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June 2017 Performance Review

August 2, 2017

It was another solid month for stocks globally, with essentially everything up. The only fund category displaying red arrows was longer-term government funds, and this bond fund category, sensitive to interest rates, was down less than 1%. The strongest areas were once again abroad, as foreign markets continue to catch up after years of underperforming the U.S. market.

Even with the drag of shorting and longer-term government bonds, we had a solid month against benchmarks with the extra boost from some foreign markets. Coincidentally, our conservative portfolio had the exact same return as our Vanguard Star fund benchmark, which is riskier than our conservative model portfolio.

The Conservative portfolio gained 1.71% while our Aggressive portfolio gained 2.16%. Benchmark Vanguard funds performed as follows in July 2017: Vanguard 500 Index Fund (VFINX) up 2.04%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.37%; Vanguard Developed Markets Index Fund (VTMGX) up 2.94%; Vanguard Emerging Markets Stock Index (VEIEX) up 5.31%; and Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 1.71%.

While markets were strong in the U.S. in non-sectors, really just larger cap growth, stocks did notably well with a near 3% return. Smaller cap was barely up, particularly value stocks. Abroad, the hottest market was Latin America, with funds in this category up just under 9%, followed closely by India and China funds, both up over 5%. Russia was up over 4%. This drove returns on our top returner last month, iShares MSCI BRIC Index (BKF), up 8.33%. Italy was about the strongest area in non-emerging markets, driving iShares MSCI Italy Capped (EWI) up 7.05%. We didn't even lose that much shorting small cap stocks with leverage, as Proshares Ultrashort Russel2000 (TWM) was down 1.76% because small cap stocks were lagging in July. Shorting gold, biotech, and notably oil hurt as they all went up.

In bonds, strong corporates hid our losses in longer-term government bonds in our holdings, except in Vanguard Extended Duration Treasury (EDV), which was down 0.53%. This is a 100% long-term U.S. government bond fund, and in effect the longest-term Treasury bond fund, which makes it the most sensitive to interest rates. The reason for most of the gains abroad in stocks — the falling U.S. dollar — pushed SPDR Barclays Intl. Treasury (BWX) up 2.93% for the month.

Besides investors rebalancing into underperforming assets, what is driving this global goodness in recent months is other countries looking a little better than they did last year, while we are looking a little worse. The likelihood of significant new policy initiatives to boost the economy if the Fed continues to raise rates looks slim at best, including any tax cuts. Our dollar was riding high a few months ago on continued American optimism for growth and higher interest rates compared to other major economies. Higher rates can attract money from abroad looking for safe yield. This earlier flow is reversing as our interest rates drift down slightly. The early Trump boom is gone but investors are confident in investing everywhere, and perhaps overly confident.

Stock Funds1mo %
iShares MSCI BRIC Index (BKF)8.33%
iShares MSCI Italy Capped (EWI)7.05%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)5.31%
Artisan Global Equity (ARTHX)4.13%
Vanguard Utilities (VPU)3.45%
Vanguard Telecom Services ETF (VOX)2.95%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)2.94%
Vanguard Europe Pacific ETF (VEA)2.88%
Vanguard European ETF (VGK)2.83%
iShares Mortgage REIT (REM)2.30%
[Benchmark] Vanguard 500 Index (VFINX)2.04%
Vanguard Value (VTV)1.54%
Homestead Value (HOVLX)1.45%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-0.58%
Proshares Ultrashort Russel2000 (TWM)-1.76%
Gold Short (DZZ)-4.28%
Proshares Ultrashort NASDAQ Biotech (BIS)-6.02%
PowerShares DB Crude Oil Dble Short (DTO)-16.75%
Bond Funds1mo %
SPDR Barclays Intl. Treasury (BWX)2.93%
Artisan High Income Fund (ARTFX)1.18%
Vanguard Mortgage-Backed Securities (VMBS)0.45%
Vanguard Long-Term Bond Index ETF (BLV)0.39%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.37%
Vanguard Extended Duration Treasury (EDV)-0.53%

June 2017 Performance Review

July 4, 2017

Most markets flattened out in June with very few areas rising or falling much. The strongest areas in stocks were small-cap in general and value oriented stocks of all sizes. China, Japan, and other markets in Asia where strong while Europe was weak. Yield oriented stocks were soft. Bonds in general had an uneventful June but we just saw longer-term bonds go up in price (yields down) while shorter-term bond prices fell as the yield curve flattened out.

Our Conservative portfolio gained 0.08% in June. Our Aggressive portfolio gained 0.23%. Benchmark Vanguard funds for June 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 0.61%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.03%; Vanguard Developed Markets Index Fund (VTMGX) up 0.57%; Vanguard Emerging Markets Stock Index (VEIEX) up 0.78%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.76%.

Technology stocks have recently started to falter, perhaps on the growing worry that things have gotten a little too euphoric in startups and tech stocks.

It's no 1999 bubble yet, but valuations of the tech leaders are getting to levels that are going to require unrealisticallly rapid growth to continue to stay in the black, and actual solid profit margins to appear someday.

The trouble is, some of these companies compete with each other aggressively, and are getting so large regulators may start thinking monopoly. Google (Alphabet) just got fined around $3B by European Union regulators.

Meanwhile hard hit areas like energy stocks may turn around as investors make a move back to the old economy so to say.

Oil's renewed drop pushed our oil short PowerShares DB Crude Oil Dble Short (DTO) up by 9.19% with our gold short Gold Short (DZZ) close by with a 4.65% return.

Of our non-shorts, only Vanguard Value (VTV) up 1.8% and iShares MSCI Italy Capped (EWI) up 1.54% were noteworthy performers, the latters performance defying a down month for European stocks in general (as seen in our holding Vanguard European ETF (VGK), which fell 0.53%).

June was a rough month for our small-cap and biotech shorts, with Proshares Ultrashort Russel2000 (TWM) down 6.7% and Proshares Ultrashort NASDAQ Biotech (BIS) dropping 16.29%.

Utilities and telecom were weak: Vanguard Utilities (VPU) fell 3.1% and Vanguard Telecom Services ETF (VOX) 2.29%. The good news here is that telecom is starting to be attractive again given recent returns and investors behavior.

Longer-term bonds were the best debt performers with Vanguard Long-Term Bond Index ETF (BLV) gaining 0.89%, even with rates creeping up on the short- to mid-range of the yield curve (where most investors are).

