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January 2015 Performance Review

February 3, 2015

So far, so good. 2015 is off to a nice start. At least for us. The S&P 500 was down 3% while both of our portfolios were up just over 2%. That's a 5% performance gap, and it's only been four weeks. Bonds were hot, and most foreign markets did well relative to the U.S. for a change.

Our Conservative portfolio was up 2.01%. Our Aggressive portfolio was up 2.21%. Benchmark Vanguard funds for January 2015: Vanguard 500 Index Fund (VFINX) down 3.01%; Vanguard Total Bond Market Index Fund (VBMFX) up 2.31%; Vanguard Developed Markets Index Fund (VTMGX) up 0.90%; Vanguard Emerging Markets Stock Index (VEIEX) up 0.67%; Vanguard Star Fund (VGSTX) a total global balanced portfolio down 0.41%.

But before we start bragging (again), the time to sell our oil short, PowerShares DB Crude Oil Dble Short (DTO), which has been driving much of our returns in recent months, is nearing — especially because double inverse funds can lose their gains quickly (as we've seen in the last few days with a sharp reversal in oil). While oil is not going to reach $100 a barrel for years to come, it doesn't mean we need to be short oil forever. The easy money has been made.

Speaking of easy money, the other big driver of our returns is long-term investment grade bonds — the most interest rate sensitive. Most investors favored less interest rate sensitive bonds as surely the great interest rate rise would be upon us. But rates keep heading down. Our Vanguard Long-Term Bond Index ETF (BLV) was up 6.57% in January, while Vanguard Extended Duration Treasury (EDV) popped 14.25%. This on top of 20.27% and 45.10% returns in 2014, respectively. The benchmark bond index shot up by 2.31% in January — more than the year's yield in one month as rates plunged. Our two bond funds that don't take on much interest rate risk, Vanguard Mortgage-Backed Securities (VMBS) and DoubleLine Floating Rate N (DLFRX), wasted this golden opportunity with sub-1% gains.

While interest rates are not going back to levels hit in the 1980s, 1990s, or even most of the 2000s anytime soon, like oil, we're running out of upside here (unless there are years of deflation ahead). Quite frankly, at the moment we're scratching our head for new investing ideas. Some should appear in as 2015 progresses, but we're in what could be called a transitional period between bargains in the recently falling and overvaluation in the previously hot.

Almost forgot to note our stock funds. While they were mostly down in January, all beat the S&P 500 except for Satuit Capital Micro Cap (SATMX), down 3.58%. This was mostly because foreign stocks did well. Our stock side certainly helped overall performance, but January was about shorting oil and being way out on the lonely side of the yield curve.

Our biggest loser in the first month of 2015 was the gold short Gold Short (DZZ). Gold should be doing an oil pretty soon. Once thing the world is relearning: when commodity prices go up, supply eventually rises and demand falls. They are not mining iPhone 6s out of the ground, after all.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)25.88%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)0.90%
Vanguard Europe Pacific ETF (VEA)0.71%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)0.67%
iShares MSCI BRIC Index (BKF)0.57%
Vanguard European ETF (VGK)0.52%
Artisan Global Equity (ARTHX)0.25%
American Century Utility Income (BULIX)-0.11%
Vanguard MegaCap Growth (MGK)-1.42%
Vanguard Telecom Services ETF (VOX)-1.90%
PRIMECAP Odyssey Growth (POGRX)-1.96%
Wasatch Frontier Emerg Sm Count (WAFMX)-2.26%
Wasatch Long/Short (FMLSX)-2.35%
[Benchmark] Vanguard 500 Index (VFINX)-3.01%
Satuit Capital Micro Cap (SATMX)-3.58%
Gold Short (DZZ)-16.93%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)14.25%
Vanguard Long-Term Bond Index ETF (BLV)6.56%
[Benchmark] Vanguard Total Bond Index (VBMFX)2.31%
Vanguard Mortgage-Backed Securities (VMBS)0.89%
DoubleLine Floating Rate N (DLFRX)0.62%