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May 2004 performance review

June 16, 2004

Bonds were down while stocks went up. The combined effect netted out, leaving the Safety portfolio flat for the month of May. 

The biggest hit to the portfolio was a 1.6% fall in Vanguard High Yield Corporate (VWEHX) as junk bonds took a beating in May. The fund is down to just 5% of the Conservative portfolio, so the total effect was muted. 

On the upside, foreign bonds were strong largely because the U.S. dollar slipped. Foreign bonds can be a good inflation hedge as domestic inflation tends to devalue a currency to the benefit of those with investments in other more stable currencies. All bets are off if there is global inflation, which hurts all bond investors equally and offers no currency play. American Century International Bond (BEGBX) was up 1.21% for the month, and our 10% stake made up for any junk bond losses.

Foreign stocks were weak, particularly smaller cap and emerging markets. Formerly hot Forward International Small Company (PISRX) fell 2.38%. Our reduced stake of 5% limited the hit to the portfolio.

The Aggressive Growth portfolio dipped .58%, largely on weakness in foreign stocks. 

The only real downer was a big 4.24% fall in T. Rowe Price Japan (PRJPX). After a 16% jump in March we can’t fee too bad about the pullback in Japan. There has been much in the way of positive articles about Japan of late. This positive coverage is an indication that future returns will be less fabulous going forward, although we’re sticking with our stake as few other areas are currently appealing.

Emerging markets didn’t fare much better. SSgA Emerging Markets (SSEMX) was down 1.35%. Small cap foreign stocks in all countries, emerging and emerged, preformed poorly. Artisan International Small Cap slipped .68%.

The strong parts of the portfolio were the U.S. stock holdings. Newly added Bridgway Blue Chip 35, one of the world’s cheapest funds, was up .58%. The hot Bridgeway Ultra Small Company Market (BRSIX) was up .97%.

For the record, Fidelity New Markets Income (FNIMX), our former emerging markets bond fund, fell another 2% last month. If the drubbing keeps up much longer we’ll consider adding it back to the portfolio.