Our lone loser in bonds was Vanguard Mortgage-Backed Securities (VMBS), which fell 0.26%.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)9.19%
Gold Short (DZZ)4.65%
Vanguard Value (VTV)1.80%
iShares MSCI Italy Capped (EWI)1.54%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)0.78%
ETRACS 1xMonthly Short Alerian MLP (MLPS)0.75%
iShares MSCI BRIC Index (BKF)0.68%
Vanguard Europe Pacific ETF (VEA)0.62%
[Benchmark] Vanguard 500 Index (VFINX)0.61%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)0.57%
Artisan Global Equity (ARTHX)0.55%
iShares Mortgage REIT (REM)0.32%
Homestead Value (HOVLX)0.28%
Vanguard European ETF (VGK)-0.53%
Vanguard Telecom Services ETF (VOX)-2.29%
Vanguard Utilities (VPU)-3.10%
Proshares Ultrashort Russel2000 (TWM)-6.69%
Proshares Ultrashort NASDAQ Biotech (BIS)-16.29%
Bond Funds1mo %
Vanguard Long-Term Bond Index ETF (BLV)0.89%
Vanguard Extended Duration Treasury (EDV)0.54%
Artisan High Income Fund (ARTFX)0.36%
SPDR Barclays Intl. Treasury (BWX)0.33%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.03%
Vanguard Mortgage-Backed Securities (VMBS)-0.26%

The Powerfund Portfolios posted solid gains in May, with both the Conservative and Aggressive portfolios beating Vanguard's main U.S. stock index and total global fund. As we're taking less risk than these funds it's harder to do this in an up market (as May was), than a down one.

We've been more or less lagging benchmarks indexes since the Trump election upset so it is a little early to spike the football, but our year-to-date figures are now closing in on these hard to beat funds. Adjusting for risk we more often beat both Vanguard's U.S. stock index and total global fund, as will probably become apparent again in any meaningful stock market drop.

In May, our Conservative portfolio gained 2.03%. Our Aggressive portfolio jumped 1.92%. Benchmark Vanguard funds for May 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 1.39%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.67%; Vanguard Developed Markets Index Fund (VTMGX) up 3.41%; Vanguard Emerging Markets Stock Index (VEIEX) up 1.22%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 1.86%.

While the stock market's brief sharp drop in mid-May has largely been erased in recent days, most of our upside has been from the U.S. dollar declining as the euro, and foreign stock markets, have been hot (after a long spell of underperformance for both).

In the U.S. the strongest funds in May were in large-cap growth stocks. Small-cap value funds where down nearly 3% on average. We're short small-cap but the hedge has mostly been a bust in this hot market led by riskier small-caps. In general, we would prefer shorting small-cap value as that category has been the most overpriced of late, but this is not easy to do with inverse ETFs.

Almost all foreign markets beat the S&P 500 in May, except for Latin American funds which were the sole big category loser, down about 3%. This dragged on our iShares MSCI BRIC Index (BKF) stake which posted only a 1.36% return.

Long-term investment-grade bonds were top performers as interest rates declined. We had a 3.2% gain in Vanguard Extended Duration Treasury (EDV) and a 1.9% jump in Vanguard Long-Term Bond Index ETF (BLV). The falling dollar helped boost SPDR Barclays Intl. Treasury (BWX) 1.92%. Higher-risk bonds did fine but the bigger gains where in more interest rate sensitive bonds. We're considering exiting our strong performing high yield bond fund Artisan High Income Fund (ARTFX), which was up 0.58% in May.

In sectors, financials and energy were weak — high beta stocks that have done well since Trump's election. The only real drags were Vanguard Telecom Services ETF (VOX), down 3.06%, and iShares Mortgage REIT (REM), down 1.47%. The former's poor performance was a bit of a surprise as safe and yield have been doing well. The latter's rough month was probably just a bit of a correction after big recent gains.

Other than a basically flat month shorting gold, our shorts were helping returns (it has been awhile..) with Proshares Ultrashort NASDAQ Biotech (BIS) up 7.49%, ETRACS 1xMonthly Short Alerian MLP (MLPS) up 6.38%, PowerShares DB Crude Oil Dble Short (DTO) up 5.31%, and Proshares Ultrashort Russel2000 (TWM) up 3.67%. With mostly big returns abroad — iShares MSCI Italy Capped (EWI) up 5.37%, and Vanguard European ETF (VGK) up 4.91% — AND good returns in bonds, we couldn't help but have a good May.

Stock Funds1mo %
Proshares Ultrashort NASDAQ Biotech (BIS)7.49%
ETRACS 1xMonthly Short Alerian MLP (MLPS)6.38%
iShares MSCI Italy Capped (EWI)5.37%
PowerShares DB Crude Oil Dble Short (DTO)5.31%
Vanguard European ETF (VGK)4.91%
Artisan Global Equity (ARTHX)4.04%
Vanguard Utilities (VPU)4.00%
Proshares Ultrashort Russel2000 (TWM)3.67%
Vanguard Europe Pacific ETF (VEA)3.41%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)3.41%
[Benchmark] Vanguard 500 Index (VFINX)1.39%
iShares MSCI BRIC Index (BKF)1.36%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)1.22%
Homestead Value (HOVLX)0.40%
Vanguard Value (VTV)0.06%
Gold Short (DZZ)-0.19%
iShares Mortgage REIT (REM)-1.47%
Vanguard Telecom Services ETF (VOX)-3.06%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)3.20%
SPDR Barclays Intl. Treasury (BWX)1.92%
Vanguard Long-Term Bond Index ETF (BLV)1.90%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.67%
Artisan High Income Fund (ARTFX)0.58%
Vanguard Mortgage-Backed Securities (VMBS)0.50%

April 2017 Performance Review

May 3, 2017

April was a good month for stocks and bonds across the board in April, with foreign markets performing best of all. With longer-term rates declining and foreign markets strong, our model portfolios logged a decent month — even with the drag of shorting.

Our Conservative portfolio gained 1.62%. The Aggressive portfolio rose 1.06%. Benchmark Vanguard funds for April 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 1.22%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.96%; Vanguard Developed Markets Index Fund (VTMGX) up 1.74%; Vanguard Emerging Markets Stock Index (VEIEX) up 0.32%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 1.53%.

