Model Portfolio Fund Performance Update

As explained in our July Newsletter, we don't just issue forecasts (such as you see in our Quarterly Model Portfolios) and then forget them. An investment forecast is only worthwhile if, at a later date, it can be shown to have predicted subsequent performance with some degree of accuracy.

Since our recommended funds are chosen because we think they have a good chance of outperforming on a long-term basis, in order to see if our recommendations have proven accurate, we compare their performance both to relevant indexes and to other funds within each's own overall fund category (eg Large Growth, Small Value, etc.).

Since we began publishing our Model Stock Portfolios in the year 2000, the average total return for the combined funds in the Portfolios has typically beaten the return on the S&P 500 Index, especially over periods up to 5 years later.

Recently, however, the Portfolios have lagged behind the Index. This is mainly due to the fact the Index has been outperforming more and more funds lately as well as because International funds have been doing so poorly that any portfolio that included them, such as all of ours, usually suffered.

Below are tables showing our specifically recommended Model Stock Portfolio funds from our Newsletters published 1, 3, and 5 years ago (that is, at the start of a year's 3rd Qtr.). The data show how each fund has done since in terms of how they compare in a percentage-wise ranking with all other funds in their fund category along with each's annualized total return.

While our Portfolios change somewhat each Quarter, we do not recommended holding any Portfolio fund for any less than at least one year except under extraordinary circumstances. This is because we do not think it wise to dart in and out of funds on a short-term basis nor possible to accurately predict how a given fund will do over periods less than a year.

Stock Fund Recommendations from July 2011

In judging how our recommended funds did, note that the average diversified US stock fund returned -1.8% over the one year period. The average International stock fund returned -13.8%

Comments: While most stock fund performance was subdued, it was a year of great relative outperformance for the S&P 500: Had one merely held the Vanguard 500 Index Fund (VFINX), one's return would have been 5.3%, or about 7% better than the average US fund. Large caps in general did much better than mid or small caps.

Ten out of 14 of our recommendations outperformed their category averages.

Stock Fund Recommendations from July 2009

The average diversified US stock fund returned an annualized 14.3% over the three year period; the average International stock fund returned 6.8%.

Comments: The S&P 500 once again beat the average US stock fund, this time by about 2% annualized. However, small- and mid-caps did even better. Six out of our 7 funds beat their category averages.

Our worst fund was Hussman Strategic Growth, but luckily, it was only recommended for 10% of the portfolio. We dropped this fund from our Portfolio 6 mos. later.

Stock Fund Recommendations from July 2007

The average diversified US stock fund returned an annualized -0.7% over the five year period; the average International stock fund returned -5.5%.

Comments: Nearly flat returns across all US categories with the S&P 500 barely eking out the average fund with a 0.2% annualized return. Three out of six of our funds beat their category averages.

Given these results, it may be wise to maintain a position in a low cost S&P 500 Index fund or ETF, and, to not assume that merely buying and holding a fund will necessarily lead to good results.

Bond Fund Recommendations from Prior Portfolios

Rather than show all 1, 3, and 5 year returns for our specifically recommended Model Bond Portfolio funds, we can summarize by saying that

• the majority of our bond funds beat their category averages;

• the average total return for the combined funds in the Portfolios has typically closely approximated the return on the benchmark Barclays Aggregate Bond Index (AGG) which has been 6.8% annualized over the last 5 years;

• however, our recommended overall bond Portfolio returns have typically been better than returns achieved by the average bond fund;

• and finally, our returns have been boosted even more by the inclusion of tax-free muni bonds which lead to a higher tax-equivalent return for investors in at least the 28% Federal Tax bracket.

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