Never miss a trade! Sign up for MAXfunds Powerfund Portfolio’s FREE email alerts! CLICK HERE!

August 2013 Performance Review

September 3, 2013

Stocks and bonds sunk in August, which makes it difficult for a portfolio made up of both to perform well. Of all the things investors worry about, the high correlation of all asset classes is the most distressing, and most likely.

Our recent cutting back on stocks in our Aggressive portfolio and rebalancing into less stocks in our Conservative helped returns, but adding long term bonds and other higher volatility funds didn’t lead us to beating the S&P 500 by all that much since the trade in late August. Our moves will show rewards if the recent rise in interest rates slows, stops, or reverses and stocks remain choppy; we’re well situated for just about any any scenario save one in which stocks go straight up. Even if rates continue to climb and bonds fall, if stocks fall harder than longer-term bonds our new-look portfolios will still beat the old allocations.

In August, our Conservative portfolio fell 1.69%. Our Aggressive portfolio was down 2.22%. Benchmark Vanguard funds for August: 500 Index (VFINX) down 2.91%, Total Bond Market Index (VBMFX) down 0.53%, International Index (VTMGX) down 1.25%, Emerging Markets Stock Index (VEIEX) down 3.57%, Vanguard STAR (VGSTX), a total balanced portfolio, down 1.42%. 

Once again emerging markets were the hardest hit – and we are starting to move back into emerging markets for the first time in years. Money has finally (and rapidly) started moving out of emerging markets, but there is still too much investor money in them. We’re waiting for even greater outflows before we increase our allocation significantly. We may never get to total investor emerging markets surrender that we saw back in the late 1990s, but we can hope for the largest ETFs in this area to lose a few more billion (and maybe even a few recently launched emerging market funds to close for lack of investor interest).

Of special note is the stock market in India, down almost 14% last month and the worst performing emerging market recently. We are starting to run towards the fire here - our recent emerging market fund purchase owns a good chunk of Indian stocks - but trouble in India may not be over. We think this slide may have something to do with the yellow metal itself, which Indian citizens fetishize  more than Auric Goldfinger. There seems to be some relationship between the earlier slide in gold prices and stocks in India. As their currency drops sharply, could gold hoarding to protect wealth make the economic and currency problem worse as money is converted to gold and not ordinary consumer purchases? This won’t be the first time in history countries were brought down economically by the seemingly prudent move of investing in precious metals during periods of economic uncertainty.

Commodities, notably precious metals, were the main area of strength in August (after years of massive underperformance) as fears of trouble in Syria drove up oil and gold – which were both already gaining recently. Both should fizzle soon (which is what we are now positioning our Aggressive portfolio for).

About the worst area of the U.S. market was small cap value (a category with one of the lowest ratings on MAXfunds because of investor interest and outperformace), which fell 3.4% last month.

Stock Funds1mo %
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-1.25%
PRIMECAP Odyssey Growth (POGRX)-1.44%
Vanguard European ETF (VGK)-1.47%
Vanguard Europe Pacific ETF (VEA)-1.60%
Vanguard 500 Index (VFINX)-2.91%
Satuit Capital Micro Cap (SATMX)-3.50%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-3.57%
Vanguard Telecom Services ETF (VOX)-4.63%
American Century Utility Income (BULIX)-5.20%
PowerShares DB Crude Oil Dble Short (DTO)-6.17%
Artisan Global Equity (ARTHX)N/A
iShares MSCI BRIC Index (BKF)N/A
Gold Short (DZZ)N/A
Wasatch Long/Short (FMLSX)N/A
Vanguard MegaCap Growth (MGK)N/A
Wasatch Frontier Emerg Sm Count (WAFMX)N/A
Bond Funds1mo %
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.53%
Vanguard Extended Duration Treasury (EDV)-1.14%
Vanguard Long-Term Bond Index ETF (BLV)-1.35%
[Benchmark] Vanguard 500 Index (VFINX)-2.91%
DoubleLine Floating Rate N (DLFRX)N/A
PIMCO Mortgage Opportunities D (PMZDX)N/A