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November 2012 Performance Review

December 5, 2012

Slowly but surely the Powerfund Portfolios are inching up on the S&P 500’s double-digit 2012 return. Competing against the S&P is a challenge because the portfolios are almost always at a lower risk profile because of our allocation to bonds. Even when we are closer heavily allocated to stocks and light on bonds (usually after big slides in the market) we are more diversified than the S&P 500. We also have to burden of higher fund fees than the low fee index benchmark fund. We also include dividends in the S&P 500’s returns, which gives the benchmark an additional boost.

Year to date (through the end of November) we are up 8.09% in the Conservative Powerfund Portfolio and 13.23% in the Aggressive Powerfund Portfolio. The benchmark Vanguard 500 (VFINX) fund has gained 14.79% since January 1st. For a back-of-the-envelope risk comparison, when the S&P 500 was down 6.02% in May – the worst month of 2012 - we were down 1.11% in Conservative and 3.73% in Aggressive.

In November, the Conservative Portfolio gained 0.57% and the Aggressive Portfolio gained 0.51%. The benchmark Vanguard 500 (VFINX) fund delivered a 0.56% return for the month while Vanguard Total Bond Index (VBMFX) was up 0.19%. Foreign stocks (as measured by Vanguard Tax-Managed International [VTMGX]) were up 2.43%. Emerging market stocks (as measured by Vanguard Emerging Markets Stock Index [VEIEX]) were up 1.33%.

Foreign markets are picking up. Surprisingly, developed markets are beating emerging markets (usually higher risk emerging markets outperform older, slower-growth foreign markets). The Powerfund Portfolios are currently invested in such developed foreign markets and have been largely out of emerging markets, though this could change if this performance gap continues and money leaves emerging markets.

Japan led the developed-market pack pushing iShares MSCI Japan Index (EWJ) to our top spot for the month, up 2.98%. Conversely, emerging market Latin America is one of the few categories down over the last 12 months, three years, and five years – thought the 10 year return is still tops due to major outperformance in the early 2000s. Note emerging market funds have attracted over one hundred billion dollars in recent years while U.S. stock funds have seen net outflows. U.S. markets have outperformed foreign and emerging markets over the last five years.

Among the worst sectors last month, and over the last three, was utilities, dragging our holding BULIX down 3.06% last month. There may be some early movement out of dividend-focused stocks into more growth oriented stocks, perhaps related to the upcoming dividend tax increases. Telecom stocks with their higher dividends also underperformed last month, sending VOX down 0.78%. More likely the inflows to utilities in recent months is leading to underperformance. 

In bonds, low yields are starting to weigh on returns of the bond market index, which all of our bond funds beat last month. Government bonds and longer term bonds did well relative to the bond index.

Stock Funds1mo %
iShares MSCI Japan Index (EWJ)2.98%
Satuit Capital Micro Cap (SATMX)2.73%
Vanguard Europe Pacific ETF (VEA)2.71%
Vanguard European ETF (VGK)2.48%
[Benchmark] Vanguard International Index (VTMGX)2.43%
PRIMECAP Odyssey Growth (POGRX)2.32%
Scout International Discovery (UMBDX)2.01%
Homestead Value Fund (HOVLX)1.96%
[Benchmark] Vanguard Emerging Markets Stock Index (VEIEX)1.33%
Royce Financial Services Fund (RYFSX)0.60%
[Benchmark] Vanguard 500 Index (VFINX)0.56%
Health Care Select SPDR (XLV)0.53%
Jensen Value J (JNVSX)0.49%
PowerShares DB US Dollar Index (UUP)0.14%
Vanguard Value ETF (VTV)-0.74%
Vanguard Telecom Services ETF (VOX)-0.78%
American Century Utility Income (BULIX)-3.06%
PowerShares DB Crude Oil Dble Short (DTO)-5.17%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)1.78%
Metropolitan West Total Return (MWTRX)0.58%
Vanguard Long-Term Bond Index ETF (BLV)0.41%
Doubleline Total Return Bond (DLTNX)0.35%
American Century Government Bond (CPTNX)0.27%
American Century Core Plus (ACCNX)0.20%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.19%