April’s upward move in stocks fizzled in May with a 1.15% drop in US stocks. Foreign stocks slipped 2.83% after rising sharply in April. In recent days the market took another dive with a sharp pullback on June 1st. The main fear seems to be a newly slowing economy, but we’re sticking to our take that newly sliding home prices are the real trouble spot. Stocks can’t go in a different direction from home prices forever.
Investors were just starting to get optimistic about stocks as the market’s upward trajectory stalled. The government bond market – which even the world’s largest bond fund manager Bill Gross says is a loser bet – was a winner again as interest rates defied predictions and headed downward. The total bond market delivered a 1.3% return along the lines of our government bond fund American Century Government Bond (CPTNX), which itself didn’t keep pace with longer term government bonds.
The great fear is interest rates are going to spike ‘any day now’ if for no other reason (and they have lots of other reasons) than the Federal Reserve is going to stop buying government bonds with essentially money made out of thin air this month (the much noted end of ‘QE2’ or the second quantitative easing program by the Federal Reserve). This seems like sound logic but interest rates are going in exactly the opposite direction of the consensus prediction. Popularity can ruin a good idea. We’re sticking with our government bond funds for now.
Our Conservative portfolio was up 0.57% in May; our Aggressive portfolio was up 0.14%. Benchmark Vanguard index funds for May: Vanguard 500 Index (VFINX): -1.15%, Vanguard Total Bond Market (VBMFX): 1.29%, Vanguard International Index (VTMGX): -2.83%. In general we had a good month compared to the markets, with many funds outperforming benchmarks. Both our model portfolios are ahead of the S&P 500 over the last three months (at a significantly lower risk level) and if June continues the way it has started our one year Aggressive portfolio returns should pass that of the market.
The best stock fund categories in May were healthcare, up about 2.1%, funds that short, up 1.4%, real estate up 1.3%, and utilities up about 0.4%. Conservative stocks like consumer staples did well. Energy and natural resource stocks were at the bottom, both with 4.2% drops, followed by European stock funds down around 3% and financial sector funds down just under 2.9%. Emerging markets were next down almost 2.8%. At the top of the bond list were long term government bonds, up 3.56% and long term California municipal bonds up, 2.31%. And it seems like only yesterday there was mass panic about California debt. We’re still waiting for the predicted mass defaults. Apparently investors aren’t waiting - they have been bailing on muni debt for about a half year with no break.
Our Long/Short fund PowerShares DB Commodity Double Short (DEE) soared 10.39% in May, better than the S&P 500 by 11.5%. Of course this is after many months of terrible returns. This fund has proven to offer good protection when the economy seems to be week but has minimal long term investing merits on its own.
Vanguard Telecom Services ETF (VOX) climbed 3.70% for the month, better than the S&P 500 by 4.8% as investors clamored into lower risk stocks.
Health Care Select SPDR (XLV) rose 2.47% for similar reasons. This sort of outperformance can lead us to eventually get out of these categories.
Our alternative fund, PowerShares DB US Dollar Index (UUP), climbed 1.86% in May, better than the S&P 500 by 3.0% as the US dollar staged a brief rise after investors panicked about commodities and some foreign investments.
Jensen Value J (JNVSX) was up 0.27% for the month, a decent outperformance over the market - but Jensen funds tend to do better in weak markets.
Our International Diversified fund UMB Scout Worldwide (UMBWX) fell -3.08% in May, slightly worse than international indexes.
Vanguard European ETF (VGK) fell -2.84% last month as European stocks were near the bottom of fund categories. Concern over slow economic growth and Greece troubles circled the region like buzzards over an injured wildebeest.
Royce Financial Services Fund (RYFSX) fell -2.01% in May, worse than the S&P 500 by -0.9%. Our take is financial stocks are going to get hit hard if home prices slide anew. We’re still in because this category remains out of favor and a major real estate slide is a long shot (so far).
Our International Diversified fund Scout International Discovery (UMBDX) fell -1.98% in May, a slight improvement to foreign stocks in general and not bad for a more aggressive and smaller cap foreign fund.
