Powerfund Portfolios Performance Review

Powerfund Portfolios Commentary

march 2006 performance review

April 17, 2006
Category: 
Powerfund Portfolios

Bonds took a dive in March. The roughly 3.5% hit to long-term treasury bonds was the worst hit to bonds since April 2004. The Federal Reserve’s rate-increasing campaign to fight inflation (inflation they may have created) finally caught up with longer-term bonds. ...read the rest of this article»

Commentary

April 17, 2006

 

Bonds took a dive in March. The roughly 3.5% hit to long-term treasury bonds was the worst hit to bonds since April 2004. The Federal Reserve’s rate-increasing campaign to fight inflation (inflation they may have created) finally caught up with longer-term bonds.

Stocks had a good month, with the S&P500 up 1.24%. More speculative stocks outperformed the big caps that dominate the S&P500 and the Dow – a reversal of recent months. The Nasdaq was up 2.56% while the small-cap Russell 2000 Index was up 4.85% – taking small-cap stocks to all time highs, a fairly stretched valuation compared to larger-cap stocks.

Our Conservative portfolio was up 0.22%. With a rough month for bonds, we’re glad to see a positive return. 

The real action came from our new stake in Vanguard Telecom VIPER (VOX), which is also in our Hotsheet for 2006. The ETF (exchange traded fund) was up 4.78% for the month, and up near 15% for the first three months of the year. Investors are becoming wise to the relatively low valuations and high dividends of out-of-favor (at least compared to the rest of the market) telecom stocks. On the one hand, rising interest rates are a threat to any investment bought for yield – who needs a 2% dividend when you can get, say, 6% in government bonds? However, if inflation fears drive interest rates higher, telecom giants are decent inflation picks because the companies have mountains of debt, and debtors generally like inflation. It’s worth noting the American Century Utility fund, which we sold at the end of February, was down 1.51% in March.

SSgA International Growth (SINGX) was no slouch, up 3.5% for the month riding the continuing strength in international stock markets. Too bad we only had 5% in this fund and 5% in the telecom fund. But then, it is a conservative portfolio. International markets keep attracting so much new money that we’re getting quite negative. We’ve had this fund less than a year and it’s up 28% already.

Bill Gross has been moving into longer-term bonds, apparently confident the economy is on the brink of slipping, which will lead to lower interest rates. The Harbor Bond fund (HABDX) was down 1.1% for the month – slightly worse than the 0.98% hit to the total bond market, meaning Gross is likely taking some duration risk here (owning longer maturity bonds than the benchmark).

Short-term bonds were largely flat, with yield making up for the slight decline in prices. Vanguard Short Term Investment Grade (VFSTX) was up just 0.07% in March.

High-yield (junk) bonds were strong compared to investment-grade bonds. Apparently investors are becoming more confident in corporate America’s ability to pay back debt – given that corporate profit margins are at multi-decade highs, it’s not a half bad assumption. Furthermore, if inflation kicks up, companies with lots of debt may benefit; their existing debt load will become easier to payoff as their revenues inflate with everything else. Vanguard High Yield Corporate (VWEHX) was essentially flat for the month. 

Healthcare stocks slipped – HealthCare Select SPDR (XLV) fell 1.23%, reversing previous strength compared to the broader market.

Bonds took a dive in March. The roughly 3.5% hit to long-term treasury bonds was the worst hit to bonds since April 2004. The Federal Reserve’s rate-increasing campaign to fight inflation (inflation they may have created) finally caught up with longer-term bonds.

Stocks had a good month, with the S&P500 up 1.24%. More speculative stocks outperformed the big caps that dominate the S&P500 and the Dow – a reversal of recent months. The Nasdaq was up 2.56% while the small-cap Russell 2000 Index was up 4.85% – taking small-cap stocks to all time highs, a fairly stretched valuation compared to larger-cap stocks.

Our Aggressive Growth portfolio was up 1.59%. The strong stock funds made up for the weakness in bonds. 

