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February 2013 Performance Review

March 3, 2013

U.S. markets are beating foreign markets…again. European troubles percolated back up the financial news cycle, but such news doesn’t really explain why emerging market stocks were down as well. The S&P 500 was up 1.34% in February - almost the perfect inverse of the 1.36% slide in our benchmark fund that tracks foreign markets. Our own foreign exposure and our bond fund allocation dragged on Powerfund Portfolios’ returns, leading to us missing the U.S. market by about a half a percent in our more stock-heavy portfolio. 

Last month the Conservative Powerfund Portfolio gained 0.60% while Aggressive was up 0.83%. The benchmark Vanguard 500 (VFINX) fund delivered a 1.34% return for the month while Vanguard Total Bond Index (VBMFX) posted a 0.54% return. Foreign stocks, as measured by Vanguard Tax-Managed International (VTMGX), were down 1.36%. Emerging market stocks, as measured by Vanguard Emerging Markets Stock Index (VEIEX), fell 1.74%.

What we’re really seeing here is the steady erosion in returns of anything other than bonds. Among the worst areas over the last five years – sporting serious negative returns of between 5 and 10% per year on average (as opposed to positive annualized returns of the same magnitude in U.S. stock funds) - are gold mining-oriented and commodities funds. Gold the metal is still higher than 5 years ago, though the yellow metal is finally showing some erosion in price and popularity. 

Gold mining stocks…they don’t even go up during a historic bull market in gold, proving once again the fallacy of that old expression for a lucrative endeavor – it’s a real gold mine. Next time you hear that old charm consider saying ‘If you mean a business with massive political risk that needs to borrow a fortune to find a mere commodity prone to falling below the cost of production that is constantly watering down shareholders with new stock that routinely wastes good fortune with poorly conceived growth, merger, or acquisition strategies…then count me out!

Gold led the race to the bottom in February, down over 10% in just one lunar cycle. Next worst were funds that invest in India – itself a gold focused economy - down about 7%. Natural resource funds fell almost 3%

Best performers were Japan funds, up just over 3% and in stark contrast to most foreign markets that were down in February. Longer-term Government bond funds were strong, up about 1.5% as rates headed back down after rising for a few months. Foreign bonds were the only negative area in the bond market – though just slightly. 

Like the previous month, value-oriented funds did a little better than growth funds. Oil slid along with commodities on global slowdown concerns, boosting our short oil hedge against global collapse. Utilities did well along with value and most-lower risk funds. Our drags on the stock side were mostly foreign funds (but not Japan) and our telecom fund (VOX). Our bond funds did well with falling rates given our longer duration and U.S. focus.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)12.49%
PowerShares DB US Dollar Index (UUP)3.47%
iShares MSCI Japan Index (EWJ)2.41%
American Century Utility Income (BULIX)2.29%
Royce Financial Services Fund (RYFSX)2.16%
Homestead Value Fund (HOVLX)2.10%
[Benchmark] Vanguard 500 Index (VFINX)1.34%
Vanguard Value ETF (VTV)1.31%
Health Care Select SPDR (XLV)1.26%
PRIMECAP Odyssey Growth (POGRX)0.91%
Jensen Value J (JNVSX)0.63%
Scout International Discovery (UMBDX)0.10%
Satuit Capital Micro Cap (SATMX)-0.27%
Vanguard Telecom Services ETF (VOX)-0.78%
Vanguard Europe Pacific ETF (VEA)-1.15%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-1.36%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-1.74%
Vanguard European ETF (VGK)-3.40%
Bond Funds1mo %
Vanguard Long-Term Bond Index ETF (BLV)1.79%
Vanguard Extended Duration Treasury (EDV)1.55%
Doubleline Total Return Bond (DLTNX)0.56%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.54%
Metropolitan West Total Return (MWTRX)0.51%
American Century Core Plus (ACCNX)0.43%
American Century Government Bond (CPTNX)0.40%