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January 2018 Performance Review

February 3, 2018

This bull market is getting a little long in the tooth.

In January, even with some weakness near the end of the month (a slide that accelerated into February), the S&P 500 was up almost 6%, with dividends. It seems like nothing can go wrong — the economy is heating up and corporate after-tax profits are destined to climb with the recent corporate tax cut.

Our Conservative portfolio gained 0.61% in Januaray. Our Aggressive portfolio was up 2.75%. Benchmark Vanguard funds for January 2018 were as follows: Vanguard 500 Index Fund (VFINX) up 5.71%; Vanguard Total Bond Market Index Fund (VBMFX) down 1.10%; Vanguard Developed Markets Index Fund (VTMGX) up 4.86%; Vanguard Emerging Markets Stock Index (VEIEX) up 8.39%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 3.54%.

Unfortunately just as it it's always darkest before the dawn, things can look their brightest before a fall. Too much of a good thing is the main worry right now. We cut taxes into an already heating up economy which will lead to more inflation which will cause the federal reserve to raise rates higher than they would with no tax cuts. This means higher mortgage and other financing rates — and if those go high enough we could be looking at another recession.

The strongest areas last month were Latin stocks up about 12% (and the only double-digit gaining category in January) followed closely by China and emerging market stocks, both up in the 7%-9% range.

Foreign stocks in general beat U.S. equites and larger-cap growth stocks in the U.S. were the strongest area domestically, up a stunning 7.4% in January. Larger-cap growth stocks have now beat smaller value by a fairly wide margin of about five percentage points a year over the last five years and are no longer the great relative bargain they once were.

The only double-digit performers in the models where iShares MSCI BRIC Index (BKF) and iShares MSCI Italy Capped (EWI), up 12.45% and 10.97% respectively. All other holdings else was more or less on par with the market, except for interest rate sensitive funds like Vanguard Utilities (VPU) and Vanguard Telecom Services ETF (VOX) down 3.13% and up 1.14% respectively.

With all boats rising, shorting anything was a bomb.

On the bond side, junk bonds and foreign unhedged bonds did well as our dollar slid again. Our other bond funds suffered with rising rates.

The problem with the very recent stock slide that isn't fully reflected in January numbers is that interest rates are rising and are sending bonds down as well — in fact the rates started going up before stocks went down. Right now, essentially everything is dropping and even balanced portfolios are taking hits. This means bond funds are falling as are safer yield-oriented stocks like telecom and utilities. That said, we're down less than the indexes and the Vanguard Star fund — which should be expected as we were lagging during this sharp run up.

Stock Funds1mo %
iShares MSCI BRIC Index (BKF)12.45%
iShares MSCI Italy Capped (EWI)10.97%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)8.39%
Artisan Global Equity (ARTHX)7.79%
[Benchmark] Vanguard 500 Index (VFINX)5.71%
Vanguard European ETF (VGK)5.63%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)4.86%
Homestead Value (HOVLX)4.85%
Vanguard Europe Pacific ETF (VEA)4.75%
Vanguard Value (VTV)4.71%
Vanguard Telecom Services ETF (VOX)1.14%
Vanguard Utilities (VPU)-3.13%
Proshares Ultrashort Russel2000 (TWM)-5.11%
Gold Short (DZZ)-5.97%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-5.98%
iShares Mortgage REIT (REM)-6.86%
PowerShares DB Crude Oil Dble Short (DTO)-13.01%
Proshares Ultrashort NASDAQ Biotech (BIS)-13.42%
Bond Funds1mo %
SPDR Barclays Intl. Treasury (BWX)2.92%
Artisan High Income Fund (ARTFX)1.19%
Vanguard Mortgage-Backed Securities (VMBS)-0.92%
[Benchmark] Vanguard Total Bond Index (VBMFX)-1.10%
Vanguard Long-Term Bond Index ETF (BLV)-1.86%
Vanguard Extended Duration Treasury (EDV)-3.34%