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March 2013 Performance Review

April 2, 2013

Wow. The S&P 500 and the Dow both reached record highs last month, each breaking previous marks set in 2007. Don’t hold your breath for a new NASDAQ record though – that’s a solid 10-20 years off (and maybe even longer than that if adjusting for inflation). 

Considering how poorly bonds and foreign markets did, the Powerfund Portfolios had a pretty good month.  Our Conservative portfolio gained 1.85% in March. Our Aggressive portfolio was up 2.40%. Benchmark Vanguard index funds for March: Vanguard 500 Index (VFINX) up 3.74%, Vanguard Total Bond Market (VBMFX) down 0.71%, Vanguard International Index (VTMGX) up 1.48%; Vanguard Emerging Markets Stock Index (VEIEX) down 1.57%.

U.S. markets continue to beat foreign markets, most notably now in five-year returns (which are now solidly positive given some of 2007-‘08 market slide is not included). The average U.S. non sector 100% stock mutual fund is up almost 7% per year over the last half decade while the average foreign fund is down slightly. That’s a big performance gap – wiping out a good chunk of massive outperformance of foreign markets over U.S. markets over the first half of the 2000s (though most foreign markets still have the 10-year edge performance wise). 

Unfortunately most investors got into foreign markets after the initial rise, just in time for the underperformance. At this point the only thing stopping us from increasing our foreign stake significantly is that these fund investors haven’t yet bailed out – strange given the long losing streak.  

The growth in U.S. stocks should start to slow into the next few years unless we get some faster expansion in the economy. Companies have squeezed about all they can from low interest rates and cost cutting. Company-wide bottom line profit growth is going to have to come from top line revenue growth at this point. 

Investors can expect returns somewhere in the 6% per year range from these levels (including dividends, before fees) over the next decade or so. To get to double digits will require a slide that can be bought into (or irrational roaring stock valuations like we saw in the 1990s).

One hot area abroad was Japan, carrying iShares MSCI Japan (EWJ) up 5.78%. Inflation might be in the future for Japan – which is actually good news for a Japanese economy that has been in the doldrums for more than a decade. The falling Yen is also helping.  

Our worst performing stock fund, not including our inverse commodity pick, was Vanguard European ETF (VGK) as Europe falls into new problems, partially related to the trouble in Cyprus. 

Longer term interest rates drifted up during all the good economic news, hurting our longer term bond funds.

Stock Funds1mo %
PRIMECAP Odyssey Growth (POGRX)6.82%
Jensen Value J (JNVSX)6.39%
Health Care Select SPDR (XLV)6.34%
iShares MSCI Japan Index (EWJ)5.78%
Homestead Value Fund (HOVLX)5.11%
American Century Utility Income (BULIX)5.04%
Satuit Capital Micro Cap (SATMX)4.54%
[Benchmark] Vanguard 500 Index (VFINX)3.74%
Vanguard Telecom ETF (VOX)3.46%
Vanguard Value ETF (VTV)3.42%
Royce Financial Services Fund (RYFSX)3.04%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)1.48%
Scout International Discovery (UMBDX)1.30%
PowerShares DB US Dollar Index (UUP)1.03%
Vanguard Europe Pacific ETF (VEA)0.75%
Vanguard European ETF (VGK)-0.14%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-1.57%
PowerShares DB Crude Oil Dble Short (DTO)-10.04%
Bond Funds1mo %
Metropolitan West Total Return (MWTRX)0.24%
Doubleline Total Return Bond (DLTNX)0.18%
American Century Core Plus (ACCNX)0.17%
American Century Government Bond (CPTNX)0.14%
Vanguard Long-Term Bond Index ETF (BLV)-0.56%
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.71%
Vanguard Extended Duration Treasury (EDV)-1.40%