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September 2017 Performance Review

October 7, 2017

Our win over benchmarks in August turned into a loss for September.

Stocks were hot and recent bond gains evaporated as investors moved back into risky assets. Interest rate sensitive stocks (like telecom and utilities) were down as well — 10-year treasury bond yields moved from just over 2% in early September to over 2.3% by the end of the month.

Our Conservative portfolio declined 0.07% in September. Our Aggressive portfolio fell 0.08%. Benchmark Vanguard funds for September 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 2.06%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.54%; Vanguard Developed Markets Index Fund (VTMGX) up 2.40%; Vanguard Emerging Markets Stock Index (VEIEX) down 0.78%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 1.67%.

Our longer-term bond funds declined in this environment, though with stock upside we didn't decline as much as the bond index. In general, having stocks and long-term bonds has had a better risk vs. return in most environments than just pure bond index — which is lower yield but less interest rate sensitive. A mixed portfolio benefits from the extra yield of longer-term bonds, the growing stock dividend yield with inflation protection, and offsetting bond gains for stock losses when the markets get scary.

Stocks are getting hot again as investor fears over Nuclear Armageddon-lite recede, even if the situation on the ground hasn't particularly improved.

Our falling dollar this year plus years of underperformance abroad has boosted foreign stocks in recent months.

The global economy seems strong and stable with a solid job market domestically.

Interest rates to seem too low to warrant easing up on stocks. This risk focus is creating opportunities in some lower-risk stock sectors like telecom and we expect to increase these allocations in coming months.

With no inflation in sight and rising rates, gold was weak, boosting our gold short Gold Short (DZZ) 6.33% and making it our top September holding.

Most of the bigger gains were foreign funds last month and most beat the S&P 500. The exception was a strong 5.33% showing in Homestead Value (HOVLX) which owns U.S. value stocks.

Losers in stocks included Vanguard Utilities (VPU) down 3.24% and Vanguard Telecom Services ETF (VOX) down 1.38% with a big 15.70% loss in PowerShares DB Crude Oil Dble Short (DTO) (oil reversed course in September). Telecom and shorting oil should work well going forward.

Our most interest rate sensitive holding, Vanguard Extended Duration Treasury (EDV) slid 4.03% while Vanguard Long-Term Bond Index ETF (BLV) fell 0.84%. High-risk bonds, which often move like stocks, pushed up Artisan High Income Fund (ARTFX) 1.2%. The dollar slide eased a bit, sending SPDR Barclays Intl. Treasury (BWX) down 1.87%.

On the political initiatives front, it is becoming increasingly likely nothing of significance will get done. The main reason is there is really no way to do anything major given our current large debt without big offsetting spending cuts or tax increases. The only real big new spending is relief of the numerous costly natural disasters. Nobody expects there to be a plan to pay for these even though there probably is more political support to do so than any other new spending. The do-nothing course means an increasing, even with a strengthening economy.

Stock Funds1mo %
Gold Short (DZZ)6.33%
Homestead Value (HOVLX)5.33%
ETRACS 1xMonthly Short Alerian MLP (MLPS)4.83%
iShares MSCI Italy Capped (EWI)3.53%
Vanguard European ETF (VGK)3.22%
Vanguard Value (VTV)2.98%
Vanguard Europe Pacific ETF (VEA)2.52%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)2.40%
Artisan Global Equity (ARTHX)2.24%
[Benchmark] Vanguard 500 Index (VFINX)2.06%
iShares MSCI BRIC Index (BKF)1.25%
Proshares Ultrashort NASDAQ Biotech (BIS)-0.29%
iShares Mortgage REIT (REM)-0.53%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-0.78%
Vanguard Telecom Services ETF (VOX)-1.38%
Vanguard Utilities (VPU)-3.24%
Proshares Ultrashort Russel2000 (TWM)-11.54%
PowerShares DB Crude Oil Dble Short (DTO)-15.70%
Bond Funds1mo %
Artisan High Income Fund (ARTFX)1.20%
Vanguard Mortgage-Backed Securities (VMBS)-0.31%
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.54%
Vanguard Long-Term Bond Index ETF (BLV)-0.84%
SPDR Barclays Intl. Treasury (BWX)-1.87%
Vanguard Extended Duration Treasury (EDV)-4.03%