Growth stocks led the charge in the U.S. market with returns between 2 and 3% typical. Big value stocks were barely positive (as seen in our Vanguard Value (VTV) holding, which was down fractionally).

European stocks were up just over 4% as anti-EU candidate Marie La Pen was denied victory in French elections (at least for now). This also boosted the Euro and helped our foreign bond fund SPDR Barclays Intl. Treasury (BWX) with a 1.43% return.

The hottest area was Indian stocks (again), up just over 5% and the best area abroad with solid double-digit annualized three-year numbers. Close behind was Japan stocks (and not much else) as foreign stocks have been weak for much of the last few years.

Shorting stocks and gold meant losses in April but oil slipped, sending PowerShares DB Crude Oil Dble Short (DTO) up 7.42% for the month.

Longer-term government bonds led the bond markets in April even outperforming high-yield bond funds. Over the last year higher-risk debt has done better with high-yield bond funds up just over 10% while long-term government bonds are still down slightly over this period.

In general, safer debt (including muni bonds) are more attractively priced than high-yield debt now. Reach for yield has pushed bond prices up, and we're benefiting with Artisan High Income Fund (ARTFX) — up 1.37% in April — and iShares Mortgage REIT iShares Mortgage REIT (REM), which delivered a 3.6% return. iShares Mortgage REIT iShares Mortgage REIT (REM)'s big month means it's up 14.16% YTD and 32.77% in the last year.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)7.42%
Vanguard European ETF (VGK)3.90%
iShares Mortgage REIT (REM)3.60%
Artisan Global Equity (ARTHX)2.85%
iShares MSCI Italy Capped (EWI)2.76%
Vanguard Europe Pacific ETF (VEA)2.21%
Vanguard Telecom Services ETF (VOX)2.19%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)1.74%
iShares MSCI BRIC Index (BKF)1.46%
[Benchmark] Vanguard 500 Index (VFINX)1.22%
Vanguard Utilities (VPU)0.67%
Homestead Value (HOVLX)0.48%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)0.32%
Vanguard Value (VTV)-0.03%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-0.52%
Gold Short (DZZ)-2.56%
Proshares Ultrashort Russel2000 (TWM)-2.64%
Proshares Ultrashort NASDAQ Biotech (BIS)-3.06%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)1.84%
Vanguard Long-Term Bond Index ETF (BLV)1.58%
SPDR Barclays Intl. Treasury (BWX)1.43%
Artisan High Income Fund (ARTFX)1.37%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.96%
Vanguard Mortgage-Backed Securities (VMBS)0.56%

March 2017 Performance Review

April 4, 2017

The rally in stocks fizzled in March and bonds didn't offer much help as rates drifted up slightly. Foreign stocks performed better as the valuation gap — after years of underperformance to the U.S. stock market — may be attracting more money.

Our Conservative portfolio gained 0.69% in March. The Aggressive portfolio rose 0.85%. Benchmark Vanguard funds for March 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 0.10%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.06%; Vanguard Developed Markets Index Fund (VTMGX) up 3.00%; Vanguard Emerging Markets Stock Index (VEIEX) up 2.25%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.85%.

We beat the benchmarks this month (finally…) largely on the strength of foreign stock funds, and fair performance from our shorts (including a 10% gain in PowerShares DB Crude Oil Dble Short (DTO)). At the top of the traditional fund heap was iShares MSCI Italy Capped (EWI), up 8.84% for the month and leading the already strong European markets (Vanguard European ETF (VGK) also performed well, up 4.43%)).

Emerging markets were hot with iShares MSCI BRIC Index (BKF) up 2.57%, largely on the work of Indian stocks.

Mortgage REITs also sizzled, with the Conservative portfolio's iShares Mortgage REIT (REM) up 2.88%. In general we're seeing risky yield-reach again by investors.

Our only notable bad performers from March: Vanguard Telecom Services ETF (VOX), down 2.11% — and now quite attractive again given recent lagging. Value stocks in general were weak with Homestead Value (HOVLX) down 0.72% and Vanguard Value (VTV) down 0.92%. We had mild declines in longer-term bond funds like Vanguard Long-Term Bond Index ETF (BLV), down 0.70%, and Vanguard Extended Duration Treasury (EDV) down 0.97% — though longer-term bonds are not attractively priced after the big gain in U.S. stocks over the last year.

Large-cap growth was the strongest U.S. category with a roughly 1% return, but we're not directly exposed here now.

Foreign stocks aren't really that cheap when you factor in the likely slower earnings growth than the U.S. market in larger markets and the heighted risk in emerging markets, but with our currency expensive after a multi-year rise large gains can be made investing abroad in unhedged funds solely on our currency weakening. Bottom line: you are now getting more diversification benefit from owning foreign assets than probably anytime in the last 10 years.

Non-emerging market foreign stock fund categories generally have higher ratings on our proprietary category rating system because the returns have been relatively weak and money flows have been less positive recently. Ideally we'd see huge outflows from foreign stock funds, which we'd buy into. But there may just be too many investors today who diversify to any and evertying, in contrast to the sort of 1990s style performance chasing we used to witness. Emerging market stock funds have done well and have beaten U.S. markets this year but are still seriously underperforming from levels hit in early 2011 — actually going in a different direction completely through much of this time. Right now, emerging market stocks are not that attractive given the recent gains, and interest by investors we'll likely focus more on larger foreign economies.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)10.00%
iShares MSCI Italy Capped (EWI)8.84%
Vanguard European ETF (VGK)4.43%
Vanguard Europe Pacific ETF (VEA)3.06%
ETRACS 1xMonthly Short Alerian MLP (MLPS)3.06%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)3.00%
iShares Mortgage REIT (REM)2.88%
iShares MSCI BRIC Index (BKF)2.57%
Artisan Global Equity (ARTHX)2.49%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)2.25%
Proshares Ultrashort NASDAQ Biotech (BIS)1.42%
Gold Short (DZZ)1.04%
[Benchmark] Vanguard 500 Index (VFINX)0.10%
Vanguard Utilities (VPU)-0.05%
Proshares Ultrashort Russel2000 (TWM)-0.62%
Homestead Value (HOVLX)-0.72%
Vanguard Value (VTV)-0.92%
Vanguard Telecom Services ETF (VOX)-2.11%
Bond Funds1mo %
SPDR Barclays Intl. Treasury (BWX)0.76%
Artisan High Income Fund (ARTFX)0.18%
Vanguard Mortgage-Backed Securities (VMBS)0.10%
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.06%
Vanguard Long-Term Bond Index ETF (BLV)-0.70%
Vanguard Extended Duration Treasury (EDV)-0.97%

February 2017 Performance Review

March 3, 2017

Maybe it is the buzzy Snap IPO, maybe the daily stock market record highs, but we seem to be getting closer to that ole' irrational exuberance again.