The real action came from our new stake in Vanguard Telecom VIPER (VOX), which is also in our Hotsheet for 2006. The ETF (exchange traded fund) was up 4.78% for the month, and up near 15% for the first three months of the year. Investors are becoming wise to the relatively low valuations and high dividends of out-of-favor (at least compared to the rest of the market) telecom stocks. On the one hand, rising interest rates are a threat to any investment bought for yield – who needs a 2% dividend when you can get, say, 6% in government bonds? However, if inflation fears drive interest rates higher, telecom giants are decent inflation picks because the companies have mountains of debt, and debtors generally like inflation.

If international markets keep attracting so much new money, we’re going to have to cut our stakes further. T. Rowe Price Japan was up 4.16% for the month, Artisan International Small Cap (ARTJX) was up 5.15%.

Short-term bonds were largely flat, with yield making up for the slight decline in prices. Vanguard Short Term Investment Grade (VFSTX) was up just 0.07% in March.

Healthcare stocks slipped – HealthCare Select SPDR (XLV) fell 1.23%, reversing previous strength compared to the broader market.

Bill Gross has been moving into longer-term bonds, apparently confident the economy is on the brink of slipping, which will lead to lower interest rates. The Harbor Bond fund (HABDX) was down 1.1% for the month – slightly worse than the 0.98% hit to the total bond market, meaning Gross is likely taking some duration risk here (owning longer maturity bonds than the benchmark).

 

February 2006 performance review

March 17, 2006
Category: 
Powerfund Portfolios

Interest rates were down in February, helping bond fund returns. Longer term bonds gained 0.77% for the month, while Vanguard Total Bond Index (which owns all types of investment grade U.S. bonds) rose 0.37%. ...read the rest of this article»

December 2005 performance review

January 18, 2006
Category: 
Powerfund Portfolios

The Conservative portfolio put in a decent 4.14% showing in '05 – about half of 2004’s 9.35% return, but then the stock market returned more than twice as much in 2004 as well.  ...read the rest of this article»

November 2005 performance review

December 16, 2005
Category: 
Powerfund Portfolios

Stocks rocketed, but bonds were merely ho-hum in November. The Conservative portfolio rose 0.82% for the month. The S&P500 rose 3.78% while the Lehman Brothers Aggregate Bond Index rose just 0.44%. Smaller-cap stocks were hot, and tech hotter still – areas safe portfolios are light on. ...read the rest of this article»

October 2005 performance review

November 16, 2005
Category: 
Powerfund Portfolios

The Conservative portfolio fell 1.25% in October as both bonds and stocks were weak. The S&P500 dropped 1.67% while the Lehman Brothers Long Term Treasury Index fell 1.88%. Smaller-cap stocks fared worse, with the Russell 2000 index of smaller stocks down 3.1%. ...read the rest of this article»

September 2005 performance review

October 17, 2005
Category: 
Powerfund Portfolios

The Conservative portfolio was essentially flat in September, up just 0.08%. Bonds and stocks flipped once again – bonds fell while stocks went up. ...read the rest of this article»

August 2005 performance review

September 16, 2005
Category: 
Powerfund Portfolios

Junk bonds were the weakest part of the bond market, possibly because investors are starting to fear the solvency of corporate America once again, in light of the financial troubles hitting the airline industry. Some more leveraged companies – beyond just airlines – could have trouble eating the higher costs of energy for long periods of time. ...read the rest of this article»

July 2005 performance review

August 17, 2005
Category: 
Powerfund Portfolios

Junk bonds were strong, even though higher-grade bonds dragged. This can sometimes happen when investors are optimistic about corporate health. Since ordinary bonds slipped, the extra yield from owning higher risk bonds over safer bonds is slimmer than it was a month ago. Vanguard High Yield Corporate was up 0.92% ...read the rest of this article»

June 2005 Performance Review

July 15, 2005
Category: 
Powerfund Portfolios

The real action here on the upside was our stake in utilities. American Century Utility Income gained 5% last month. Unfortunately we have recently cut this category out of some of our other portfolios, and have sliced the stake down to just 5% here. Since we bought this fund in the depths of the Enron era, this position has climbed 80% - a full 33% in the last twelve months alone. This party has gone on a little too long. ...read the rest of this article»

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