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June 2017 Performance Review

August 2, 2017

It was another solid month for stocks globally, with essentially everything up. The only fund category displaying red arrows was longer-term government funds, and this bond fund category, sensitive to interest rates, was down less than 1%. The strongest areas were once again abroad, as foreign markets continue to catch up after years of underperforming the U.S. market.

Even with the drag of shorting and longer-term government bonds, we had a solid month against benchmarks with the extra boost from some foreign markets. Coincidentally, our conservative portfolio had the exact same return as our Vanguard Star fund benchmark, which is riskier than our conservative model portfolio.

The Conservative portfolio gained 1.71% while our Aggressive portfolio gained 2.16%. Benchmark Vanguard funds performed as follows in July 2017: Vanguard 500 Index Fund (VFINX) up 2.04%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.37%; Vanguard Developed Markets Index Fund (VTMGX) up 2.94%; Vanguard Emerging Markets Stock Index (VEIEX) up 5.31%; and Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 1.71%.

While markets were strong in the U.S. in non-sectors, really just larger cap growth, stocks did notably well with a near 3% return. Smaller cap was barely up, particularly value stocks. Abroad, the hottest market was Latin America, with funds in this category up just under 9%, followed closely by India and China funds, both up over 5%. Russia was up over 4%. This drove returns on our top returner last month, iShares MSCI BRIC Index (BKF), up 8.33%. Italy was about the strongest area in non-emerging markets, driving iShares MSCI Italy Capped (EWI) up 7.05%. We didn't even lose that much shorting small cap stocks with leverage, as Proshares Ultrashort Russel2000 (TWM) was down 1.76% because small cap stocks were lagging in July. Shorting gold, biotech, and notably oil hurt as they all went up.

In bonds, strong corporates hid our losses in longer-term government bonds in our holdings, except in Vanguard Extended Duration Treasury (EDV), which was down 0.53%. This is a 100% long-term U.S. government bond fund, and in effect the longest-term Treasury bond fund, which makes it the most sensitive to interest rates. The reason for most of the gains abroad in stocks — the falling U.S. dollar — pushed SPDR Barclays Intl. Treasury (BWX) up 2.93% for the month.

Besides investors rebalancing into underperforming assets, what is driving this global goodness in recent months is other countries looking a little better than they did last year, while we are looking a little worse. The likelihood of significant new policy initiatives to boost the economy if the Fed continues to raise rates looks slim at best, including any tax cuts. Our dollar was riding high a few months ago on continued American optimism for growth and higher interest rates compared to other major economies. Higher rates can attract money from abroad looking for safe yield. This earlier flow is reversing as our interest rates drift down slightly. The early Trump boom is gone but investors are confident in investing everywhere, and perhaps overly confident.

Stock Funds1mo %
iShares MSCI BRIC Index (BKF)8.33%
iShares MSCI Italy Capped (EWI)7.05%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)5.31%
Artisan Global Equity (ARTHX)4.13%
Vanguard Utilities (VPU)3.45%
Vanguard Telecom Services ETF (VOX)2.95%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)2.94%
Vanguard Europe Pacific ETF (VEA)2.88%
Vanguard European ETF (VGK)2.83%
iShares Mortgage REIT (REM)2.30%
[Benchmark] Vanguard 500 Index (VFINX)2.04%
Vanguard Value (VTV)1.54%
Homestead Value (HOVLX)1.45%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-0.58%
Proshares Ultrashort Russel2000 (TWM)-1.76%
Gold Short (DZZ)-4.28%
Proshares Ultrashort NASDAQ Biotech (BIS)-6.02%
PowerShares DB Crude Oil Dble Short (DTO)-16.75%
Bond Funds1mo %
SPDR Barclays Intl. Treasury (BWX)2.93%
Artisan High Income Fund (ARTFX)1.18%
Vanguard Mortgage-Backed Securities (VMBS)0.45%
Vanguard Long-Term Bond Index ETF (BLV)0.39%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.37%
Vanguard Extended Duration Treasury (EDV)-0.53%