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June 2015 Performance Review

Not our best showing last month, but with the recent slide in stocks joining the weakness in bonds, our Aggressive portfolio (up 1.45% YTD) is now just ahead of the S&P 500 (1.17% YTD) with dividends for the first half of 2015. The bond-heavier Conservative portfolio dipped more for the month and year-to-date than the Aggressive as bonds have underperformed so far in 2015. Considering Vanguard Long-Term Investment-Grade (VWESX) is down 4.8% for the year, we're classifying the Conservative portfolios -0.87% YTD showing as 'hanging in there'.

Our Conservative portfolio was down 2.18% for the month. The Aggressive portfolio dropped 1.57%. Benchmark Vanguard funds for June 2015: Vanguard 500 Index Fund (VFINX) down 1.93%; Vanguard Total Bond Market Index Fund (VBMFX) off 1.02%; Vanguard Developed Markets Index Fund (VTMGX) down 2.79%; Vanguard Emerging Markets Stock Index (VEIEX) down 2.39%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, fell 1.69%.

Small-cap growth was really the only area of positive returns in June (it's also is sporting some of the best year-to-date numbers at just over 7%).

U.S. sector funds were almost all down last quarter except for financials and healthcare, the latter being responsible for barely positive S&P 500 numbers YTD. Take Healthcare out and the S&P 500 would be in negative territory in 2015.

Most countries are having a good year rebounding from previous declines. The strongest markets are Japan and China.

But interest rates is where the hub-bub is. We don't expect the great rate increase to continue much longer — there is just too much money that says it will. Moreover, Greece is once again causing some alarm to investors, which could put more pressure on emerging market bonds and higher risk debt in general, both foreign and domestic.

There are many possible scenarios investors should consider when setting up their portfolios for the (supposedly) inevitable rate rise because rates might go up and they might not. There is no rational reason to believe that rates will rise to levels of the past. There is no inalienable rule of the universe that says investors in bonds (or stocks) have to earn a positive real return — there could be 1% yields and 2% inflation for years to come.

Just for fun, here's a list of possible scenarios that are as likely as the expected big run-up in rates that could burn most bond investors in ways they are not expecting to get burned:

  • Flat to inverted yield curve
  • Spread widens between Government and higher risk debt from a panic somewhere
  • Even lower yields! Why is a 5% treasury bond more likely than a 1.5% ten year treasury?
  • Higher inflation and negative real rates for all investment grade bonds below 10 duration
  • Negative fee-adjusted yields for most bond funds
  • Falling U.S. dollar with rising credit spreads in U.S. slowdown
  • Rising euro if sketchy Greece gets a brand new second hand currency

May 2015 Performance Review

It wasn't our best month, that's for sure. With the S&P 500 rising just over 1% in May, we lost a fraction of a percent in both Powerfund portfolios, thanks mostly to bond underperformance, along with a weak foreign stock chaser.

The Dangers of Good Performance

Last month our Aggressive Powerfund Portfolio, which debuted on March 31st, 2002, moved past the 300% since-inception return mark (recent weakness in bonds and stocks currently put us just below that level).  In the warm glow of the rearview mirror, that 300% (or just over 11% annualized) seems pretty grand. But it’s important to look at what actually happened to generate that return and consider how repeatable it is. “Past performance is no indication of future results” is as true for us as anyone else.

March 2015 Performance Review

March was a pretty lousy month for stocks globally. The 2015 market is turning out to be a little topsy-turvy, with quick rebounds and drops. Our Conservativeportfolio moved more or less with the markets, while our more uniquely positioned Aggressive portfolio bucked the benchmarks with a nice gain, giving us a decent spread of about 4% over the S&P 500 thus far in 2015.

Oil’s Well That Ends Well

The primary reason for our trade on 3/13 and 3/16 was to cut back on our oil short, DB Crude Oil Double Short ETN (DTO), which has performed very well in the Powerfund Portfolios, even without a collapse in either the global economy or the stock markets. We wanted to get out of utilities and floating rate junk bonds and also to use the recent major slide in the euro to get back into foreign bonds after a long hiatus. We rebalanced the portfolios a little, too. 

Trade Alert!

We're throwing open the windows, sweeping the floors, and tidying up both Powerfund portfolios with big spring cleaning trades in each. We're cutting back on a speculative short fund that's produced some of our biggest gains ever. We're waving goodbye to a fund we've held twice since 2003. And we're saying hello to a brand new position in an international bond fund of mystery - a fund category we ditched years ago when the Euro was riding high. Read all about it by clicking here.

February 2015 Performance Review

What the interest rate gods giveth in January, they taketh away in February. The S&P rebounded to new highs, and we're even breaking through Nasdaq 5,000 again—just like we did in March, 2000! The reality of fabulous tech earnings growth finally caught up with NASDAQ prices of 15 years ago. 

January 2015 Performance Review

So far, so good. 2015 is off to a nice start. At least for us. The S&P 500 was down 3% while both of our portfolios were up just over 2%. That's a 5% performance gap, and it's only been four weeks.

December 2014 Performance Review

Another year is in the can, and what a year it was. On the surface, 2014 was a great one: the economy ended on a high note and the U.S. stock market shook off a late-year slide to post a 13.51% 12-month return. This on top of the bond market's near 6% gain (and 2014 was supposed to be the year of the great bond collapse). How could an investor perform poorly in such an environment? All too easily, it turns out.