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May 2016 Performance Review

June 2, 2016

The U.S. stock market is back to beating global markets. Riskier U.S. assets have been strongest lately and interest rates remain low. In this environment we've just got too much short and too much abroad to keep pace with the U.S. market.

Our Conservative portfolio gained 0.01% in May. Our Aggressive portfolio was down 0.83%. Benchmark Vanguard funds for the month were as follows: Vanguard 500 Index Fund (VFINX) up 1.78%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.01%; Vanguard Developed Markets Index Fund (VTMGX) down 0.42%; Vanguard Emerging Markets Stock Index (VEIEX) down 3.40%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.72%.

The Federal Reserve pendulum is swinging back to raising rates as it looks like our economy is strong enough to create wage inflation. This sent the U.S. dollar back up, which hurt our foreign bond fund, sending SPDR Barclays Intl. Treasury (BWX) down 2.69% — our only negative income fund last month.

The biggest drag from our regular holdings was from emerging markets and Italy. iShares MSCI BRIC Index (BKF) was down 2.7% while iShares MSCI Italy Capped (EWI) was down 4.41%.

Shorting U.S. biotech and small cap stocks stung, but gold shorting is working again. Gold Short (DZZ) gained over 12% as any talk of raising rates is bad for gold. In general, shorting gold and owning long-term bonds isn't a bad low risk portfolio as you benefit from the higher yields and are protected somewhat from rising rates (which could send gold down sharply).

In general, this environment was good for our riskier income holdings that were recently added (like iShares Mortgage REIT (REM) and Artisan High Income Fund (ARTFX), up over 4% and around 1% respectively last month), but not good for shorting and foreign stocks and bonds. Our Conservative portfolio remains ahead of the S&P 500 for the year, which is now up 3.5% with dividends, but the Aggressive portfolio is lagging by about a percentage point.

Stock Funds1mo %
Gold Short (DZZ)12.59%
iShares Mortgage REIT (REM)4.17%
Artisan Global Equity (ARTHX)2.58%
[Benchmark] Vanguard 500 Index (VFINX)1.78%
Vanguard Utilities (VPU)1.63%
Homestead Value (HOVLX)1.27%
Vanguard Value (VTV)1.06%
Vanguard Telecom Services ETF (VOX)-0.16%
Vanguard Europe Pacific ETF (VEA)-0.30%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-0.42%
Vanguard European ETF (VGK)-0.50%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-1.88%
PowerShares DB Crude Oil Dble Short (DTO)-2.39%
iShares MSCI BRIC Index (BKF)-2.70%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-3.40%
iShares MSCI Italy Capped (EWI)-4.41%
Proshares Ultrashort Russel2000 (TWM)-5.02%
Proshares Ultrashort NASDAQ Biotech (BIS)-10.12%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)1.02%
Artisan High Income Fund (ARTFX)0.99%
Vanguard Long-Term Bond Index ETF (BLV)0.06%
Vanguard Mortgage-Backed Securities (VMBS)0.03%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.01%
SPDR Barclays Intl. Treasury (BWX)-2.69%