The market continues its heady ascent. If this keeps up unabated, it probably won’t end well.
In January the S&P 500 gained a healthy 1.5%. Over the last twelve months this most-tracked index was up 14.5% - more than the NASDAS’s 6.84% rise, and more than the Russell 2000 small cap indexes 10.43% return. The real story is the 30 Dow stocks, up nearly 1.6% in January and almost 19% over the last twelve months. Mega cap U.S. stocks have been leading, and will likely continue to lead.
All types of stock indexes beat bonds. Last month long term bonds slid .8% and have gained just 2.13% over the last 12 months – earning less than money market returns.
Our Conservative portfolio eked out a 0.60% gain in January, not too shabby in a month that bonds continued to underperform. While the Conservative portfolio’s longer term bond funds slid, the stock fund positions saved the day – or rather the month.
When interest rates climb, shorter term bond funds and money market funds beat other bond funds. Vanguard Short Term Investment Grade (VFSTX) was up 0.21% for the month and 5% over the last year.
The U.S. dollar came back slightly in January. That, plus rising interest rates, caused a 1.6% drop in American Century International Bond (BEGBX).
Like Gateway (GATEX in our Safety portfolio, Bridgeway Balanced had a particularly good month for a conservative fund, gaining 1.20% and beating many stock funds. In this case, rising stock prices made puts written by the fund fall in price while boosting the value of the stock holdings. This fund tracks at about 40% of the risk level of the S&P 500, though we think the risk level climbs if the market really takes a major dive as the puts become a major liability.
Healthcare is picking up steam after a ho-hum 2006. Our ETF in this sector, HealthCare Select SPDR (XLV), rose just over 3% in January, outpacing the market.
The real action was in the new Janus Global Research fund (JARFX), which was up 3.79% in January. The new fund, formerly called Janus Research (added to the portfolio in late 2006) – was up 3.79% in January alone. This hot fund has more than doubled the returns of the S&P 500 since we added it to the portfolio.
Junk bonds scored another win compared to higher-grade bonds. Vanguard High Yield Corporate (VWEHX) gained 0.60% in January (while most bonds fell) and is up 7.9% over the last 12 months. We’re getting very concerned that there is not enough yield premium in junk bonds these days to warrant the extra risk. Of course, we’ve already cut back on our junk bond stake in our other portfolios.
Currently Vanguard High Yield Corporate yields 6.99%, which sounds O.K. until you consider that the Vanguard Intermediate Term Investment Grade fund yields 5.32%. 1.67% extra per year is not much to go from investment grade to non-investment grade bonds. Why? If one bond in a portfolio of 100 defaults and has to be sold at 50% of face value, a portfolio of high yield bonds loses 0.50% of return for that year. Of course the actual loss from default is only part of the problem. When defaults start all junk bonds fall in price, and a 5%-10% decline in the entire fund in a few months is more than possible.
The market continues its heady ascent. If this keeps up unabated, it probably won’t end well.
In January the S&P 500 gained a healthy 1.5%. Over the last twelve months this most-tracked index was up 14.5% - more than the NASDAS’s 6.84% rise, and more than the Russell 2000 small cap indexes 10.43% return. The real story is the 30 Dow stocks, up nearly 1.6% in January and almost 19% over the last twelve months. Mega cap U.S. stocks have been leading, and will likely continue to lead.
All types of stock indexes beat bonds. Last month long term bonds slid .8% and have gained just 2.13% over the last 12 months – earning less than money market returns.
Our Aggressive Growth portfolio gained 1.55% in January. We’re always happy to beat the S&P 500 while taking less risk (the portfolio is more diversified and has 25% in debt). Bonds were a drag, but our stock funds performed well.
Healthcare is picking up steam after a ho-hum 2006. Our ETF in this sector, HealthCare Select SPDR (XLV), rose just over 3% in January, outpacing the market.
Telecom continues to lead the market. The Growth Portfolio’s Vanguard Telecom VIPER (VOX) position jumped 4.4% in January. The fund is now up just over 30% since we added it to the portfolio in March of 2006.
Bridgeway Blue-Chip 35 Index (BRLIX) was up about 1% - not quite as good as other larger cap stocks (notably larger cap growth stocks which were strong in Janauary). For the last twelve months this fund has outpaced the S&P 500 with a 15.59% return.
One drag on the Growth portfolio’s stock side came from Japan, which is the only major stock fund category to decline over the last twelve months. T. Rowe Price Japan (PRJPX) was off 0.09% for the month and is down just under 8% for the year. We cut this fund’s stake in half almost two years ago in anticipation of Japan underperforming. With some more underperformance we will go back to a 10% stake in Japan. Powerfund Portfolio subscribers might recall that a little over a year ago the Japan hysteria was peaking with fund investors. Japan ETFs were bringing in billions of dollars, and funds that everybody wrote off a few years ago saw big inflows. This almost always happens before performance falls.
The real action was in the new Janus Global Research fund (JARFX), which was up 3.79% in January. The new fund, formerly called Janus Research (added to the portfolio in late 2006) – was up 3.79% in January alone. This hot fund has more than doubled the returns of the S&P 500 since we added it to the portfolio.
Our new stake in SPDR Biotech (XBI) had a rough start, but recently has been strong.
When interest rates climb, shorter term bond funds and money market funds beat other bond funds. Vanguard Short Term Investment Grade (VFSTX) was up 0.21% for the month and has gained 5% over the last year.
