech stocks have done since we wrote that article, the stocks we highlighted in it are STILL down (some 80%). There was a quick plunge of 50% and more in most biotech funds in 2001-2002. We probably should have chosen a biotech fund for the model portfolios at this time, but there were other opportunities in the market then as well. We did choose some “life sciences” healthcare funds (which are usually biotech stocks mixed with less risky healthcare names) in our favorites list (Exeter Life Sciences EXLSX, now called Manning & Napier Life Sciences).
Biotech stocks rebounded, and by early 2004 they were overpriced again relative to the market. We wrote another negative article on the MAXfunds site called
“Why You Should Avoid Biotech Funds”. Since that article, the biotech stock we noted as being overpriced has fallen (while the entire stock market is up) and the biotech ETFs have underperformed the S&P500 by a wide margin (though some actively managed funds have done a little better – something they have been doing five of the last six years).
Why now? While biotech stocks are far from bargains (they almost never are), all other fund categories are much hotter and more attractive to fund investors. There is still money in biotech funds, but not much historically speaking and compared to other fund categories. The largest fund in the category has under $2 billion – and that’s an ETF. In a world with $10 trillion in mutual funds, $2 billion is chump change. Try to find a biotech fund that isn’t sitting on huge losses from when investors bought high and sold low – usually a good indication of contrarian opportunity.
Biotech now offers a chance for higher-risk investors to catch the next wave of speculative money to roll in. We can’t put this new ETF (which is the lowest cost biotech fund – including other ETFs – in the business) in our lower-risk portfolios because…it’s still a biotech fund. 30% drops, even from these levels, are par for the course. We’re going with a smallish allocation. We’d want to see a real biotech wreck – like the kind that was last seen in the early 1990s – to consider the big 20% allocations we do when we’re very optimistic about a category.
Our shift to short-term bonds reflects our feeling that owning longer-term bonds when the ten-year government bond yields around 4.5% isn’t much of an idea. There is a risk that we could see a recession next year and shorter-term interest rates will fall.
This is a poor scenario if you are in shorter-term bonds as, while you don’t lose money or see the fund price drop, you haven’t locked in higher rates and will be missing returns. You would have experienced such a drop in income had you owned shorter-term bonds in 2000. By 2003 you’re earning less than 2% and those in longer-term bonds saw big gains in bond prices. We think this risk is slim because if we get another recession the federal reserve is apt to lower rates enough to cause inflation fears – which will hurt longer-term bonds as we go back to a more normal upward-sloping yield curve. They almost have no choice but to cause inflation in order to save the housing market if we get a recession.
<b>Redemption fee information:</b> If you sell Artisan International Small Cap (ARTJX) within 90 days of purchase, you will get hit with a 2% redemption fee. If you sell Forward International Small Companies (PISRX) within 180 days of purchase you will get hit with a 2% redemption fee. While we’ve owned this allocation for over four years, if you are a new investor, wait until you can sell the fund for no redemption fee.
There is no redemption fee to sell FMI Common Stock (FMIMX), but there is a 2% redemption fee for sales made within 60 days of purchase for Fairholme (FAIRX). If you purchased Fairholme recently please wait until the redemption fee period has elapsed.
Please check with your broker if you do not buy directly from the funds to see if you are beyond the time period of any broker-imposed, short-term penalty fees before selling.
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The conservative portfolio was up 1.14% in October. While the bond funds did well on generally lower interest rates, the real action was in stocks, particularly larger-caps, internationals, and telecoms. SSgA International Growth Opportunities (SINGX) was up 3.48%, Vanguard U.S. Value up 2.61%, and Vanguard Telecom Services ETF (VOX) was up 3.77%.
We are making trades in the Conservative portfolio, effective November 30th, 2006.
Because of the relative complexity of these trades we have created an easy-to-use <a href="http://maxadvisor.com/newsletter/worksheets/conservativetrades1106.pdf">trade worksheet</a>. Subscribers who invest in the Conservative Portfolio can download, print out, and fill in the worksheet to help them determine how much of their holdings need to be bought and sold to match our post-trade portfolios and to rebalance. You can download the Conservative Portfolio Worksheet by <a href="http://maxadvisor.com/newsletter/worksheets/conservativetrades1106.pdf">clicking here</a>. Please note that the document is an Adobe PDF. If you need to download Adobe Acrobat reader, you can find it by <a href="http://www.adobe.com/products/acrobat/readstep2.html">clicking here</a>.
<b>Sales</b><ul>
<li><b>Sell entire</b> sector: telecom allocation: Vanguard Telecom Services ETF (VOX) from 5% to 0%</ul>
<b>Buys:</b><ul>
<li><b>Buy new</b> large-cap growth allocation: Janus Research (JARFX) to 5%</ul>
<b>Why:</b> Sector funds only belong in low-risk portfolios when they are blatantly out of favor and represent good value compared to the rest of the market (adjusting for growth potential). Even then, higher-risk, sub-sector funds (like funds and ETFs that invest in biotech and internet) almost never belong in a low-risk portfolio.
