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May 2003 performance review

June 15, 2003

The Conservative portfolio was up 5% in May, beating April’s return of 3.31%, which had been the largest return in a month since we started the portfolio. The Portfolio is now up 9% since its April ’01 inception. We’re pleased with this return considering the fact that the stock market as a whole is down 20% for the same period. 

Bonds and stocks were strong this month, but it was safer government bonds that delivered the big returns. Investors didn’t favor higher risk bonds like they have in recent months. Stocks were the main driver of returns in this portfolio.

On the topic of higher risk bonds, the Vanguard High Yield Corporate fund (VWEHX) closed to new investors last Friday. We are maintaining our investment in this fund and from now on are going to provide alternates to new investors rather than trade out of a fund simply because new investors can’t buy it. Our alternative choice for new portfolio builders is the SSgA High Yield Bond fund (SSHYX). This fund is available at almost every discount broker for no transaction fee (unlike the Vanguard fund) and the minimum is only $1,000. The fund is at about the same risk profile as the Vanguard fund, and is appropriate for this risk level portfolio. 

Every fund in the portfolio was up, with the American Century Utility Income fund leading the way with an 8.26% gain. We’ve been allocating money to utility stocks in almost every portfolio last year as we felt the area was undervalued. This year Utilities are one of the strongest sectors of the market.

The FMI Sasco Contrarian Value fund was up 8.2%, followed by the Vanguard Dividend Growth was up 7.15%. There was renewed interest in high dividend paying stocks in light of the new tax cut, and value stocks started catching up with the growth stocks that have been leading the market so far this year.

International bonds are still red hot, this month taking the American Century International Bond fund up 6.05%. The fund is now up over 30% since we added it to the portfolio and a major reason our lower risk portfolios are outpacing the market and similar low-risk diversified investments.

Our theory proposed last month about Bill Gross extends itself to this month as his fund was up “only” 1.67% when longer-term government bonds where up closer to 5%.

The Aggressive Growth portfolio was up 7.4% in May, led by a strong showing in our smaller-cap holdings. Every fund in the portfolio was up this month as the portfolio’s more growth oriented approach has been benefiting from recent market strength. 

This portfolio is beating the S&P500 and Dow over the last year and is now up 5.09% since April 2002. The U.S. stock market is down over 15% during the same period. The portfolio is up 17.13% for the three months ending May 31st, beating the S&P500 and Dow and proving it can beat those indexes in up markets as well as down.

Emerging markets were strong (with the SSgA Emerging Markets fund up 6.6% for the month) but not as strong as U.S. Microcap stocks. The Bridgeway Ultra Small Tax Adv fund was up 13.68% last month, and is up 18.54% since April 2002. 

The Artisan International Small Cap fund was up 7.83% for the month and is up 22.4% for the trailing 3 months. 

Emerging market bonds won’t quit. The Fidelity New Markets Income fund was up 4.28% for the month and is up over 25% since we put it in the portfolio, making it our strongest performer.

The weakest performer was the Northeast Investors fund, a junk bond fund that has been playing it chicken lately and under-performing hotter more speculative bond funds. While we wish we took a bit more risk in this area 6 months ago, but we’re not about to up the risk at this late stage in the game of the junk bond rally.

Telecom continued its recent strength, with the Gabelli Global Telecom fund up 8.79% for the month.

Japan seemed to have turned around in recent months, though not sharply yet. The T. Rowe Price Japan fund was up 3.6% for the month, not much for a U.S. stock fund but a good sign for Japan.