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September 2011 Performance Review

October 3, 2011

September’s 7.04% drop in the stock market is the fifth monthly fall in a row, pushing the market into almost double-digit negative territory for 2011, down about 8.58%. Speaking of double-digit territory, foreign stocks were down 10.4% last month alone, and are now off about 15% year to date. And that’s the larger cap benchmarks. It gets worse when you look at emerging markets, down 16.19% last month and 23.37% this year – and over 30% from highs of a few months ago. 

This is how America’s fascination with foreign stock investing ends. It is also not far off from when we add some emerging market stock funds back into the Powerfund Portfolios. While the 10 year return for non-emerging foreign stock funds still beats the S&P 500, all the huge inflows into foreign funds were in the last five years, and for the last five years US stocks have been ahead.

The cause of the continued market weakness remains a global economic slowdown that could turn ugly because indebted nations lost investor confidence and therefore the ability to keep the debt ball rolling. Debt, the core of most problems, meanwhile continues to fall to ever lower rates – what a strange debt panic. If you qualify, it has never been a better time to be a borrower. Longer term investment grade bonds have done well in this environment.

While we are down during these rough months, both of our portfolios are now beating the S&P 500 for all time periods we track, from 1 day all the way to since inception of our model portfolios in early 2002. Last month our Conservative Portfolio was down -1.97%. Our Aggressive Portfolio was down -4.15%.

Benchmark Vanguard index funds for September: Vanguard 500 (VFINX) : -7.04%, Vanguard Total Bond Index (VBMFX) : 0.89%, Vanguard International Index (VTMGX) : -10.40%. 

The best performing stock fund categories last month were funds that short, naturally, up 9.9%, utilities down 3.59%, and healthcare down 5.4%. That we own funds from all three partially explains our good relative performance. The worst performing stock funds were Latin America down -19.60%, China down -17.60%, natural resources down -17.10%, and diversified emerging markets down -15.50%.

Long term government bond funds were up 11.35% while emerging market bond funds sank 7.4%. High yield (junk) bonds were not much better with a 3.3% drop.

In positive portfolio fund action in September:

For funds we owned the entire month (not including our recent trades):

Our alternative fund PowerShares DB US Dollar Index (UUP) rose 5.86% in September, better than the S&P 500 by 12.9% as the US dollar shone as a beacon of safety during global turmoil.

American Century Utility Income (BULIX) fell -2.42% in September, beating than the S&P 500 by 4.6%.

Health Care Select SPDR (XLV) fell -4.48% in September as investors preferred lower risk (which also explains utilities funds relatively strong returns).

Telecom fund Vanguard Telecom Services ETF (VOX) sank -6.86% in September, ahead of the S&P 500 by 0.2%

American Century Government Bond (CPTNX)  increased 1.00% in September, better than the bond market by 0.1%. Our main beef here is the fund’s manager has been too scared of long term bonds. 

Our Large Cap Growth fund PRIMECAP Odyssey Growth (POGRX) sank -6.96% in September, better than the S&P 500 by 0.1%

Low lights included:

Royce Financial Services Fund (RYFSX) sank -12.76% in September, worse than the S&P 500 by -5.7% as investors feared global financial contagion hitting financials the hardest.

Vanguard European ETF (VGK) sank -12.24% in September, worse than the S&P 500 by -5.2%.

Our alternative fund Satuit Capital Micro Cap (SATMX) sank -12.12% in September.

Our International Diversified fund UMB Scout Worldwide (UMBWX) sank -11.66% for the month, worse than the S&P 500 by -4.6% though better than most international funds.

Our Large Cap Value fund Homestead Value Fund (HOVLX) sank -8.55% in September, worse than the S&P 500 by -1.5%.

 

 

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