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September 2020 Performance Review

October 2, 2020

Recurring COVID economic fears on top of political uncertainly started to weigh on markets again. Until recently, markets had been acting as if the worst was well behind us, and it was just a question of how fast the recovery was going to be.

Our Conservative portfolio declined 2.12% and our Aggressive portfolio declined 3.29%. Benchmark Vanguard fund performances for September 2020 were as follows: Vanguard 500 Index Fund (VFINX), down 3.80%; Vanguard Total Bond Market Index Fund (VBMFX), up 0.08%; Vanguard Developed Markets Index Fund (VTMGX), down 2.01%; Vanguard Emerging Markets Stock Index (VEIEX), down 1.67%; and Vanguard Star Fund (VGSTX), a total global balanced portfolio, down 1.88%.

Our recent trades didn't help much as there was real weakness in many areas that have had the worst returns of the last decade or so, relative to US larger cap stocks. This includes small cap value, energy funds, and many emerging markets, notably newly-added Brazil Franklin FTSE Brazil ETF (FLBR). Basically, anything that was popular with investors about 10—15 years ago has had a terrible 10—15 years.

We've been adding these long-term underperformers recently and getting out of any remaining larger cap growth or tech-oriented funds. In hindsight we started this transition way too early. Energy was the only fund category down by double digits last month as oil prices weakened, as did expectations for any sort of demand recovery in the future. Our new 2020 pick Vanguard Energy (VDE) was down a whopping 14.77% in this environment. Even the dollar started to edge back, dragging on most foreign markets priced here in dollars.

The only real shining area in our portfolios is South Korea, which is booming, with a 45% return since we added it in April and a 2.42% rise last month. It wasn't enough to help our otherwise lackluster returns in this strange COVID market, where mostly U.S. tech stocks lead the way and are benefiting from the losses in the less digital economy. This issue is global, as most countries don't have our country's dominance in digital. In many ways they are more exposed to falling earnings due to COVID, even though many countries are doing a better job than us of managing the outbreak and the shutdowns.

There is a sad zero-sum game going on because of COVID. Entire industries, particularly those related to travel, are losing most of their revenues to the COVID winners. It is not even a zero-sum game, as the entire economy is smaller than it was at the beginning of the year. This is why some of these stock moves up, even with the winners, are overblown. The entire market cap should be down, along with GDP. The winners' stock prices are gaining more than the losers are losing, and it can't go on forever.

Stock Funds1mo %
Franklin FTSE South Korea ETF (FLKR)2.42%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-1.67%
Vanguard FTSE Developed Markets (VEA)-1.78%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-2.01%
Franklin FTSE China ETF (FLCH)-2.09%
Vanguard Value ETF (VTV)-2.24%
Franklin FTSE Germany ETF (FLGR)-2.82%
Homestead Value Fund (HOVLX)-2.87%
Vanguard FTSE Europe (VGK)-3.09%
VanEck Vectors Pharmaceutical (PPH)-3.66%
Vanguard Small-Cap Value (VBR)-3.73%
[Benchmark] Vanguard 500 Index (VFINX)-3.80%
Vanguard Energy (VDE)-14.77%
Bond Funds1mo %
[Benchmark] Vanguard Total Bond Index (VBMFX)0.08%
Vanguard Short Term Inflation Prote (VTIP)-0.18%
Schwab US TIPS (SCHP)-0.31%
iShares JP Morgan Em. Bond (LEMB)-1.09%