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March 2016 Performance Review

Riskier investments around the world rebounded strongly from the sharp slide earlier this year. As is often the case, the sharper the drop in the investment category, the stronger the recent rebound. The S&P 500 is now up 1.31% for the year (including dividends in the Vanguard 500 fund), which is well under our 4.06% and 3.86% year-to-date increases in our lower- and higher-risk portfolios, respectively.

We lagged on the way up in March, but we fell far less on the way down. We are enjoying all-time highs in portfolio values. The 300% since-inception return of the Aggressive portfolio was achieved in part because when we fell, we did not fall as hard as the market did. On that note, we want to say "Happy birthday" to the Powerfund portfolios. March 2016 marked our 14th year of making fewer missteps than most other professional investors.

Our Conservative portfolio was up 3.54% last month, and our Aggressive portfolio gained 4.25%. The Benchmark Vanguard funds for March 2016 were as follows: Vanguard 500 Index Fund (VFINX) up 6.78%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.94%; Vanguard Developed Markets Index Fund (VTMGX) up 7.13%; Vanguard Emerging Markets Stock Index (VEIEX) up 13.04%; and Vanguard Star Fund (VGSTX), a total global-balanced portfolio, up 5.07%.

We took a beating almost across the board in our short ETFs (not including the gold short, which rose near 6%), with slides from 7.87% to 15.20%. With solid single-digit returns in all our stock funds, notably a 13.75% reversal in iShares MSCI BRIC Index (BKF), we managed some good upsides in what has been a quite reduced downside in the grand scheme.

On the bond side, we saw a 3.66% gain in our recently added junk bond fund Artisan High Income Fund (ARTFX) and a 4.21% rise in SPDR Barclays Intl. Treasury (BWX), which is taking currency risk and interest-rate risk but not as much credit risk. This strategy is doing well because the U.S. dollar is falling, in sharp contrast to all the bets made by investors in recent months on a rising U.S. dollar. You can see this trend in the popularity of so-called "hedged" funds that offer protection from falling currencies abroad.

Much of this risk reversal is based on oil and commodities coming back a bit. Such support could mean that the global economy isn't getting weaker and that we won't see spreading defaults in risky debt. The rest of the sudden euphoria stems from the reluctance of central banks, including ours, to increase interest rates. Without deflation or a recession, it's hard to make a long-term case to stay light on stocks that pay a roughly 2% dividend that goes up over time when safer shorter-term bonds are yielding less than zero abroad and near zero in the United States. Of course, if it starts to look like taking big losses is a growing probability, watch how fast the money will flood into a safe 0% return.

The catch-22 is that if commodities keep going up (which is doubtful), the Fed could decide to step up the pace of rate increases, potentially derailing the low-rate support currently enjoyed by investors in riskier assets.

Stock Funds1mo %
iShares MSCI BRIC Index (BKF)13.75%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)13.04%
Vanguard Utilities (VPU)8.16%
iShares MSCI Italy Capped (EWI)8.16%
Vanguard Europe Pacific ETF (VEA)7.19%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)7.13%
iShares Mortgage REIT (REM)7.05%
Vanguard European ETF (VGK)7.03%
[Benchmark] Vanguard 500 Index (VFINX)6.78%
Vanguard Value (VTV)6.71%
Homestead Value (HOVLX)6.69%
Artisan Global Equity (ARTHX)6.53%
Gold Short (DZZ)5.97%
Vanguard Telecom Services ETF (VOX)5.57%
Proshares Ultrashort NASDAQ Biotech (BIS)-7.87%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-8.59%
PowerShares DB Crude Oil Dble Short (DTO)-14.76%
Proshares Ultrashort Russel2000 (TWM)-15.20%
Bond Funds1mo %
SPDR Barclays Intl. Treasury (BWX)4.21%
Artisan High Income Fund (ARTFX)3.66%
Vanguard Long-Term Bond Index ETF (BLV)3.23%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.94%
Vanguard Mortgage-Backed Securities (VMBS)0.21%
Vanguard Extended Duration Treasury (EDV)-0.20%