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December 2005 performance review

January 18, 2006

The Conservative portfolio put in a decent 4.14% showing in '05 – about half of 2004’s 9.35% return, but then the stock market returned more than twice as much in 2004 as well. 

Highlights include the 14.31% return in American Century Utility Investor – a stake we may have cut back on a bit too early when we reduced our holding down to 5% at the end of April (but are close to cutting to zero regardless given the 85% return since added to this portfolio and influx of new money to utilities funds in general). Bridgeway Balanced managed to beat stocks and bonds with a 7% return, presumably from success in their option writing strategy. We saw a respectable 4.24% return for Vanguard Dividend Growth as well. 

The notable wipeout was in American Century International Bond – down a not-so-surprising 8.23% for the year. The story here is the U.S. dollar came roaring back in 2005, a move we anticipated when we cut our stake down to 5% at the end of April from 10%. We intend to move back into a larger allocation on more international weakness.

Our Aggressive Growth portfolio was up 7.94% in 2005 – not bad and better than the S&P500. Many funds here were strong, but the portfolio's overall return was held back by big stakes in lackluster funds. 

The real excitement was in Japan in 2005 – particularly late in the year. Japan has been one of our big favorites (though we’ve been cutting it down lately) so we were happy to see T. Rowe Price Japan score a 40% return in 2005 – one of the top funds of the year. 

Emerging markets pulled another great year. SSgA Emerging Markets was up 37.29% in '05 – and has gained a whopping 172.66% since we added the fund to this portfolio in March 2003.

Up next was Artisan International Small Cap with a 25.73% return. What’s really stunning is that this fund is now up 144% since we added it to the portfolio. The small cap rally abroad simply has to be about done.

FMI Common Stock had a nice showing with a 9.46% return. Mid cap stocks were strong lately as the great small cap rally began to migrate up the stock ladder.

This portfolio should have scored a solid double digit return, but had small stakes in the hottest funds and large stakes in the weaker portfolios like Bridgeway Blue Chip 34 – with a 35% stake and a 0.06% return.