July 2016 Performance Review
July was another month that the Conservative Powerfund Portfolio outpaced our Aggressive Portfolio. This is largely because rates keep declining globally and theConservative portfolio is heavier on bonds and rate-sensitive stocks.
Who would have guessed during the Brexit mini-panic that the S&P 500 would be up 7.57% (with dividends) so far this year. The recovery was strong after the brief collapse — but it was mostly on the shoulders of low rates.
Our Conservative portfolio gained 2.09% in July. Our Aggressive portfolio rose 1.43%. Benchmark Vanguard funds for July 2016 were as follows: Vanguard 500 Index Fund (VFINX) up 3.68%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.64%; Vanguard Developed Markets Index Fund (VTMGX) up 4.41%;Vanguard Emerging Markets Stock Index (VEIEX) up 4.67%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 3.42%.
Oil fell in July, which, on top of falling interest rates, smells bad for the global economy and brings the specter of deflation back into play — even though we've seen recently encouraging info on "stuff" prices heading up to levels the Federal Reserve wants to see. This was good for PowerShares DB Crude Oil Dble Short (DTO), which scored a 30.65% gain in July. Shorting just about anything besides oil was a major drag on the portfolios as riskier areas like biotech and small cap stocks rebounded sharply.
Junk bonds have benefited from the reach for yield — even though such a move is dangerous if the economy weakens. Artisan High Income Fund (ARTFX) climbed 2.65%, though longer-term investment grade bonds performed slightly better. It was a good month to take credit or duration risk, but shorter-term bond investors missed the boat.
The utility run ran dry with Vanguard Utilities (VPU) slipping 0.89% after a major jump this year. This whole low volatility / high dividend stock thing is getting overdone with a plethora of ETFs sending billions into 'safe' stocks. Investors will do better with a smaller allocation in high volatility stocks if this keeps up.
We're looking to cut back on utilities, telecom, and maybe value — all areas that lagged in July after solid returns in recent months. We may have to do this inConservative even though these types of stocks historically are lower risk. But they won't be lower risk if they get bid up — growth stocks will have less downside in the next bear market if slow-growth utilities go in with 30 p/e ratios.
Small cap growth was the hottest rebound area of the major U.S. categories, up over 7% for the month but still down over 4% over the last 12 months. There were solid rebounds in foreign markets this month, but pretty much all are still down over the last year with wide gaps over the last five years versus the performance of U.S. stocks. Surprisingly, this hasn't led to major moves of money out of foreign into the U.S. as it did in the 1990s.
|Stock Funds||1mo %|
|PowerShares DB Crude Oil Dble Short (DTO)||30.65%|
|iShares MSCI BRIC Index (BKF)||4.81%|
|[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)||4.67%|
|Artisan Global Equity (ARTHX)||4.67%|
|[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)||4.41%|
|Vanguard Europe Pacific ETF (VEA)||4.16%|
|Homestead Value (HOVLX)||4.13%|
|[Benchmark] Vanguard 500 Index (VFINX)||3.68%|
|iShares Mortgage REIT (REM)||3.51%|
|Vanguard European ETF (VGK)||3.47%|
|iShares MSCI Italy Capped (EWI)||3.13%|
|Vanguard Value (VTV)||2.81%|
|Vanguard Telecom Services ETF (VOX)||2.69%|
|ETRACS 1xMonthly Short Alerian MLP (MLPS)||0.73%|
|Vanguard Utilities (VPU)||-0.89%|
|Gold Short (DZZ)||-3.34%|
|Proshares Ultrashort Russel2000 (TWM)||-11.39%|
|Proshares Ultrashort NASDAQ Biotech (BIS)||-22.35%|
|Bond Funds||1mo %|
|Vanguard Extended Duration Treasury (EDV)||3.35%|
|Vanguard Long-Term Bond Index ETF (BLV)||2.72%|
|Artisan High Income Fund (ARTFX)||2.65%|
|SPDR Barclays Intl. Treasury (BWX)||1.12%|
|[Benchmark] Vanguard Total Bond Index (VBMFX)||0.64%|
|Vanguard Mortgage-Backed Securities (VMBS)||0.22%|