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April 2013 Performance Review

May 2, 2013

Just when we thought the S&P’s record-breaking year was going to leave the Powerfund Portfolios, full as they are with bonds and hedges, in the dust, we have some big winners and beat the market in April.  

Our Conservative portfolio was up 3.19%. Our Aggressive portfolio was up 3.32%. Benchmark Vanguard index funds for April: Vanguard 500 Index (VFINX) up 1.91%, Vanguard Total Bond Market (VBMFX) up 0.91%, Vanguard International Index (VTMGX) up 5.21%, Vanguard Emerging Markets Stock Index (VEIEX) up 1.32%.

How did we beat BOTH the stock and bond indexes in April? Many of the out-of-favor areas we hold rapidly became favorable - notably Japan and telecom (both up over 8%).  Utilities were up almost 6% AND interest rates were down again, sending our longer-term bond fund up. Best of all, commodities tanked which boosted our oil short – usually up only when stocks are down. Foreign indexes – heavily weighted to Japan – had a good month, but so did European funds like our Vanguard European ETF (VGK), up just over 5% as Cyprus fears faded (even though the continued risk of economic stagnation across Europe remains).

April was a bad month for commodities, gold, and emerging markets investors. The S&P 500, on the other hand, is having a great year and is up 12.68% in the first four months of 2013, ahead of our 10.64% return in our Aggressive portfolio and our 7.72% return in our Conservative.

Good things must come to an end and we are looking at cutting back on some of these hot areas, notably healthcare and utilities as investors flock to  (what they consider to be) lower risk stocks. As bonds are increasingly considered to have limited upside with rock bottom rates, and the fears of a deep recession disappear, fearful money is looking at marginal risk taking and is buying higher-credit-risk bonds and lower-volatility stocks – basically junk bonds and utilities / telecom / high dividend / consumer staples. This is making for opportunity in higher-risk stocks and continued good returns in low-credit-risk but long duration bonds – the types of bonds that lose money when rates go up, not when defaults go up. 

As contrarians we want to be in an area that is going from out of favor to in favor as inflows can push prices higher, but the outperformance eventually becomes underperformance. Some Japan ETFs have seen more than $5 billion flood in the doors in recent months. Expect a trade in both portfolios soon.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)8.64%
iShares MSCI Japan Index (EWJ)8.33%
Vanguard Telecom Services ETF (VOX)8.25%
American Century Utility Income (BULIX)5.96%
Vanguard Europe Pacific ETF (VEA)5.69%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)5.21%
Vanguard European ETF (VGK)5.05%
Scout International Discovery (UMBDX)3.66%
Health Care Select SPDR (XLV)2.87%
Vanguard Value ETF (VTV)2.82%
PRIMECAP Odyssey Growth (POGRX)2.74%
Royce Financial Services Fund (RYFSX)2.31%
Jensen Value J (JNVSX)2.11%
[Benchmark] Vanguard 500 Index (VFINX)1.91%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)1.32%
Homestead Value Fund (HOVLX)-0.20%
PowerShares DB US Dollar Index (UUP)-1.77%
Satuit Capital Micro Cap (SATMX)-2.40%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)8.07%
Vanguard Long-Term Bond Index ETF (BLV)3.92%
Metropolitan West Total Return (MWTRX)1.16%
Doubleline Total Return Bond (DLTNX)1.08%
American Century Core Plus (ACCNX)1.00%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.91%
American Century Government Bond (CPTNX)0.60%