In October, the Conservative Powerfund Portfolio was up 1.2% while our Aggressive portfolio was up 2.5%. The benchmark Vanguard 500 (VFINX) fund delivered a 3.79% return for the month while Vanguard Total Bond Index (VBMFX) was up 0.36%.
The best performing stock fund categories in October were technology funds, up almost 6%, and funds that invest in China, with a roughly 5% return. Underperforming stock fund categories included financial, utilities, and healthcare sector funds, all with roughly 1.5% returns for the month. Unfortunately these were also all areas we are currently in, which dragged on returns last month (though in some cases our funds performed better than the sector, notably Royce Financial Services Fund (RYFSX) 5.61% return in October).
High yield bonds and inflation protected bonds were the highest performing debt areas as investor fear focused back on inflation and away from a re-crashing economy. These categories posted returns in the low 2% range in October.
The current rise in riskier assets may be caused by professional investors trying to get ahead of the next asset bubble. While investors with their own money are avoiding stock funds after a decade-plus of go-nowhere performance, minimal dividends, and major dips, pros who have the luxury of investing other people’s money are starting to focus on the asset bubbles created over the last 15 or so years, in part by Federal Reserve policies. Other than during sustained bull markets, individual investors (rightfully) tend to focus on downside, while to professional investors - especially all the billions managed by hedge funds that charge high performance incentive fees – upside is the greater concern.
As the White House now effectively has limited power to take on major economic policies, the Federal Reserve will grab the reins once again. The main problem in the economy continues to be low asset prices relative to debt levels, and the solution seems clear: inflate assets. At some point in the potential next asset bubble, investors who have to worry about their own losses need to focus on a partial exit strategy from the upside-focused crowd.
Best in show…
Our financial services fund Royce Financial Services Fund (RYFSX) rose 5.61% in October, better than the S&P 500 index fund by 1.8% and much better than the financial sector's roughly 1.5% return for the month.
Our mortgage bond fund, Doubleline Total Return Bond (DLTNX), increased 1.37% in October, ahead of the Vanguard bond market index fund by 1.0% as mortgage and corporate bonds performed well.
Our investment grade bond fund Metropolitan West Total Return (MWTRX) increased 1.03%, an index beater by 0.7%, as investors focused on higher yield corporates over government bonds.
Vanguard European ETF (VGK) climbed 4.33, beating the S&P 500 index fund by 0.5% on a continuingly weak dollar.
Better luck next month...
Our government bond fund American Century Government Bond (CPTNX) increased 0.23% in October, worse than the Vanguard bond market index fund by -0.1%. Investors feared inflation more than a double dip recession last month.
Long/short fund PowerShares DB Commodity Double (DEE) sank -13.82%, though this speculative ETF is our smallest fund stake and here primarily to counter a deflationary economy.
Telecom-focused Vanguard Telecom Services ETF (VOX) increased 0.92% last month, worse than the S&P 500 index fund by -2.9%. This fund had been strong lately.
Our blend fund Jensen Value J (JNVSX) climbed 1.52% in October, moving higher but off the stock index's pace by -2.3%.
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In October, the Conservative Powerfund Portfolio was up 1.2% while our Aggressive portfolio was up 2.5%. The benchmark Vanguard 500 (VFINX) fund delivered a 3.79% return for the month while Vanguard Total Bond Index (VBMFX) was up 0.36%.
The best performing stock fund categories in October were technology funds, up almost 6%, and funds that invest in China, with a roughly 5% return. Underperforming stock fund categories included financial, utilities, and healthcare sector funds, all with roughly 1.5% returns for the month. Unfortunately these were also all areas we are currently in, which dragged on returns last month (though in some cases our funds performed better than the sector, notably Royce Financial Services Fund (RYFSX) 5.61% return in October).
High yield bonds and inflation protected bonds were the highest performing debt areas as investor fear focused back on inflation and away from a re-crashing economy. These categories posted returns in the low 2% range in October.
The current rise in riskier assets may be caused by professional investors trying to get ahead of the next asset bubble. While investors with their own money are avoiding stock funds after a decade-plus of go-nowhere performance, minimal dividends, and major dips, pros who have the luxury of investing other people’s money are starting to focus on the asset bubbles created over the last 15 or so years, in part by Federal Reserve policies. Other than during sustained bull markets, individual investors (rightfully) tend to focus on downside, while to professional investors - especially all the billions managed by hedge funds that charge high performance incentive fees – upside is the greater concern.
As the White House now effectively has limited power to take on major economic policies, the Federal Reserve will grab the reins once again. The main problem in the economy continues to be low asset prices relative to debt levels, and the solution seems clear: inflate assets. At some point in the potential next asset bubble, investors who have to worry about their own losses need to focus on a partial exit strategy from the upside-focused crowd.
Best in show…
Better luck next month...