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May 2013 Performance Review

June 4, 2013

May was a strange month in the market. U.S. Stocks were strong – the S&P 500 was up just over 2%. Essentially everything else was down. Foreign major markets and emerging markets sunk around 3% - with the sharpest drop in Japan down almost 8% (albeit after a 50%+ move up in recent months). 

In such a market our stock heavy portfolio did better than our safer portfolio. Our Conservative portfolio fell 2.06%. With too much in bonds and forging markets, our Aggressive portfolio dropped 0.33% - good compared to many global balanced portfolios but bad compared to the S&P 500. Benchmark Vanguard index funds for May: Vanguard 500 Index (VFINX) up 2.33%, Vanguard Total Bond Market (VBMFX) down  1.71%, Vanguard International Index (VTMGX) down  3.00%. Vanguard Emerging Markets Stock Index (VEIEX) down  3.73%.

More interesting was the bond and what can be called the near-bond market. Interest rates jumped, creating fears the end of falling rates is finally here. This took the entire bond market down almost 2% with a bit more damage to longer-term bonds (notably government bonds) which dropped almost 7%. High yield bonds, which are sensitive to interest rates but also to rising stocks and an improving economy, were down around a half percent. 

The over-exuberance in emerging market bonds, noted here back in October 2012 came to a screeching halt, with a near 5% drop in May – a rare performance divergence from high-credit-risk U.S. junk bonds. 

In recent months money has gotten awfully tired of negative real returns in cash, money markets, and CDs, and has been inching back into riskier assets – but not ‘really’ risky assets. These near-bonds – high dividend utilities and REITs among them – took a severe beating last month. Utilities were down just shy of 6%, closely followed by real estate-oriented funds. Technology funds – a land far far away from the safety and yield seeking investor – were up almost 5%. 

Another odd area to slip recently is this new fad of ‘low volatility’ stocks – basically owning stocks that don’t’ swing wildly like biotech stocks or Google. These ‘safe’ stocks (Proctor and Gamble, McDonalds, etc.) fell in May (as many of the now-popular ETFs in this area - iShares MSCI USA Min Volatility USMV and PowerShares S&P 500 Low Volatility SPLV - show), while the entire stock market rose; showing once again that popularity breads underperformance no matter what the past performance tells you. Too bad, all the papers have just started talking about the miraculous high returns of lower-risk stocks over the past few decades.

Stock Funds1mo %
Satuit Capital Micro Cap (SATMX)6.41%
Homestead Value Fund (HOVLX)4.19%
Royce Financial Services Fund (RYFSX)3.63%
PowerShares DB Crude Oil Dble Short (DTO)3.23%
Jensen Value J (JNVSX)2.81%
Vanguard Value ETF (VTV)2.58%
PRIMECAP Odyssey Growth (POGRX)2.47%
[Benchmark] Vanguard 500 Index (VFINX)2.33%
PowerShares DB US Dollar Index (UUP)1.85%
Health Care Select SPDR (XLV)1.65%
Vanguard European ETF (VGK)0.01%
Scout International Discovery (UMBDX)-0.25%
Vanguard Europe Pacific ETF (VEA)-2.97%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-3.00%
Vanguard Telecom Services ETF (VOX)-3.72%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-3.73%
American Century Utility Income (BULIX)-5.57%
iShares MSCI Japan Index (EWJ)-7.35%
Bond Funds1mo %
Doubleline Total Return Bond (DLTNX)-0.96%
Metropolitan West Total Return (MWTRX)-1.23%
American Century Government Bond (CPTNX)-1.67%
[Benchmark] Vanguard Total Bond Index (VBMFX)-1.71%
American Century Core Plus (ACCNX)-1.74%
Vanguard Long-Term Bond Index ETF (BLV)-5.74%
Vanguard Extended Duration Treasury (EDV)-9.77%