Performance Review for Our Model Portfolios

By Tom Madell

An important feature of our Newsletter is to show how an investor would have done holding our Portfolios over the last year, and also, over longer periods. Of course, anyone can provide a list of funds and allocations they recommend to others, but the value of the recommendations only becomes clear after some time has elapsed.

Recommendations from April 2013

One year ago (starting Apr. 1, 2013), we recommended Moderate Risk investors have 67.5% in stocks, and Aggressive investors 85%. (Click here to see the complete Apr. 2013 issue.)

This pretty aggressive overall stance proved to be wise for those who adhered to our recommendations, as most stock funds returned in the vicinity of 20% or more over the ensuing 12 mos.

Model Stock Portfolio Performance

Of the 11 stock funds in our Model Portfolio, 5 wound up beating or equaling the S&P 500 index while a 6th was an S&P 500 fund which nearly equalled its return.

The following listing shows the funds and their returns. Since we often recommend multiple funds within a single fund category, we wouldn't expect most investors to own all these funds.

Fidelity Low Priced Stock (FLPSX)    24.1%
Tweedy Brown Global Value (TBGVX)     12.3
Vanguard Internat. Growth (VWIGX)     18.4
Vanguard Pacific Index (VPACX)    5.1
Vanguard 500 Index (VFINX)     21.7
Yacktman (YACKX)      14.9
Vanguard Growth Index (VIGRX)    21.9
Fidelity Contra (FCNTX)     23.5
Vanguard US Value (VUVLX)     23.2
Vanguard Financials ETF (VFH)     21.9
Third Avenue Real Est. Value (TVRVX)     17.8

Had one invested in all the funds in the Portfolio using the allocation figures we recommended at the time, the return for the entire portfolio would have been 19.0% (We divided the allocation for multiple funds within a fund category evenly between each. Eg. for the Large Blend category, we assumed the 15% overall allocation went 7.5% to VFINX and 7.5% to YACKX.)

If using the S&P 500 index as a benchmark, 19% trailed the 21.9% return on the index. However, most diversified portfolios, including ours, hold international funds beyond just the large US stocks found in the S&P 500. If one uses a benchmark that includes both foreign and emerging markets as well, the benchmark returned 18.9% - this includes 65% US stocks of all sizes, 30% major developed markets, and 5% emerging markets.)

Model Bond Portfolio Performance

The following shows our 9 recommended funds from Apr. 2013 and their subsequent 1 year performance.

PIMCO Total Return Instit (PTTRX)     -1.2%
Harbor Bond Fund (HABDX)     -0.9
PIMCO Real Return (PRRIX)     -7.2
Harbor Real Return (HARRX)     -7.2
Vang. Intermed. Term Tax-Ex. (VWITX)     1.0 (Adjusted for investor in 28% Fed. tax bracket)
Loomis Sayles Retail (LSBRX)     6.2
Fidelity High Income (SPHIX)     6.2
PIMCO Foreign Bond (USD- Hedged) Adm (PFRAX)     1.6
T Rowe Price Emerging Mkts Bond (PREMX)     -2.6

Had one invested in all the funds in the Bond Portfolio using the allocation figures we recommended at the time, the return for the entire portfolio would have been 0.7%. The benchmark for bond funds, the return for the AGG ETF, was -0.1%

Comments

As in recent years, foreign stock funds had a disappointing performance. Our worst performing fund, VPACX, was recommended only for aggressive investors. Another disappointing fund result was for YACKX (now closed) which became defensive and currently holds a large 21% cash position hurting performance. On the positive side, our recommendation of TVRVX outperformed US-only Real Estate funds such as VGSIX by close to 14% and, in fact, was in the top 1% of real estate funds.

It was not a good 12 mos. for bond funds and our small position in inflation protected bonds was our worst performer; likewise, our large position in PTTRX and/or HABDX had a negative effect. However, good returns in riskier bonds (LSBRX and SPHIX) brought us ahead of the benchmark.

Recommendations from April 2011

Three years ago (Apr. 1, 2011), we recommended Moderate Risk investors have 65% in stocks, and Aggressive investors 85%. (Click here to see the complete Apr. 2011 issue.) Once again, such a relatively aggressive stance over the entire 3 years would have worked out well since the average diversified US stock fund returned 11.7% and the S&P 500 14.7, both annualized. However, an international fund index returned only 4% with emerging markets much worse at -3.6% (also annualized). Meanwhile US bond funds averaged about 3.9%

Model Stock Portfolio Performance

The following listing shows the funds and their annualized returns:

Vanguard Growth Idx (VIGRX)    14.7%
American Century Growth Inv (TWCGX)     11.8
Fidelity Growth Company (FDGRX) 15.9
Vanguard Internat. Growth (VWIGX)     7.0
FTSE All-World ex-US Small-Cap Index (VFSVX)     4.7
Vang. Large-Cap Idx (VLACX)     14.4
Gabelli Asset (GABAX)     13.0
Fidelity Low Price Stock     (FLPSX) 15.2
T Rowe Price Equity Income (PRFDX)     13.2
Yacktman (YACKX)     13.3
Vanguard Financials ETF (VFH)     12.7
Vanguard Mid-Cap Growth Index (VMGIX)     11.5
Vanguard Small Cap Index (NAESX)     11.5

Had one invested in all the funds in the Portfolio using the allocation figures we recommended at the time, the return for the entire portfolio would have been 12.1%. (Here too, we divided the allocation for multiple funds within a fund category evenly between each.)

If using the S&P 500 index as a benchmark, 12.1% trailed the 14.7% return on the index. Once again, most diversified portfolios, including ours, hold international funds beyond just the large US stocks found in the S&P 500. If one uses a benchmark that includes both foreign and emerging markets as well, the benchmark returned 10.5%.

Model Bond Portfolio Performance

The following shows our 8 recommended funds from Apr. 2011 and their subsequent 3 year performance (annualized):

Vanguard Tot. Bond Market (VBMFX)     3.6%
PIMCO Total Return Instit (PTTRX)     4.2
Harbor Bond Fund (HABDX)     3.7
Vang. Interm. Term Tax-Exempt (VWITX)     6.7 (Adjusted for investor in 28% Fed. tax bracket)
PIMCO Real Return Instit (PRRIX)     3.6
Harbor Real Return (HARRX)     3.1
Loomis Sayles Bond Retail     (LSBRX) 7.6
Vang. High Yield (VWEHX)     8.3

Had one invested in all the funds in the Bond Portfolio using the allocation figures we recommended at the time, the return for the entire portfolio would have been 5.1% annualized. The benchmark for bond funds, the return for the AGG ETF, was 3.8%

Comments

Once again, our foreign stock funds which represented 20% of our Model Stock Portfolio allocation trailed our other funds badly, but these two funds each beat their foreign benchmarks. Luckily again, as for the last number of years, we did not recommend any emerging market funds, a category that performed quite badly. (Most of the funds we recommended as mainly for Aggressive investors did not perform quite as well as we would have hoped.)

Our bond portfolio recommendations generally did quite well with 3 funds outperforming the benchmarks by a substantial amount.

Note: We already discussed how our Model Portfolios from 5 years ago did in our beginning of the month (April) Newsletter.

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