Mutual Fund Research Newsletter
Copyright 2011 Tom Madell, PhD, Publisher
July 2011: Updated July 15, 2011

July 2011 Model Portfolios

As discussed in our lead article, there are many highly troubling things one could find to possibly build a case that the stock market has already, and will continue to, lose its footing. Among some of the things we watch, which are not necessarily those things mentioned by others, we see that:

However, my fund category tracking research still shows virtually all categories as either HOLDs or BUYs (see the chart below). The S&P 500 Index itself has a price/earnings (PE) ratio of about 14 which shows that if anything, it is slightly undervalued (average PE down through the years is about 15).

Stocks vs. Bonds vs. Cash

While our positive long-term outlook for stocks remains unchanged, with long term defined as one year or greater, we feel that over relatively shorter periods, the economic backdrop has created a greater risk of not as smooth sailing ahead as compared to existing conditions at the time of our last Model Portfolios in April. We plan on using any 5-10% correction(s) in stocks to bolster stock holdings by a few percent. (Note: As of 6-16, the S&P 500 is down approximately 7% from its Apr. 29, '11 high; by adding a relatively small investment into stocks, one still might see a reduced overall allocation to stocks as a result of the 7% fall.)

For Moderate Risk Investors


Asset Current (Last Qtr.)
Stocks 62.5% (65%)
Bonds 30 (30)
Cash 7.5 (5)
Note: We do not include cash because we think it will be an outperforming investment. Mainly, it serves as a source for dipping into when one thinks the other two categories have become relatively good buys. It also serves as an "emergency" source in case of unexpected expenses, allowing you not to have to sell stocks/bonds at an inopportune time

For Aggressive Risk Investors


Asset Current (Last Qtr.)
Stocks 80% (85%)
Bonds 10 (10)
Cash 10 (5)

For Conservative Investors


Asset Current (Last Qtr.)
Stocks 35% (40%)
Bonds 45 (45)
Cash 20 (15)

Specific Fund Category Allocations and Current BUY Signals


Stock Fund Model Portfolio

Categories with Best
Long-Term Potential /
BUY or Just HOLD?

Recommended Weighting
in Stock Portfolio
(vs. Last Qtr)

Our Current Recommended Funds
(Fund Symbol)
(Risk Level - See Note Below)

Large Growth/
17.5% (22.5%)
Vanguard Growth Idx (VIGRX) (C)
American Century Growth Inv (TWCGX) (M)
Fidelity Growth Company (FDGRX) (A)


22.5 (20)

Vanguard Internat. Growth (VWIGX) (M)
FTSE All-World ex-US Small-Cap Index (VFSVX) (A)
Tweedy Brown Global Value (TBGVX) (C)

Large Blend/

12.5 (12.5)

Vang. Large-Cap Idx (VLACX)
Gabelli Asset (GABAX) (A)

Mid-Cap Value/

5 (5)

Fidelity Low Price Stock (FLPSX)

Large Value/

15 (10)

T Rowe Price Equity Income (PRFDX)
Yacktman (YACKX) (A)
Vanguard Financials ETF (VFH) (A)

Mid-Cap Growth/

12.5 (12.5)

Vanguard Mid-Cap Growth Index (VMGIX)

Small Blend/

15 (17.5)

Vanguard Small Cap Index (NAESX)

Note: If noted, (C) indicates should be preferred by Conservative investors, (A) Aggressive investors, (M) Moderate Risk investors.


Bond Fund Model Portfolio
Categories with Best
Long-Term Potential
Recommended Weighting
in Bond Portfolio
(vs. Last Qtr)
Our Current Recommended Funds
(Fund Symbol)

Interm Term Govt

7.5% (10%)
Vanguard Tot. Bond Market (VBMFX)


45 (45)

PIMCO Total Return Instit (PTTRX)
or Harbor Bond Fund (HABDX)

Intermediate Term Muni Bonds

5 (5)

Vang. Interm. Term Tax-Exempt (VWITX)


12.5 (15)

PIMCO Real Return Instit (PRRIX)
or Harbor Real Return (HARRX)


10 (10)

Loomis Sayles Bond Retail (LSBRX)

High Yield

15 (15)

Vang. High Yield (VWEHX)


5 (0)

T. Rowe Price Intl. Bond (RPIBX)


Prior Model Portfolio Performance Updates (New as of July 15, 2011)

Over the Last 12 Months

Stock Portfolio

Last July (2010), we recommended a 60% position in stocks for Moderate Risk investors and 80% for Aggressive Risk investors. Such stock heavy allocations would have proved highly rewarding for investors since the S&P 500 Index, what we consider a benchmark for stock investors, returned 30.7% over the following year. Our benchmark for bonds, the Vanguard Total Bond Market Fund, by contrast, returned a mere 3.6%. And any money held in a money market fund would have returned hardly more than 0%; eg. Vanguard's Prime Money Market Fund returned less than 0.10%, or 1/10th of 1%.

If one had allocated their stock portfolio to the specific categories and percentages we recommended and held the portfolio unchanged, they would have a gain of 32%, outperforming the Index by 1.3%.

Better still, had one selected our specifically recommended funds, the portfolio would have returned 34.4%, beating the S&P by 3.7%.

Bond Portfolio

Our recommended Model Bond Portfolio did far better than our benchmark. An investor who held our recommended categories in the proportions we allocated would have earned a return of 7.0%. This nearly double the benchmark return of 3.6%.

Our specific bond fund picks were somewhat lower than the performance of the category averages. This was due to the rare underperformance of both the Pimco Total Return Fund and Vanguard Total Bond Market Fund, which comprised 60% of our specific fund choices.

Three and Five Year Stock Portfolio Performances

Had one held on to our Stock Model Portfolio issued July '08 without making any of our recommended allocation changes since then, they would have earned an annualized +1.5%, underperforming the S&P 500 Index which returned an annualized 3.3% by -1.8%. This would have been largely due to the fact that our 32.5% allocation to international stock funds at that time would have pulled down performance. On the positive side, we called for only a relatively small overall 45% allocation to stocks for Moderate Risk investors vs. a relatively high 35% allocation to bonds. Since bonds proved the better investment over the last 3 years with our bond benchmark returning 6.3% annualized, this would have helped to improve overall portfolio return.

Had one held our Stock Model Portfolio unchanged since July '06, our portfolio would have underperformed slightly. The S&P itself returned an apathetic 2.9% annualized while our portfolio would have returned 2.5.