U.S. stocks where the clear winners again in February, but risky global assets, from emerging markets to junkier debt, posted good numbers as well.

Our Conservative portfolio gained 1.60% in February and the Aggressive portfolio gained 1.12%. Benchmark Vanguard funds for February 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 3.96%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.66%; Vanguard Developed Markets Index Fund (VTMGX) up 0.99%; Vanguard Emerging Markets Stock Index (VEIEX) up 3.28%; Vanguard Star Fund Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 2.11%.

The portfolios hung in there versus the benchmarks thanks to exposure to said emerging markets and junk debt. Shorts and our foreign bonds were the main drag, as were foreign non-emerging market stocks, which barely budged. We're just not taking enough stock risk in general to keep up with high-stock-allocation balanced portfolios like Vanguard Star Fund Vanguard Star Fund (VGSTX) have which is about 60% stocks, mostly U.S. It's worth noting that in down markets we don't fall as much as VGSTX either and have outperformed it with our aggressive portfolio since early 2002.

Hot areas for the month include emerging market stocks from India, China, and Latin American which is why iShares MSCI BRIC Index (BKF) was up 3.51% — just short of the U.S. Index. Other winners were iShares Mortgage REIT (REM) up 5.68% as investors flocked to riskier yield and a surprise 4.95% jump in Vanguard Utilities ETF (VTU) as utilites rebounded sharply without a major drop in interest rates.

For now, the mentality of investors is stocks will win and bonds will lose. The economy is still improving and fears of a pending recession have vanished. Upbeat inflation and employment data supports the rising stock picture, as well as the rising rate story.

The economy has finally become strong enough for the Federal Reserve to speed up the rate increases (and maybe kill all the fun in the process). This fear of rising rates has been around for quite some time now, but recently the fear has morphed into angst over rising inflation from of economic activity rather than Federal Reserve mischief.

It's possible stocks will continue to rise while bond prices decline and yields go up. We had near 1% dividend yields on stocks in early 2000 during the epic bubble, and over 5% yields on bonds when investors didn't care for bonds. Today the stock market yields about 2% while 10-year government bonds yield just shy of 2.5%. Heck, stocks could double and bonds fall by half. Or stocks could crash like they did they last time famed economist Robert Schiller's valuation measures were as high as today.

Sure, either a big rise or '29 style crash are unlikely, even if either happened it would likely end as badly as it did in 2000 when treasury bonds basically outperformed stocks for the next 15 years. It's more likely stocks will get a little more inflated but rates will stay near current levels.

Stock Funds1mo %
iShares Mortgage REIT (REM)5.68%
Vanguard Utilities (VPU)4.95%
Homestead Value (HOVLX)4.75%
[Benchmark] Vanguard 500 Index (VFINX)3.96%
Vanguard Value (VTV)3.58%
iShares MSCI BRIC Index (BKF)3.51%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)3.28%
Vanguard Europe Pacific ETF (VEA)1.06%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)0.99%
Artisan Global Equity (ARTHX)0.74%
Vanguard European ETF (VGK)0.59%
iShares MSCI Italy Capped (EWI)-0.38%
PowerShares DB Crude Oil Dble Short (DTO)-1.29%
Vanguard Telecom Services ETF (VOX)-2.77%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-3.69%
Proshares Ultrashort Russel2000 (TWM)-4.25%
Gold Short (DZZ)-6.20%
Proshares Ultrashort NASDAQ Biotech (BIS)-12.73%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)1.95%
Vanguard Long-Term Bond Index ETF (BLV)1.80%
Artisan High Income Fund (ARTFX)1.29%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.66%
Vanguard Mortgage-Backed Securities (VMBS)0.48%
SPDR Barclays Intl. Treasury (BWX)0.30%

January 2017 Performance Review

February 4, 2017

The interest rate increase that accelerated when President Trump won in November ended in December.

Rate-sensitive investments across the board have performed well in recent weeks, pushing our Conservative portfolio up more than our Aggressive portfolio in January.

Stocks remained strong, though the overall investor shift from bonds to stocks has slowed.

Upside in stocks (and downside in bonds) could be limited without actual tax-and-spend policy taking shape and with no signs of rising inflation.

The Federal reserve just took a break on rate increases because economic growth and inflation just aren't there yet to warrant much higher short term rates.

Our Conservative portfolio gained 1.11%. Our Aggressive portfolio advanced 0.69%. Benchmark Vanguard funds for January 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 1.88%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.29%; Vanguard Developed Markets Index Fund (VTMGX) up 3.66%; Vanguard Emerging Markets Stock Index (VEIEX) up 4.94%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 2.11%.

Our strongest area was in emerging markets with iShares MSCI BRIC Index (BKF) up 7.31%, well above broader emerging market index returns.

Europe was strong but Italy took a breather after a hot streak. iShares MSCI Italy Capped (EWI) was down 1.94% in January — our only negative returning stock or bond fund last month that wasn't shorting.

Speaking of, PowerShares DB Crude Oil Dble Short (DTO) was the lone area of shorting success in January.

Junk bonds led the bond market again with Artisan High Income Fund (ARTFX) up 1.64% but recently hit foreign bonds rebounded with SPDR Barclays Intl. Treasury (BWX) up 1.46% as the U.S. dollar's rise may have also reached a limit. The rebound in junk bonds has now been significant and is increasing downside risk if the economy appears to weaken. As investment grade yields are higher than a few months ago the spread in yields between higher-risk and lower-risk debt isn't as appealing.