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The market continues its heady ascent. If this keeps up unabated, it probably won’t end well.
In January the S&P 500 gained a healthy 1.5%. Over the last twelve months this most-tracked index was up 14.5% - more than the NASDAS’s 6.84% rise, and more than the Russell 2000 small cap indexes 10.43% return. The real story is the 30 Dow stocks, up nearly 1.6% in January and almost 19% over the last twelve months. Mega cap U.S. stocks have been leading, and will likely continue to lead.
All types of stock indexes beat bonds. Last month long term bonds slid .8% and have gained just 2.13% over the last 12 months – earning less than money market returns.
Our Conservative portfolio eked out a 0.60% gain in January, not too shabby in a month that bonds continued to underperform. While the Conservative portfolio’s longer term bond funds slid, the stock fund positions saved the day – or rather the month.
When interest rates climb, shorter term bond funds and money market funds beat other bond funds. Vanguard Short Term Investment Grade (VFSTX) was up 0.21% for the month and 5% over the last year.
The U.S. dollar came back slightly in January. That, plus rising interest rates, caused a 1.6% drop in American Century International Bond (BEGBX).
Like Gateway (GATEX in our Safety portfolio, Bridgeway Balanced had a particularly good month for a conservative fund, gaining 1.20% and beating many stock funds. In this case, rising stock prices made puts written by the fund fall in price while boosting the value of the stock holdings. This fund tracks at about 40% of the risk level of the S&P 500, though we think the risk level climbs if the market really takes a major dive as the puts become a major liability.
Healthcare is picking up steam after a ho-hum 2006. Our ETF in this sector, HealthCare Select SPDR (XLV), rose just over 3% in January, outpacing the market.
The real action was in the new Janus Global Research fund (JARFX), which was up 3.79% in January. The new fund, formerly called Janus Research (added to the portfolio in late 2006) – was up 3.79% in January alone. This hot fund has more than doubled the returns of the S&P 500 since we added it to the portfolio.
Junk bonds scored another win compared to higher-grade bonds. Vanguard High Yield Corporate (VWEHX) gained 0.60% in January (while most bonds fell) and is up 7.9% over the last 12 months. We’re getting very concerned that there is not enough yield premium in junk bonds these days to warrant the extra risk. Of course, we’ve already cut back on our junk bond stake in our other portfolios.
Currently Vanguard High Yield Corporate yields 6.99%, which sounds O.K. until you consider that the Vanguard Intermediate Term Investment Grade fund yields 5.32%. 1.67% extra per year is not much to go from investment grade to non-investment grade bonds. Why? If one bond in a portfolio of 100 defaults and has to be sold at 50% of face value, a portfolio of high yield bonds loses 0.50% of return for that year. Of course the actual loss from default is only part of the problem. When defaults start all junk bonds fall in price, and a 5%-10% decline in the entire fund in a few months is more than possible.
The market continues its heady ascent. If this keeps up unabated, it probably won’t end well.
In January the S&P 500 gained a healthy 1.5%. Over the last twelve months this most-tracked index was up 14.5% - more than the NASDAS’s 6.84% rise, and more than the Russell 2000 small cap indexes 10.43% return. The real story is the 30 Dow stocks, up nearly 1.6% in January and almost 19% over the last twelve months. Mega cap U.S. stocks have been leading, and will likely continue to lead.
All types of stock indexes beat bonds. Last month long term bonds slid .8% and have gained just 2.13% over the last 12 months – earning less than money market returns.
Our Aggressive Growth portfolio gained 1.55% in January. We’re always happy to beat the S&P 500 while taking less risk (the portfolio is more diversified and has 25% in debt). Bonds were a drag, but our stock funds performed well.
Healthcare is picking up steam after a ho-hum 2006. Our ETF in this sector, HealthCare Select SPDR (XLV), rose just over 3% in January, outpacing the market.
Telecom continues to lead the market. The Growth Portfolio’s Vanguard Telecom VIPER (VOX) position jumped 4.4% in January. The fund is now up just over 30% since we added it to the portfolio in March of 2006.
Bridgeway Blue-Chip 35 Index (BRLIX) was up about 1% - not quite as good as other larger cap stocks (notably larger cap growth stocks which were strong in Janauary). For the last twelve months this fund has outpaced the S&P 500 with a 15.59% return.
One drag on the Growth portfolio’s stock side came from Japan, which is the only major stock fund category to decline over the last twelve months. T. Rowe Price Japan (PRJPX) was off 0.09% for the month and is down just under 8% for the year. We cut this fund’s stake in half almost two years ago in anticipation of Japan underperforming. With some more underperformance we will go back to a 10% stake in Japan. Powerfund Portfolio subscribers might recall that a little over a year ago the Japan hysteria was peaking with fund investors. Japan ETFs were bringing in billions of dollars, and funds that everybody wrote off a few years ago saw big inflows. This almost always happens before performance falls.
The real action was in the new Janus Global Research fund (JARFX), which was up 3.79% in January. The new fund, formerly called Janus Research (added to the portfolio in late 2006) – was up 3.79% in January alone. This hot fund has more than doubled the returns of the S&P 500 since we added it to the portfolio.
Our new stake in SPDR Biotech (XBI) had a rough start, but recently has been strong.
When interest rates climb, shorter term bond funds and money market funds beat other bond funds. Vanguard Short Term Investment Grade (VFSTX) was up 0.21% for the month and has gained 5% over the last year.