Never miss a trade! Sign up for MAXfunds Powerfund Portfolio’s FREE email alerts! CLICK HERE!

January 2004 performance review

February 15, 2004

With a larger equity stake then the safety portfolio, the conservative portfolio was up 1.42% in January. Utility stocks were strong, as they usually are when interest rates fall. The American Century Utility Income fund (BULIX) was up 1.8% for the month.

The weakest fund was the American Century International Bond fund (BEGBX) largely because the U.S. dollar rebounded slightly and forign bonds were not as strong as U.S. bonds. As a near direct dollar play, this fund is probably our most volatile non-stock fund, although over the long hall its quite conservative as the dollar can’t rise (or fall) forever. This fund has had a spectacular run and we may ease up our allocation, however, we feel some non-US bond allocation is good for diversification regardless of the recent strong past performance; we just may want a smaller allocation for the time being. This fund has recently changed policy to allow a greater Yen denominated bond allocation. 

Speaking of volatile, the white hot Forward International Small Company fund (formerly called Pictet International Small Company) fund was up 6.26% for the month. As this fund climbs it gets more risky, and we may have to consider lowering our exposure to keep the overall portfolio risk down.

The Aggressive Growth portfolio’s 2.51% return was fueled largely by smaller cap stocks continuing to outperform the rest of the market. This phenomenon is worldwide: Artisan International Small Cap (ARTJX) was up 3.2% and Bridgeway Ultra Small Company Market (BRSIX) was up a whopping 6.49% for the month.

Including 2002’s weak markets, this Bridgeway fund is up over 80% since we added it to the portfolio in early 2002. This Microcap trend is now trading mostly on momentum. New money going into these thinly traded stocks is pushing up prices. It is difficult to say when this effect will end, but the rational reasons to over allocate to micro cap has long passed. We’ve cut back on our over allocation, and may soon under allocate. 

Japan was somewhat weak compared to other markets as the country deals with the possibility of a too-strong Yen hurting exports. T. Rowe Price Japan (PRJPX) was still up .97%.

The strong returns from emerging market bond investing slowed, with the Fidelity New Markets Income (FNMIX) fund up just .21% after many months of big gains. We think emerging market bond investing is due for a pullback or at least underperformance. The main factors keeping these bonds up are a continued desire to speculate by investors, a generally falling dollar, and emerging market economies that are flush with cash (relatively) because of rising commodity prices. High oil prices alone can probably keep countries such as Russia from having creditworthiness problems for the time being.

This entire portfolio is up some 50% over the last year. While pretty remarkable, if we didn’t cut back on some of the hotter funds and move to short term corporate bonds we’d be up even more spectacularly. We’re confident our strategy of lightening up on overexposed areas will help lower risk and increase returns over the long run.