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December 2015 Performance Review

For the year, our Aggressive Portfolio managed a market-beating 3.06% return, while our Conservative Portfolio slid 1.36%, largely weighed down by bonds and ill-fated stock funds. There are over 1,000 unique fund of fund mutual funds (funds that own other funds to build a total portfolio like our model portfolio). Nobody that owned stock and bond funds was up more than 3.06% in 2015.

November 2015 Performance Review

Shorting commodities is really what pushed the Aggressive portfolio above the market benchmarks in November, with our two holdings in this area generating double-digit returns.

October 2015 Performance Review

While we have stock funds that did well, with a large weight to bonds, shorts that lost money, and foreign funds that are still lagging the U.S. market, we'll have to settle for just so-so performance in October, relatively speaking.

September 2015 Performance Review

The stock market continues down, but in September bonds did well again, notably longer-dated government and investment grade bonds. This bond boost, plus our short positions, kept us falling less than the market — even with many foreign funds underperforming the S&P 500.

August 2015 Performance Review

The Powerfund Portfolios are both ahead of the S&P so far in 2015 — down less than 1% in the Aggressive portfolio and less than 2% in the Moderate.

Black Monday For ETFs

August 24th was probably the worst day in the history of exchange-traded funds. While the 1,000 point plus loss in the Dow early on 8/24 gets all the headlines, some large ETFs took a dive, albeit a brief one, that would be the equivalent of a 7,000 plus point loss in the Dow. Yikes. 

July 2015 Performance Review

With interest rates heading back down and a global commodity slide intensifying, the Powerfund Portfolios are back to doing well relative to benchmarks. Our Aggressive portfolio matched the performance of the S&P 500 in July, even with the Aggressive port's 40% (roughly) bond allocation. 

Dr. Frankenstein’s Bond Funds

Investors have been worried about rising interest rates for years. That fear has created a bond market fueled by funds designed to protect investors from the any-day-now-you-just-wait interest rate disaster. Like 1950s-era bomb shelters, these funds are costly protection you don’t need. Ninety-eight percent of all bond money is invested in funds with marginal interest rate risk. Interest rate risk is a phantom menace.

June 2015 Performance Review

Not our best showing last month, but with the recent slide in stocks joining the weakness in bonds, our Aggressive portfolio (up 1.45% YTD) is now just ahead of the S&P 500 (1.17% YTD) with dividends for the first half of 2015. The bond-heavier Conservative portfolio dipped more for the month and year-to-date than the Aggressive as bonds have underperformed so far in 2015. Considering Vanguard Long-Term Investment-Grade (VWESX) is down 4.8% for the year, we're classifying the Conservative portfolios -0.87% YTD showing as 'hanging in there'.

Our Conservative portfolio was down 2.18% for the month. The Aggressive portfolio dropped 1.57%. Benchmark Vanguard funds for June 2015: Vanguard 500 Index Fund (VFINX) down 1.93%; Vanguard Total Bond Market Index Fund (VBMFX) off 1.02%; Vanguard Developed Markets Index Fund (VTMGX) down 2.79%; Vanguard Emerging Markets Stock Index (VEIEX) down 2.39%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, fell 1.69%.

Small-cap growth was really the only area of positive returns in June (it's also is sporting some of the best year-to-date numbers at just over 7%).

U.S. sector funds were almost all down last quarter except for financials and healthcare, the latter being responsible for barely positive S&P 500 numbers YTD. Take Healthcare out and the S&P 500 would be in negative territory in 2015.

Most countries are having a good year rebounding from previous declines. The strongest markets are Japan and China.

But interest rates is where the hub-bub is. We don't expect the great rate increase to continue much longer — there is just too much money that says it will. Moreover, Greece is once again causing some alarm to investors, which could put more pressure on emerging market bonds and higher risk debt in general, both foreign and domestic.

There are many possible scenarios investors should consider when setting up their portfolios for the (supposedly) inevitable rate rise because rates might go up and they might not. There is no rational reason to believe that rates will rise to levels of the past. There is no inalienable rule of the universe that says investors in bonds (or stocks) have to earn a positive real return — there could be 1% yields and 2% inflation for years to come.

Just for fun, here's a list of possible scenarios that are as likely as the expected big run-up in rates that could burn most bond investors in ways they are not expecting to get burned:

  • Flat to inverted yield curve
  • Spread widens between Government and higher risk debt from a panic somewhere
  • Even lower yields! Why is a 5% treasury bond more likely than a 1.5% ten year treasury?
  • Higher inflation and negative real rates for all investment grade bonds below 10 duration
  • Negative fee-adjusted yields for most bond funds
  • Falling U.S. dollar with rising credit spreads in U.S. slowdown
  • Rising euro if sketchy Greece gets a brand new second hand currency

May 2015 Performance Review

It wasn't our best month, that's for sure. With the S&P 500 rising just over 1% in May, we lost a fraction of a percent in both Powerfund portfolios, thanks mostly to bond underperformance, along with a weak foreign stock chaser.