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April’s upward move in stocks fizzled in May with a 1.15% drop in US stocks. Foreign stocks slipped 2.83% after rising sharply in April. In recent days the market took another dive with a sharp pullback on June 1st. The main fear seems to be a newly slowing economy, but we’re sticking to our take that newly sliding home prices are the real trouble spot. Stocks can’t go in a different direction from home prices forever.
Investors were just starting to get optimistic about stocks as the market’s upward trajectory stalled. The government bond market – which even the world’s largest bond fund manager Bill Gross says is a loser bet – was a winner again as interest rates defied predictions and headed downward. The total bond market delivered a 1.3% return along the lines of our government bond fund American Century Government Bond (CPTNX), which itself didn’t keep pace with longer term government bonds.
The great fear is interest rates are going to spike ‘any day now’ if for no other reason (and they have lots of other reasons) than the Federal Reserve is going to stop buying government bonds with essentially money made out of thin air this month (the much noted end of ‘QE2’ or the second quantitative easing program by the Federal Reserve). This seems like sound logic but interest rates are going in exactly the opposite direction of the consensus prediction. Popularity can ruin a good idea. We’re sticking with our government bond funds for now.
Our Conservative portfolio was up 0.57% in May; our Aggressive portfolio was up 0.14%. Benchmark Vanguard index funds for May: Vanguard 500 Index (VFINX): -1.15%, Vanguard Total Bond Market (VBMFX): 1.29%, Vanguard International Index (VTMGX): -2.83%. In general we had a good month compared to the markets, with many funds outperforming benchmarks. Both our model portfolios are ahead of the S&P 500 over the last three months (at a significantly lower risk level) and if June continues the way it has started our one year Aggressive portfolio returns should pass that of the market.
The best stock fund categories in May were healthcare, up about 2.1%, funds that short, up 1.4%, real estate up 1.3%, and utilities up about 0.4%. Conservative stocks like consumer staples did well. Energy and natural resource stocks were at the bottom, both with 4.2% drops, followed by European stock funds down around 3% and financial sector funds down just under 2.9%. Emerging markets were next down almost 2.8%. At the top of the bond list were long term government bonds, up 3.56% and long term California municipal bonds up, 2.31%. And it seems like only yesterday there was mass panic about California debt. We’re still waiting for the predicted mass defaults. Apparently investors aren’t waiting - they have been bailing on muni debt for about a half year with no break.
Our Long/Short fund PowerShares DB Commodity Double Short (DEE) soared 10.39% in May, better than the S&P 500 by 11.5%. Of course this is after many months of terrible returns. This fund has proven to offer good protection when the economy seems to be week but has minimal long term investing merits on its own.
Vanguard Telecom Services ETF (VOX) climbed 3.70% for the month, better than the S&P 500 by 4.8% as investors clamored into lower risk stocks.
Health Care Select SPDR (XLV) rose 2.47% for similar reasons. This sort of outperformance can lead us to eventually get out of these categories.
Our alternative fund, PowerShares DB US Dollar Index (UUP), climbed 1.86% in May, better than the S&P 500 by 3.0% as the US dollar staged a brief rise after investors panicked about commodities and some foreign investments.
American Century Utility Income (BULIX) increased 1.12%, better than the S&P 500 by 2.3%.
Jensen Value J (JNVSX) was up 0.27% for the month, a decent outperformance over the market - but Jensen funds tend to do better in weak markets.
Our International Diversified fund UMB Scout Worldwide (UMBWX) fell -3.08% in May, slightly worse than international indexes.
Vanguard European ETF (VGK) fell -2.84% last month as European stocks were near the bottom of fund categories. Concern over slow economic growth and Greece troubles circled the region like buzzards over an injured wildebeest.
Royce Financial Services Fund (RYFSX) fell -2.01% in May, worse than the S&P 500 by -0.9%. Our take is financial stocks are going to get hit hard if home prices slide anew. We’re still in because this category remains out of favor and a major real estate slide is a long shot (so far).
Our International Diversified fund Scout International Discovery (UMBDX) fell -1.98% in May, a slight improvement to foreign stocks in general and not bad for a more aggressive and smaller cap foreign fund.