Stock Funds1mo %
iShares MSCI BRIC Index (BKF)7.31%
PowerShares DB Crude Oil Dble Short (DTO)6.79%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)4.94%
Vanguard Europe Pacific ETF (VEA)3.67%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)3.66%
Artisan Global Equity (ARTHX)3.09%
Vanguard European ETF (VGK)2.96%
[Benchmark] Vanguard 500 Index (VFINX)1.88%
iShares Mortgage REIT (REM)1.36%
Vanguard Utilities (VPU)1.17%
Homestead Value (HOVLX)0.55%
Vanguard Value (VTV)0.49%
Vanguard Telecom Services ETF (VOX)0.38%
Proshares Ultrashort Russel2000 (TWM)-0.89%
iShares MSCI Italy Capped (EWI)-1.94%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-4.37%
Proshares Ultrashort NASDAQ Biotech (BIS)-10.20%
Gold Short (DZZ)-10.58%
Bond Funds1mo %
Artisan High Income Fund (ARTFX)1.64%
SPDR Barclays Intl. Treasury (BWX)1.46%
Vanguard Extended Duration Treasury (EDV)1.25%
Vanguard Long-Term Bond Index ETF (BLV)0.56%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.29%
Vanguard Mortgage-Backed Securities (VMBS)0.17%

December 2016 Performance Review

January 4, 2017

The Powerfund Portfolios started 2016 well and ended 2016 well, but the underperformance during the interest rate increase was a post-election drag on our bond and foreign funds which lowered both portfolios' annual return numbers. Too little in stocks in general and U.S. stocks in particular and too much shorting led to so-so 2016 returns of 3.9% and 3.82% respectively in the C­onservative and Aggressive portfolios.

In December our Conservative portfolio gained 0.98% and the Aggressive portfolio jumped 1.81%. Benchmark Vanguard funds for December 2016 were as follows: Vanguard 500 Index Fund (VFINX) up 1.96%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.26%; Vanguard Developed Markets Index Fund (VTMGX) up 2.49%; Vanguard Emerging Markets Stock Index (VEIEX) down 0.16%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.90%.

For the year the Vanguard S&P 500 gained 11.81% while the Vanguard Total Bond portfolio rose 2.51%, so a 50/50 U.S. portfolio should have been up just over 7%. Unfortunately we were under 50% stocks and our short positions, while a relatively small part of the overall portfolio allocations, experienced big losses. Outside of our short fund we actually did well by and large, even though we were too heavy in some interest-rate-sensitive stock funds.

All that said, the Powerfund Portfolios experienced very low volatility and downside compared to just about any benchmark in 2016. Our benchmark fund-of-funds, Vanguard STAR, fell 3.74% in January 2016 when the S&P 500 dropped almost 5%, while our Aggressive was down only 0.46% for the month.

Our Aggressive's month-by-month performance in 2016 was only down more than 1% in a single month: November. In the post election market mayhem the Aggressive portfolio fell by a whopping 2.76%. We were positioned well for U.S. stock weakness and economic turmoil, not growing domestic optimism.

In December we had some nice rebounds in Vanguard Telecom Services ETF (VOX) up 7.43% and iShares MSCI Italy Capped (EWI) up 12.33%, as rate sensitive stocks did well and shorting gold and biotech's worked after a rough year.

December was one of our best months of picks relative to benchmarks. The main dogs were shorting oil and small cap stocks, though iShares MSCI BRIC Index (BKF) was down 2.29% even though Russian stocks have been strong all year, China has been a slight drag. Artisan High Income Fund Artisan High Income Fund (ARTFX) rose 1.45% as investors continued to favor riskier debt over less economically sensitive but more rate-sensitive debt.

Our stock funds were, on average, in the top half of their category for 2016 with most in the top third or higher. The only real dog from a pure relative fund performance was Artisan Global Equity (ARTHX) in the bottom 10%. This fund has never been in the bottom half since launch in 2010, but the portfolio mix was too defensive to do well in this market.

On the bond side other than Artisan High Income Fund Artisan High Income Fund (ARTFX) our relative performance was more average.

Bottom line, it wasn't a year to short or be lean on U.S. stocks. Of course, neither was 1999. I'm not impressed with our 2016 returns but those looking for a low downside found it. Those looking for more risk and reward would have been better off in almost any mix of our stock funds, skipping the bonds and shorts. We've never matched a hot stock market but our strong relative performance during declines have always made up for it.

Stock Funds1mo %
iShares MSCI Italy Capped (EWI)12.33%
Vanguard Telecom Services ETF (VOX)7.43%
Proshares Ultrashort NASDAQ Biotech (BIS)5.52%
Vanguard European ETF (VGK)4.92%
Vanguard Utilities (VPU)4.79%
Gold Short (DZZ)4.02%
Vanguard Value (VTV)2.73%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)2.49%
Vanguard Europe Pacific ETF (VEA)2.45%
Homestead Value (HOVLX)2.02%
[Benchmark] Vanguard 500 Index (VFINX)1.96%
iShares Mortgage REIT (REM)0.66%
Artisan Global Equity (ARTHX)0.32%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-0.16%
iShares MSCI BRIC Index (BKF)-2.29%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-3.59%
Proshares Ultrashort Russel2000 (TWM)-6.17%
PowerShares DB Crude Oil Dble Short (DTO)-12.47%
Stock Funds1mo %
Artisan High Income Fund (ARTFX)1.45%
Vanguard Long-Term Bond Index ETF (BLV)0.80%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.26%
Vanguard Mortgage-Backed Securities (VMBS)-0.10%
SPDR Barclays Intl. Treasury (BWX)-0.27%
Vanguard Extended Duration Treasury (EDV)-0.36%

November 2016 Performance Review

December 7, 2016

It was a November to remember.

November was Donald Trump's month in the markets. Nobody saw him winning much less U.S. stocks going up in the wake, but weirdly many of the stocks that did well after the surprise Trump victory started doing so before the election. Maybe this oddity — which could be a mere coincidence — will show up in the fake news that permeates the conspiracy circles online. Talk about a bull market…

One global equity strategist for Barclays — one of the largest asset managers — predicted that in the event of an unlikely Trump win stocks would fall around 7%. Wrong and wrong.

The most important takeaway for investors here is no matter how you feel about Trump, don't stop investing and hide for four or eight years waiting for America to burn. (That is a fire that some have expected since the dawn of the republic.) I said the same thing over the last eight years to those who were certain that Obama was going to destroy America and its economy. Those who stayed in cash, commodities, and gold — perhaps with seed and water-purifiers— missed out on perhaps the greatest average annual returns in stocks during any president's time in office. I'm trying not to jinx it…

The political pendulum has swung, but that doesn't mean Trump will destroy the economy either. Around half of the people probably think his policies will help the economy. This doesn't mean your portfolio needs to look the same as it did in 2009. The scary period after the Trump victory was in the first few hours. Futures that trade on stocks after hours were down sharply — like 5% sharply. This trend reversed by the time regular trading began and became the full-fledged "Trump rally" that is now getting too much attention in the press. Sort of like Trump.

