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February 2005 performance alert

March 18, 2005

 

There was nothing Conservative about adding 1.07% last month in a bad moth for bonds.  This portfolio did better than it should have.

We’re happy this portfolio’s performance. Only two of the funds were actually down for the month, Vanguard Short Term Corporate was down .21% - a decent indication of how this fund does when interest rates climb a bit. It would be difficult – if not impossible - to lose more than 10% in a year in this fund no matter what happens to the bond market.

Harbor Bond was down .34%, which means Bill Gross is running a bond portfolio not too far off from what we do with our other bond funds these days – short to intermediate term bonds, with some foreign issues as well.

The U.S. Dollar is skidding again, enough to offset the loss bonds took from rates climbing. American Century International Bond was up .62% for the month, a 57.8% gain since added to the portfolio. 

The conservative Bridgeway Balanced fund had a 1.44% return. Apparently this fund can make a few bucks even with option premiums at historic lows and when bonds are weak (which hurts fund income from option writing).

Junk bonds had another hot month; Vanguard High Yield Corporate was up 1.16%. If we didn’t already have our stake down to 5% in high yield we’d be cutting it down further – risk spreads, the extra return investors get from risky debt over safe debt – are at multi year lows. This in stark contrast to the multi year highs of such spreads when we got into junk bonds in our portfolios.

Vanguard Dividend Growth (VDIGX) was strong with a 2.69% gain, but not as strong as utilities which continue to rocket. American Century Utility Income scored over a 3% return for the month, up 67% since added to the portfolio. Buying out of favor pays. Let’s not forget Vanguard closed their utility fund before the 67% run in our utility fund pick for lack of investor interest.

Foreign stocks continued to outpace the U.S. market, and investors are eating it up – plowing billions into foreign funds (a worrying sign). Forward International Small Company was up 5.5% on top of last month’s 1.71% gain.

The Aggressive Growth portfolio rose 2.57% last month (our second best portfolio showing) ahead of all the major market indices. Only one of the funds was actually down for the month: Vanguard Short Term Corporate dropped .21% - a decent indication of how this fund does when interest rates climb a bit. It would be difficult – if not impossible - to lose more than 10% in a year in this fund no matter what happens to the bond market.

Foreign stocks continued to outpace the U.S. market, and investors are eating it up – plowing billions into foreign funds (a worrying sign). Artisan International Small Cap was up 3.93% on top of last month’s 1.37% gain.

Everything foreign was strong, notably emerging market socks. SSgA Emerging Markets was up 9.82%, and 120.44% since added to the portfolio. This emerging markets boom is starting to look a bit like the last one in the early 90s (but not quite as severe yet) where many emerging market  funds rose big time and investors hopped in near the end, only to get burned in the ensuing multiyear bear market for most emerging market stocks. Most emerging market funds around today were launched in this peak of exuberance.

Larger cap U.S. stocks are starting to lead the charge this year, as we hoped. Bridgeway Blue-Chip 35 was up 2.24%.

 

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