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January 2024 Performance Review

February 22, 2024

December's significant returns for stocks and bonds largely fizzled out in January, at least for non-US stocks. There were some bright spots, like Japan, but most foreign markets and bonds were down. An allocation to still-sinking China more than offset our gains in Japan, and longer-term bond funds were down more than the bond index, resulting in negative numbers.

Our Conservative portfolio declined by 1.76%, and our Aggressive portfolio by 0.90%. Benchmark Vanguard funds for January 2024 were as follows: Vanguard 500 Index Fund (VFINX), up 1.68%; Vanguard Total Bond Index (VBMFX), down 0.24%; Vanguard Developed Mkts Index (VTMGX), down 1.23%; Vanguard Emerging Mkts Index (VEIEX), down 3.53%; and Vanguard Star Fund (VGSTX), a total global balanced portfolio, down 0.26%.

Only around 5% of all fund categories outperformed the S&P 500 last month (and not by much), as large-cap growth stocks in the US continued to deliver all the significant gains worldwide. Only our Vanguard Communication ETF (VOX) holding benefited from booming tech stocks, with a 3.9% return for the month. Our best holding was VanEck Vectors Pharma. (PPH), up 5.23% — a large gain for a relatively low-risk sector. Investors are excited about high-profit medications dealing with obesity and the near-limitless growth such advancements seem to predict. In some ways, obesity medications are the AI chips of healthcare.

Japan has been on a strong performance streak after decades of essentially going nowhere, helping our Franklin FTSE Japan ETF (FLJP) holding climb 2.93%, not enough to make up for significant losses in Franklin FTSE China (FLCH) down almost 10%. Japan has been so hot that their stock index is about to break the highs hit in 1989. That’s right, when you invest at the top of a bubble, it may take 35 years to break the old highs. Unlike with our own example in 1929, where high dividends led to an acceptable return even though the index took more than 20 years to break the old highs. In Japan, dividends were scarce as P/Es were to the moon in 1989, so total returns have been poor. With falling consumer prices for decades, the inflation-adjusted returns in Japan were less disastrous.

Interest rates drifted back up as ongoing fears over inflation and the Fed's near-future response weighed on bonds. Our long-term bond funds were down more than the bond index, with Vanguard Long-Term Bond Index ETF (BLV) down 1.37%, Vangaurd L/T Treasury (VGLT) down 1.79%, and Vanguard Extended Duration Treasury (EDV) taking a big near 4% hit, but these numbers were all after sharply strong year-end figures as rates fell with falling inflation in late 2023. iShares JP Morgan Em. Bond (LEMB) dipped 1.85%, but this was more due to currency fluctuations, perhaps related to general fears of emerging markets, of which China is the largest component both in the indexes and in actual economic activity.

With all the positivity in US markets, investors may have missed signs that large regional banks are still having problems, with drops in stocks that make the recovery since the FDIC bailouts and seizures of early 2023 seem premature. Banks are making nice interest rate spreads now, borrowing at near zero from branch depositors and lending at over 5%, but previous low-rate loans, especially to troubled commercial real estate developers, may overwhelm the otherwise benefits of a strong economy.

Stock Funds 1mo %
[Benchmark] Vanguard 500 Index (VFINX) 1.68%
Homestead Value Fund (HOVLX) 1.29%
Vanguard Value Index (VTV) 0.87%
Proshares Short High Yld (SJB) 0.29%
LeatherBack L/S Alt. Yld. (LBAY) -0.38%
Vanguard FTSE Developed Mkts. (VEA) -1.09%
Vanguard FTSE Europe (VGK) -1.23%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX) -1.23%
Invesco CurrencyShares Euro (FXE) -1.92%
Franklin FTSE Germany (FLGR) -2.00%
Proshares Short Bitcoin (BITI) -2.43%
Vangaurd All-World Small-Cap (VSS) -3.13%
ProShares UltraShort QQQ (QID) -3.20%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX) -3.53%
Franklin FTSE Brazil (FLBR) -5.56%
Franklin FTSE South Korea (FLKR) -8.90%
Franklin FTSE China (FLCH) -9.66%
UltraShort Bloom. Crude Oil (SCO) -10.00%
Bond Funds 1mo %
BondBloxx Six Month Treasury ETF (XHLF) 0.80%
[Benchmark] Vanguard Total Bond Index (VBMFX) -0.24%
Vanguard Long-Term Bond Index ETF (BLV) -1.37%
Vangaurd L/T Treasury (VGLT) -1.79%
iShares JP Morgan Em. Bond (LEMB) -1.85%
Vanguard Extended Duration Treasury (EDV) -3.99%