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September 2013 Performance Review

October 2, 2013

We weren’t surprised when we outperformed the stock market in August. The market was down and we are running a fairly low allocation to stocks in our Aggressive portfolio and have funds that short, and we own longer-term bonds that tend to do well when stock sink. September’s portfolio performance was not expected - in what was a strong market for stocks our Aggressive portfolio beat the market, and Conservative portfolio came pretty close.

It’s a good thing, because catching up to the S&P 500 for the year will be a challenge. The market is up just shy of 20% with dividends in 2013, compared to our Aggressive portfolio’s 13.57% return. Fortunately for us, we have the wind at or back in the form of a Congress that seems hell-bent on creating a financial crisis. We are better positioned for stormy weather on Wall Street than the S&P 500. We’re just hoping the government has to sell some of their gold to pay the rent…should be good for a $300 an ounce drop in the precious metal.

Our Conservative portfolio was up 2.29% in September. Our Aggressive portfolio gained 3.77%. Benchmark Vanguard funds for September 2013: 500 Index (VFINX) up 3.12%, Total Bond Market Index (VBMFX) up 0.94%, International Index (VTMGX) up 7.52%, Emerging Markets Stock Index (VEIEX) up 7.15%, Vanguard STAR (VGSTX) - a total balanced portfolio - up 3.56%.

Foreign and emerging stocks (areas we made a move into with our recent trade), rebounded sharply in September. Also working for us were short positions on gold and oil, which usually wouldn’t perform well during an up market. We had the benefit of reduced downside and increased upside in September:  five of our holdings gained over 8% for the month.

The somewhat frightening interest rate rise from earlier this year seems to have plateaued. While this helped bond returns in general, longer-term bonds and more interest-sensitive bonds didn’t do as well as expected. Much of the upward move in bond prices took place in the most owned areas: bonds with only moderate duration and some credit risk. You can see this play out in how our zero-coupon bond fund and our long-term bond fund underperformed the bond index.

Our best performing bond fund was our new PIMCO Mortgage Opportunities fund (PMZDX) which gained 1.11%. Our new floating rate fund was a dud in September, almost flat for the month. We really aren’t crazy about floating rate funds in general but are hoping massive inflows into this category will propel bond prices higher and give us some positive return. 

The strongest fund categories last month include India funds, up just over 10%, followed by 9.15% returns in Japan and 8.85% returns in Latin America funds. Growth funds in general did well. China was fairly strong with a 5% return as fears of an economic slowdown waned. Our new iShares MSCI Bric Index ETF (BKF) invests is many of these strong markets and returned 8.98% in September. 

The worst performing areas for the month included commodities and precious metals, which we are short.

Stock Funds1mo %
Gold Short (DZZ)9.88%
iShares MSCI BRIC Index (BKF)8.98%
PowerShares DB Crude Oil Dble Short (DTO)8.51%
Vanguard Europe Pacific ETF (VEA)7.85%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)7.52%
Vanguard European ETF (VGK)7.18%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)7.15%
Satuit Capital Micro Cap (SATMX)5.93%
Artisan Global Equity (ARTHX)4.87%
Vanguard MegaCap Growth (MGK)4.85%
Wasatch Frontier Emerg Sm Count (WAFMX)4.21%
PRIMECAP Odyssey Growth (POGRX)3.57%
Wasatch Long/Short (FMLSX)3.47%
[Benchmark] Vanguard 500 Index (VFINX)3.12%
Vanguard Telecom Services ETF (VOX)2.96%
American Century Utility Income (BULIX)1.29%
Bond Funds1mo %
PIMCO Mortgage Opportunities D (PMZDX)1.11%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.94%
Vanguard Long-Term Bond Index ETF (BLV)0.61%
DoubleLine Floating Rate N (DLFRX)0.05%
Vanguard Extended Duration Treasury (EDV)-0.42%