While there were some intriguing moves up and down post-Trump — biotech stocks moved up, maybe because of less political heat on pricing — the overall global asset picture was not impressive. The total value of all assets declined, while the U.S. stock market and U.S. dollar "won." We have a global portfolio of stocks and bonds that is tied fairly highly to interest rates and took a blow.

As an example of how fleeting the Trump bump can be, and the inherent unpredictability of Trump policy can be, Biotech stocks are now (as of December 7th) falling fast on a comment from Trump that, "I`m going to bring down drug prices. I don`t like what has happened with drug prices." It's like having Bernie Sanders, Ross Perot, and Ronald Reagan share the presidency.

Our Conservative portfolio declined 3.50%. Our Aggressive portfolio declined 2.76%. Benchmark Vanguard fund performance for November 2016 was as follows: Vanguard 500 Index Fund (VFINX) up 3.70%; Vanguard Total Bond Market Index Fund (VBMFX) down 2.64%; Vanguard Developed Markets Index Fund (VTMGX) down 1.53%; Vanguard Emerging Markets Stock Index (VEIEX) down 4.36%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.41%.

It is very rare to see these benchmarks down so much relative to the S&P 500. Of the over 100 fund categories (large-cap value, technology, muni bond, small-cap growth, utilities, etc.), about 85% underperformed the S&P 500 in November. The average category was down about a half percent. Considering that most fund categories are composed of U.S. stocks, this wasn't a very good month overall. If you factor in real estate prices, which likely slipped with rising rates, global wealth almost certainly declined.

Our portfolios also underperformed the S&P 500. All the bond funds were down, with long-term bond funds such as Vanguard Long-Term Bond Index ETF (BLV) down 6.3%, while SPDR Barclays Intl. Treasury (BWX) slid 5.72% on the double hit of a rising U.S. dollar and falling bond prices with rising yields. Only our gold short fund Gold Short (DZZ) scored a big win — up 17%. We did well with value funds: Vanguard Value (VTV) up 6% and Homestead Value (HOVLX) up 5.66%. Besides shorting stocks, which was a disaster, utilities and our foreign funds were down for the month. While both are still up for the year, we are now well behind the S&P 500's near 10% rise with dividends.

As an investor, the question is: does this continue and the U.S. dollar and U.S. stocks become "great again" at the expense of other assets, in a Trumpian zero-sum game where we win only if Mexico and China start to lose? Unlikely. We're near the tail end of a long run in the U.S. dollar, which is why we are fairly heavy abroad now in the first place, which is not how our portfolios looked in 2008.

The problem is that it's hard to win without everybody winning on some level. We can put punitive tariffs on imports and give tax breaks to those that play by the new rules, but eventually, others will do this; for every 1,000 jobs that are "saved" here, we'll lose as many to another country that's trying to save its jobs. And all the while, governments around the world go broke by lowering taxes and increasing spending, while incentivizing companies to stay put pushing interest rates and borrowing costs up as borrowing increases to finance the gap in revenues and spending.

So why do investors seem to like the current situation? It is unlikely that if Bernie Sanders won the election and proposed similar anti-free trade initiatives to solve income inequality and boost the pay of the working person, Wall Street would cheer. It is possible that companies will benefit at the expense of governments (stop clapping) as tax incentives and bribes to fight the natural forces of globalization lead to higher after-tax profits, while consumers spend more as after-tax wealth increases. This scenario assumes tariff trade wars don't start, we don't get buried in debt with increasing rates needed to entice our new enemies abroad to buy, and economic growth increases enough to cover these shortfalls.

This all could just be the trigger event for investors to pile back into U.S. investments after years of investing abroad instead of in underperforming U.S. markets. The latest fund flow data shows investors leaving foreign markets and going into U.S. stocks post-election. This could be short lived and lead to foreign funds outperforming again soon. Late 2014 was a period of down foreign markets and up U.S. markets, and investors started to favor U.S. markets heavily for a few months. Foreign markets then spent the next few months outperforming U.S. markets. Or this trend could signal the end of the popularity of foreign investing, much like what happened in the late 1990s, eventually setting us up for years of foreign stock outperformance like the first part of the 2000s as the U.S. sinks.

The main question here is how high can interest rates go on expectations of a higher growth economy after a Trump tax-cut-and-spend stimulus package, one that presumably will kick in without a recession in place or particularly high unemployment. Global interest rates are very low for a reason; most countries face deflation and weak economies. If our rates go way up relative to other countries, the dollar will continue rising until it causes economic and earnings problems for U.S. companies.

The strange part of this Trump rally is that all the "pre-Trump" stocks were getting expensive and popular — rate-sensitive plays such as utilities and "low-volatility" stocks. We were setting up for outperformance in "high beta" stocks like financials and energy as a contrarian call. Then Trump won, and the fix happened in days. Bummer for us still stuck in October's portfolio, although we were migrating slowly to higher beta in client accounts this year. Too slowly. We weren't migrating because of a bold Trump prediction, but because the money was all going low risk, and taking on risk was going to pay off, as it did in November — with a bang. The proof, as we noted before, was the launch of dozens of low-volatility, "smart beta" ETFs and the almost total lack of new high beta or riskier-than-the-market funds.

Investments to consider adding or increasing post-Trump include:

TIPs — In theory, they offer more protection against rising inflation, though not against rising rates without much inflation. In that situation, they will do as poorly as regular bonds or worse.

Gold (to short) — Many of the calls for gold were based on American declinism, however unfounded that view was. A rising dollar and America being great again, even if that is a largely psychological phenomenon, could lead to those hoarding coins (and seed…) to unload and consider assets more tied to American prosperity.

High Beta — Risky and economically sensitive stocks and small-cap stocks have already done well in recent weeks, so big moves here, months before any policy change, could be too much risk based on expectations alone, but these are still a better idea than low-volatility stocks.

Oil (short) — While there may be some stocks that benefit, actual barrels of oil will get cheaper with more exploration. OPEC is already trying to get ahead of this new glut with production cuts that temporarily sent oil prices back up.