Telecom stocks – which in general are lower-risk and higher-dividend than many other types of stocks – are up about 20% since we added the Vanguard Telecom Services ETF (VOX) to this portfolio eight months ago. We can no longer comfortably keep such a sector fund in a low-risk portfolio.
As we noted when we bought this fund a few months ago, “Similar to why we once had a utility sector fund in this and other portfolios, we are now adding a telecom fund. This category has a favorable rating in our favorite funds report because it is one of the most out of favor with fund investors. As partial proof, this fund has less than $50 million in assets, compared to close to two billion in top utility ETFs, which are now in favor after a few years of strong performance. Unlike other categories we find attractive, this fund is relatively safe, sports a high dividend for income, and is a reasonable choice for a small allocation in a safer portfolio.”
This fund could go up more, as telecom stocks are still relatively undervalued compared to other areas. Recession fears and dividend appeal are still a factor, and more importantly, fund investors have yet to swamp these funds with gobs of new money. The safe returns in Vanguard Telecom Services, however, have been made. If gains continue we will likely sell this holding from our higher-risk portfolios as well.
The days of smaller-cap stocks killing larger-cap stocks are over, and if you’re seriously looking at larger-cap growth stocks you should consider Janus. Although we criticized this company and their funds in 2000, we’ve been open to the company’s turnaround and have been recommending some of their funds in our favorite funds report (and in articles on MAXfunds.com) over the last few years. Other fund analysts who loved the family at the top turned negative in 2002 amidst the scandals, and have not looked back. Hell hath no fury like a fund analyst scorned. Janus Research (JARFX) is a new fund (launched 2/25/05) and is still very small (around $100 million). Compare this to the days when a new Janus fund would bring in well over a billion before it was even fully open and trading.
<b>Redemption fee information:</b>
There are no short-term redemption fees associated with current trades in the Conservative Portfolio. Please check with your broker if you do not buy directly from the funds to see if you are beyond the time period of any broker-imposed, short-term penalty fees before selling.
The aggressive growth portfolio gained 2.46% in October – our strongest performing portfolio. While the bond funds did well on generally lower interest rates, the real action was in stocks, particularly larger-cap and telecoms.
Artisan International Small Cap (ARTJX) jumped 4.83%, Bridgeway Blue Chip 35 (BRLIX) posted a 3.37% gain, and Vanguard Telecom Services ETF (VOX) was up 3.77%. The top spot went to Technology SPDR (XLK), up a solid 4.04% for the month. The only stock fund laggard was Healthcare Select SPDR (XLV), up a slim 0.48%.
We are making trades in the aggressive growth portfolio, effective November 30th, 2006.
Because of the relative complexity of these trades we have created an easy-to-use <a href="http://maxadvisor.com/newsletter/worksheets/aggressivegrowthtrades1106.pdf">trade worksheet</a>. Subscribers who invest in the Aggressive Growth Portfolio can download, print out, and fill in the worksheet to help them determine how much of their holdings need to be bought and sold to match our post-trade portfolios and to rebalance. You can download the Aggressive Growth Portfolio Worksheet by <a href="http://maxadvisor.com/newsletter/worksheets/aggressivegrowthtrades1106.pdf">clicking here</a>. Please note that the document is an Adobe PDF. If you need to download Adobe Acrobat reader, you can find it by <a href="http://www.adobe.com/products/acrobat/readstep2.html">clicking here</a>.
<b>Sales</b><ul>
<li>Sell entire international small-cap allocation: Artisan International Small Cap (ARTJX) from 5% to 0%
<li>Sell entire blend allocation: FMI Common Stock (FMIMX) from 15% to 0%</ul>
<b>Buys:</b><ul>
<li>Buy new sector: healthcare: SPDR Biotech (XBI) to 5%
<li>Buy new large-cap growth allocation: Janus Research (JARFX) to 10%
<li>Increase short-term bond allocation: Vanguard Short Term Corp (VFSTX) from 15% to 20%</ul>
<b>Why:</b>
Although we’ve been cutting back on Artisan International Small Cap (ARTJX) from our original 20% stake in 2002, the time has come to divest ourselves of the last 5% position. As of the end of October this stake is up 194.29% – a big driver of our market-beating returns in a portfolio that has had some bonds exposure the entire way (and lower volatility than the S&P500). (Note that this trade applies to the alternate we have in this category, Forward International Small Companies [PISRX - up an equally impressive amount].)
FMI Common Stock (FMIMX) has beaten the S&P500 over the trailing 1 year, 3 years, 5 years, 10 years, and 15 years. We’re up around 60% since early 2002 (this fund has been in our portfolio since the beginning), more than any major market index (and on par with the smaller-cap indices). With a five-year average annual return of around 14%, shareholders in this fund barely knew there was a crash in the market.
