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June 2012 Performance Review

July 3, 2012

The S&P 500 Index got off to a rocky start in June but ended up with a just over 4% gain for the month, pushing the index to a near 10% return so far in 2012. Bonds were basically flat even as investors stuffed tens of billions of new money into bond funds while taking money out of stocks. The Vanguard S&P 500 now yields significantly more than the bond index fund: 2.2% vs. 1.88%, both including fund fees. 

In June, our Conservative portfolio gained 2.19% while our Aggressive Portfolio was up 3.72%. The benchmark Vanguard 500 (VFINX) fund delivered a 4.11% return for the month while Vanguard Total Bond Index (VBMFX) rose 0.04%. Foreign stocks, as measured by Vanguard Tax-Managed International (VTMGX), jumped 7.19% for the month while emerging market stocks, as measured by Vanguard Emerging Markets Stock Index (VEIEX), were up 4.83%

The best performing stock fund categories last month were Japan and foreign funds. The worst performing areas were funds that short, followed by energy and natural resource funds. 

In bond funds, higher default risk categories like emerging market and high yield (junk) did well. Longer term government bonds did poorly; longer term interest rates rose as the expectation of future economic weakness subsided. This means safer bonds yielded a little more while riskier bonds yielded a little less at the end of June: a convergence of yields and one that tends to widen as fears set in and defaults becomes a concern. 

Vanguard European ETF (VGK) rose 8.27% in June, beating than the S&P 500 by 4.2% as a sharp rebound in European stock markets late in the month revived this fund and our Vanguard Europe Pacific ETF (VEA), which gained 6.98%.

iShares MSCI Japan Index (EWJ) jumped 6.84%, outpacing the S&P 500 by 2.7%.

Large cap growth fund PRIMECAP Odyssey Growth (POGRX) rose 6.53% last month, better than the S&P 500 by 2.4%.

Health Care Select SPDR (XLV) gained 5.69% in June as the healthcare bill wasn’t crushed by the Supreme Court. More insurance means more sales for most companies in this fund.

Vanguard Telecom Services ETF (VOX) rose 5.69% last month, helped by investors moving to higher dividend and (perceptually at least) lower risk stocks.

Our Long/Short fund PowerShares DB Crude Oil Double Short (DTO) climbed 4.70% for the month as oil continued down, even with a huge rebound in oil prices at the end of the month.

PowerShares DB US Dollar Index (UUP) fell 2.26% in June, worse than the S&P 500 by 6.4%. Investors are moving out of the dollar as fears subside.