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November 2015 Performance Review

December 2, 2015

The stock market's rebound seems over but was strong enough to make a positive return for 2015 seem likely. Considering how things looked a few months ago, we'll take it.

Shorting commodities is really what pushed the Aggressive portfolio above the market benchmarks in November, with our two holdings in this area generating double-digit returns. As the S&P 500 was up just slightly and the bond market was down by about the same amount, most blended portfolios were basically flat — unless they owned heavy allocations in foreign markets.

Our Conservative portfolio fell 0.86% in November. Our Aggressive portfolio gained 0.77%. Benchmark Vanguard funds for November 2015: Vanguard 500 Index Fund (VFINX) up 0.29%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.27%; Vanguard Developed Markets Index Fund (VTMGX) down 0.90%; Vanguard Emerging Markets Stock Index (VEIEX) down 3.25%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 0.12%.

Without any shorts and a heavy longer-term investment-grade bond allocation, our Conservative portfolio underperformed the lower duration U.S. bond index.

Also a drag was our foreign bond allocation to SPDR Barclays Intl. Treasury (BWX), down 2.41% for the month, as the euro slid to new lows. We may increase this allocation on further slides in the euro. Or just go on a vacation to Italy and drink $2 cappuccinos.

On the plus side for our Conservative portfolio, we weren't in high-yield junk bonds which posted another lousy return — down about 2% and now down just shy of -4% over the last 12 months (almost as bad as emerging market bonds). Inflation protected bonds have now logged a negative three-year return while longer-term bond funds (like we own) are up over that period. This of course doesn't bode well for all those funds that short treasuries and are long junk bonds that I fingered for future trouble this past summer.

That inflation demon just hasn't appeared and these inflation-linked bonds were priced for rising inflation back in the 'real' return investment boom a few years ago. They may soon be attractive for our portfolios. For now, we (still) prefer deflation wagers like long-term bonds and shorting commodities, though we've squeezed most of what we can get out of this unique strategy off and on since 2008.

Our best showing was with PowerShares DB Crude Oil Dble Short (DTO) and Gold Short (DZZ), up 23.60% and 13.57% respectively, as oil slid again and may wind up way down in the $30s. Gold is getting close to $1,000, a meaningless mark that may still cause alarm to gold bugs as all the gold coins they horded recently are now only priced in the triple digits (in fiat currency of course). Just wait until emerging markets have to start selling gold if commodity prices keep falling and the economies worsen. Look out below.

Smaller-cap U.S. stocks were at the top of the heap in November, but the top of the heap wasn't very high — only in the +2% range. Most foreign markets were weak, except Japan which was up just over 1%. Energy was down, notably so called energy MLPs (or master limited partnerships), which were down 8% in November and 30% over the last 12-months after way too much interest by individual investors looking for yield. The pitch was that these MLPs were insulated from commodity price slides because they mostly make money moving the dino-sludge from point a to point b, but I've got a 30% 1-year decline that says different. The billions of dollars that's in dozens of MLP-oriented funds soon it will be just millions.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)23.60%
Gold Short (DZZ)13.57%
PRIMECAP Odyssey Growth (POGRX)1.62%
Wasatch Long/Short (FMLSX)1.07%
Satuit Capital Micro Cap (SATMX)0.65%
[Benchmark] Vanguard 500 Index (VFINX)0.29%
Vanguard MegaCap Growth (MGK)0.15%
Artisan Global Equity (ARTHX)-0.62%
Vanguard Europe Pacific ETF (VEA)-0.76%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-0.90%
Vanguard Telecom Services ETF (VOX)-1.01%
Vanguard European ETF (VGK)-1.25%
iShares MSCI BRIC Index (BKF)-1.72%
Wasatch Frontier Emerg Sm Count (WAFMX)-2.87%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-3.25%
Bond Funds1mo %
Vanguard Mortgage-Backed Securities (VMBS)-0.24%
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.27%
Vanguard Long-Term Bond Index ETF (BLV)-0.85%
Vanguard Extended Duration Treasury (EDV)-1.43%
SPDR Barclays Intl. Treasury (BWX)-2.41%