Back patting aside, much of FMI Common's impressive gains are because smaller-cap, value-oriented stocks have been all the rage for years now (though this fund has been in the top tier of its category since we’ve owned it). The fund closed on April 15th 2004. Since then we’ve been recommending Fairholme [FAIRX] as an alternate. Fairholme has actually been beating FMI Common Stock by a decent margin over the last few years – and is a slightly cheaper fund to boot.
We think aggressive investors should be light on valueoriented funds going forward, and we can do better than either of these funds. We’re more concerned about Fairholme – the only fund new subscribers can buy – due to the large inflows of cash.
The days of smaller-cap stocks killing larger-cap stocks are over, and if you’re seriously looking at larger-cap growth stocks you should consider Janus. Although we criticized this company and their funds in 2000, we’ve been open to the company’s turnaround and have been recommending some of their funds in our favorite funds report (and in articles on MAXfunds.com) over the last few years. Other fund analysts who loved the family at the top turned negative in 2002 amidst the scandals, and have not looked back. Hell hath no fury like a fund analyst scorned. Janus Research (JARFX) is a new fund (launched 2/25/05) and still very small (around $100 million). Compare this to the days when a new Janus fund would bring in well over a billion before it was even fully open and trading.
We're adding a biotech fund to the portfolio (believe it or not)! As longer-term readers of MAXfunds.com know, we have an illustrious history of badmouthing biotech funds. We kicked into high gear with our mid-2001 article titled, “Biohazard – Why I hate Biotech Funds”. This article pointed out the ridiculous valuations on stocks in the portfolios of biotech funds. To get an idea how crummy biotech stocks have done since we wrote that article, the stocks we highlighted in it are STILL down (some 80%). There was a quick plunge of 50% and more in most biotech funds in 2001-2002. We probably should have chosen a biotech fund for the model portfolios at this time, but there were other opportunities in the market then as well. We did choose some “life sciences” healthcare funds (which are usually biotech stocks mixed with less risky healthcare names) in our favorites list (Exeter Life Sciences EXLSX, now called Manning & Napier Life Sciences).
Biotech stocks rebounded, and by early 2004 they were overpriced again relative to the market. We wrote another negative article on the MAXfunds site called
“Why You Should Avoid Biotech Funds”. Since that article, the biotech stock we noted as being overpriced has fallen (while the entire stock market is up) and the biotech ETFs have underperformed the S&P500 by a wide margin (though some actively managed funds have done a little better – something they have been doing five of the last six years).
Why now? While biotech stocks are far from bargains (they almost never are), all other fund categories are much hotter and more attractive to fund investors. There is still money in biotech funds, but not much historically speaking and compared to other fund categories. The largest fund in the category has under $2 billion – and that’s an ETF. In a world with $10 trillion in mutual funds, $2 billion is chump change. Try to find a biotech fund that isn’t sitting on huge losses from when investors bought high and sold low – usually a good indication of contrarian opportunity.
Biotech now offers a chance for higher-risk investors to catch the next wave of speculative money to roll in. We can’t put this new ETF (which is the lowest cost biotech fund – including other ETFs – in the business) in our lower-risk portfolios because…it’s still a biotech fund. 30% drops, even from these levels, are par for the course. We’re going with a smallish allocation. We’d want to see a real biotech wreck – like the kind that was last seen in the early 1990s – to consider the big 20% allocations we do when we’re very optimistic about a category.
Our shift to short-term bonds reflects our feeling that owning longer-term bonds when the ten-year government bond yields around 4.5% isn’t much of an idea. There is a risk that we could see a recession next year and shorter-term interest rates will fall.
This is a poor scenario if you are in shorter-term bonds as, while you don’t lose money or see the fund price drop, you haven’t locked in higher rates and will be missing returns. You would have experienced such a drop in income had you owned shorter-term bonds in 2000. By 2003 you’re earning less than 2% and those in longer-term bonds saw big gains in bond prices. We think this risk is slim because if we get another recession the federal reserve is apt to lower rates enough to cause inflation fears – which will hurt longer-term bonds as we go back to a more normal upward-sloping yield curve. They almost have no choice but to cause inflation in order to save the housing market if we get a recession.
<b>Redemption fee information:</b> If you sell Artisan International Small Cap (ARTJX) within 90 days of purchase, you will get hit with a 2% redemption fee. If you sell Forward International Small Companies (PISRX) within 180 days of purchase you will get hit with a 2% redemption fee. While we’ve owned this allocation for over four years, if you are a new investor, wait until you can sell the fund for no redemption fee.
There is no redemption fee to sell FMI Common Stock (FMIMX), but there is a 2% redemption fee for sales made within 60 days of purchase for Fairholme (FAIRX). If you purchased Fairholme recently please wait until the redemption fee period has elapsed.
Please check with your broker if you do not buy directly from the funds to see if you are beyond the time period of any broker-imposed, short-term penalty fees before selling.