Foreign bonds — This could be risky in the short run, but in the long run, our dollar is near the top of how high it can go without self-correcting economic activity kicking in. Moreover, unless Trump-style politics spreads (beyond Brexit), you'd rather lend money to governments that don't increase spending and cut taxes. This is ultimately why buying, say, California Muni bonds worked out in recent years after panic lows post-2008. Those governments didn't cut taxes to try and grow out of the deficit; they raised tax revenue faster than spending. Stinks if you are a taxpayer; doesn't stink if you are a bondholder.

Emerging markets — Limit exposure to emerging markets, except maybe to Russia (our new BFF). Any plans to keep jobs in America doesn't hurt, say, Germany as much as it does emerging markets where those jobs were heading.

Bonds
— Just because everybody is looking for the end of the great bull market in bonds doesn't mean interest rates are going back to 6% any time soon.

??? — This Trump investing guessing game can be dangerous, unpredictable, and not based on repeatable logic. Nobody knows what is going to happen. In general, we're going to keep the focus on less-favored investments and wait for the stories to push these areas back up in price, which is essentially what happened in recent weeks. I'm mad at myself, not for not predicting a Trump win and U.S. stock rally but for pushing off buying out-of-favor financials, energy stocks (not oil itself), and high beta stocks with more economic than interest-rate sensitivity. Trump was just the catalyst. Don't think of news driving the investment returns so much as the news following the investment returns — which in turn are driven significantly by how much money is trying to earn returns in various investments.

And to the half of the country that thinks the 1980s are back, there are many differences between 2017 and 1981. We're older. Taxes, interest rates, and inflation are already low. The debt is far higher as a percent of GDP. The current stock-market dividend yield is a lot smaller, and the P/E ratio is a lot higher. Bidding up stocks valuations significantly based on expectations of greatness could make the next crash more like 1929 than 1987.

Stock Funds1mo %
Gold Short (DZZ)17.05%
Vanguard Value (VTV)6.00%
Homestead Value (HOVLX)5.66%
[Benchmark] Vanguard 500 Index (VFINX)3.70%
Vanguard Telecom Services ETF (VOX)3.25%
iShares Mortgage REIT (REM)1.22%
Artisan Global Equity (ARTHX)-1.19%
Vanguard Europe Pacific ETF (VEA)-1.51%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-1.53%
Vanguard European ETF (VGK)-2.34%
iShares MSCI BRIC Index (BKF)-3.26%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-3.37%
iShares MSCI Italy Capped (EWI)-3.90%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-4.36%
Vanguard Utilities (VPU)-4.54%
PowerShares DB Crude Oil Dble Short (DTO)-7.04%
Proshares Ultrashort NASDAQ Biotech (BIS)-16.03%
Proshares Ultrashort Russel2000 (TWM)-19.77%
Bond Funds1mo %
Artisan High Income Fund (ARTFX)-0.23%
Vanguard Mortgage-Backed Securities (VMBS)-1.82%
[Benchmark] Vanguard Total Bond Index (VBMFX)-2.64%
SPDR Barclays Intl. Treasury (BWX)-5.72%
Vanguard Long-Term Bond Index ETF (BLV)-6.30%
Vanguard Extended Duration Treasury (EDV)-11.49%

October 2015 Performance Review

November 3, 2016

October was a strange one — and not just for the elections. Pretty much everything that was recovering this year slipped in last month. It's not uncommon for risky assets to all move as one and lower risk assets to do well in such times, the so-called 'risk off' trade. What was a little unusual is almost all fund categories were down in October except riskier debt and a few emerging markets.

For example, biotech stocks slid hard, driving our leveraged short Proshares Ultrashort NASDAQ Biotech (BIS) up just shy of 25% and making up some lost ground for us. Gold also slipped. Investment-grade long-term bonds were hit hard as rates rose, driving Vanguard Extended Duration Treasury (EDV) down 6.18% for the month — our worst individual fund showing in October.

Oil was weak near the end of the month driving PowerShares DB Crude Oil Dble Short (DTO) up 4.6%. Riskier income funds like iShares Mortgage REIT (REM) and Artisan High Income Fund (ARTFX) posted gains.

Foreign markets were down yet Brazil was almost the lone big winner up over 7%. China and Russia were weak or our stake in iShares MSCI BRIC Index (BKF) would have beat the S&P 500 by a wider margin with the Brazil sub-allocation. While in general riskier assets fell, some of the hardest hit risky assets from recent years continued to rise.

In all this we did well relatively with the Aggressive Powerfund Portfolio, which benefited from shorts and emerging markets. But the drag of longer-term investment-grade bonds and yield-sensitive stocks was too much for the Conservative portfolio, which had a poor month (though it's still up 6.62% for the year).

Our Conservative portfolio declined 2.16%. Our Aggressive portfolio fell 0.75%. Benchmark Vanguard funds for October 2016: Vanguard 500 Index Fund (VFINX) down 1.83%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.81%; Vanguard Developed Markets Index Fund (VTMGX) down 2.33%; Vanguard Emerging Markets Stock Index (VEIEX) up 0.63%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, down 1.82%.

Stock Funds1mo %
Proshares Ultrashort NASDAQ Biotech (BIS)24.89%
Proshares Ultrashort Russel2000 (TWM)9.30%
Gold Short (DZZ)6.03%
PowerShares DB Crude Oil Dble Short (DTO)4.60%
ETRACS 1xMonthly Short Alerian MLP (MLPS)4.26%
iShares Mortgage REIT (REM)2.82%
iShares MSCI Italy Capped (EWI)2.36%
Vanguard Utilities (VPU)0.90%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)0.63%
iShares MSCI BRIC Index (BKF)-0.37%
Vanguard Value (VTV)-1.09%
[Benchmark] Vanguard 500 Index (VFINX)-1.83%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-2.33%
Vanguard Europe Pacific ETF (VEA)-2.41%
Homestead Value (HOVLX)-3.00%
Artisan Global Equity (ARTHX)-3.39%
Vanguard European ETF (VGK)-3.53%
Vanguard Telecom Services ETF (VOX)-3.61%
Bond Funds1mo %
Artisan High Income Fund (ARTFX)0.71%
Vanguard Mortgage-Backed Securities (VMBS)-0.36%
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.81%
Vanguard Long-Term Bond Index ETF (BLV)-3.06%
SPDR Barclays Intl. Treasury (BWX)-4.20%
Vanguard Extended Duration Treasury (EDV)-6.18%

September 2016 Performance Review

October 4, 2016

September was one of the dullest months in quite some time in the markets. The only broader fund categories up more than 3% where China and Japan funds. Most fund categories were within plus or minus 1%. Even in sector funds no category gained or lost over 5%.

