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August 2003 performance review

September 15, 2003

August saw the Conservative portfolio move up just shy of 1%. The bigger movers included the Vanguard Dividend Growth fund, up 2.35% and the newly added Pictet International Small Company fund, up 5.7%. This latter fund is a bit risky, but the relatively small position keeps it from generating too much risk to the portfolio. 

These increases in stocks offset weakness in international bonds. Our American Century International Bond fund was down 1.24%. The bonds in the fund’s portfolio were likely up, but the U.S. dollar was strong, offsetting the gains made in bond prices. Keep in mind this fund does not hedge currency risk, which means if the US dollar falls 10% against a basket of foreign currencies you can expect the fund to go up approximately 10%, assuming no change in the underlying bond market.

Most of last month’s action was in small cap and tech stocks, neither of which played much of a roll in this portfolio until we added the Pictet fund last month.

In August the Aggressive Growth Portfolio was up 3.8%, more than the broader stock market as a whole. How could this portfolio, which has 15% in low-risk short-term bonds and a total bond exposure of 30% achieve this market-beating return? Great fund picking, that’s how.

More speculative foreign stocks were hot. The Artisan International Small Cap fund was up 5.92%, the SSgA Emerging Markets fund rose almost 7%. 

The T. Rowe Price Japan fund jumped 9.7% for the month. Japan is – keep your fingers crossed – turning in to a heck of a turnaround story. We’re very pleased about Japan’s recent strength. We’ve been investing in the Land of the Rising Sun in several of our portfolios since last year and had been disappointed in the returns our Japan funds were earning. 

The Bridgeway Ultra-Small Tax Advantage fund continues to run, up 4.5% last month. We cut back on this fund last month, which is not up a remarkable 41% since we put it in the portfolio last April. We may be guilty of being a little early on the reduction, but at some point investor’s current infatuation with micro-cap stocks will be over. We don’t want to get hit too hard when it is.