While relatively decent returns in foreign funds helped, our exposure to longer-term government bonds, which were down around 1% for the month after recent strong returns, kept the Powerfund Portfolios a little under benchmarks in September.

Our Conservative portfolio declined 0.07%. Our Aggressive portfolio fell 0.43%. Benchmark Vanguard funds for September 2016 were as follows: Vanguard 500 Index Fund (VFINX) up 0.01%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.07%; Vanguard Developed Markets Index Fund (VTMGX) up 1.40%; Vanguard Emerging Markets Stock Index (VEIEX) up 1.27%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.53%.

Other drags included shorting oil, with PowerShares DB Crude Oil Dble Short (DTO) down 16% as Texas Tea rebounded fairly strongly in September, Italy, with iShares MSCI Italy Capped (EWI) down 3.08% on continued fears over Europe's shakier economies, and shorting biotech stocks, with Proshares Ultrashort NASDAQ Biotech (BIS) down just over 8% as healthcare and biotech stocks continued to rebound. Our only real winners in September were iShares MSCI BRIC Index (BKF) in stocks, up 2.12% on strength in emerging markets and SPDR Barclays Intl. Treasury (BWX) in bonds, up 0.70%.

Stock Funds1mo %
iShares MSCI BRIC Index (BKF)2.12%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)1.40%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)1.27%
Vanguard Utilities (VPU)0.94%
Vanguard Europe Pacific ETF (VEA)0.80%
Artisan Global Equity (ARTHX)0.79%
Vanguard Telecom Services ETF (VOX)0.59%
Homestead Value (HOVLX)0.30%
[Benchmark] Vanguard 500 Index (VFINX)0.01%
Vanguard European ETF (VGK)-0.01%
Vanguard Value (VTV)-0.34%
Gold Short (DZZ)-0.93%
iShares Mortgage REIT (REM)-1.78%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-2.10%
Proshares Ultrashort Russel2000 (TWM)-2.77%
iShares MSCI Italy Capped (EWI)-3.08%
Proshares Ultrashort NASDAQ Biotech (BIS)-6.53%
PowerShares DB Crude Oil Dble Short (DTO)-16.02%
Bond Funds1mo %
SPDR Barclays Intl. Treasury (BWX)0.70%
Vanguard Mortgage-Backed Securities (VMBS)0.54%
Artisan High Income Fund (ARTFX)0.10%
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.07%
Vanguard Long-Term Bond Index ETF (BLV)-0.59%
Vanguard Extended Duration Treasury (EDV)-2.50%

August 2016 Performance Review

September 5, 2016

August was not much of a month for bonds or stocks and was surprisingly tame given swings in global markets over the last year or so. Slightly rising interest rates pushed bond prices down, and with not much in stock market upside to overcome the drag, we had fractional losses in both portfolios.

The 'safe' higher yield stocks that recently got way too hot with investors — particularly utilities which were down about 5% last month — dived in August far beyond what the mild increase in interest rates would call for. Our holdings in Vanguard Utilities (VPU) and Vanguard Telecom Services ETF (VOX) were both down over 5% (these two funds are largely why we underperformed in August). Riskier yield had a good month as seen in our Artisan High Income Fund (ARTFX) holding, up 2.11% for the month.

Our Conservative portfolio declined 0.62%. Our Aggressive portfolio fell 0.20%. Benchmark Vanguard funds for September 2016 were as follows: Vanguard 500 Index Fund (VFINX) up 0.13%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.17%; Vanguard Developed Markets Index Fund (VTMGX) up 0.51%; Vanguard Emerging Markets Stock Index (VEIEX) up 1.67%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.61%.

The Federal Reserve seems to again be leaning towards increasing interest rates — but the specter of rising rates didn't hit long-term bonds as much as gold. Gold Short (DZZ) was our best performer after several bad months as gold rebounded sharply. Gold almost reached $1,000 months ago — probably a key price for investor psychology, and above which gold is perceived as not being a good long-term holding, even for diversification purposes.

iShares MSCI BRIC Index iShares MSCI BRIC Index (BKF) was our winner in more traditional funds benefiting from an emerging markets rebound. iShares MSCI BRIC Index iShares MSCI BRIC Index (BKF) focuses on the so-called BRIC countries, Brazil, Russia, India, and China, once popular in the emerging market boom. This category is seeing little investor action today, and we've just seen a similar fund shut down for lack of interest. This indifference a good sign for long-term investors — categories with many fund launches are the areas to avoid. That said, there is still too much money in emerging market funds in general to get over-allocated here.

Stock Funds1mo %
Gold Short (DZZ)6.35%
Proshares Ultrashort NASDAQ Biotech (BIS)4.70%
iShares MSCI BRIC Index (BKF)4.68%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)1.67%
iShares MSCI Italy Capped (EWI)1.61%
Vanguard European ETF (VGK)1.49%
Vanguard Europe Pacific ETF (VEA)1.25%
iShares Mortgage REIT (REM)0.75%
Vanguard Value (VTV)0.55%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)0.51%
[Benchmark] Vanguard 500 Index (VFINX)0.13%
Homestead Value (HOVLX)-0.24%
Artisan Global Equity (ARTHX)-1.08%
ETRACS 1xMonthly Short Alerian MLP (MLPS)-1.17%
Proshares Ultrashort Russel2000 (TWM)-3.95%
PowerShares DB Crude Oil Dble Short (DTO)-4.65%
Vanguard Utilities (VPU)-5.84%
Vanguard Telecom Services ETF (VOX)-6.34%
Artisan High Income Fund (ARTFX)2.11%
Vanguard Mortgage-Backed Securities (VMBS)-0.12%
[Benchmark] Vanguard Total Bond Index (VBMFX)-0.17%
Vanguard Long-Term Bond Index ETF (BLV)-0.61%
SPDR Barclays Intl. Treasury (BWX)-0.88%
Vanguard Extended Duration Treasury (EDV)-1.33%