Copyright 2014 Tom Madell, PhD, Publisher
Mid-July 2014 Update. Published July 17, 2014
By Tom Madell
Since my Newsletter recommends specific funds to invest in (which I mostly invest in myself), readers should want to know how well my prior portfolios would have done if actually purchased on the date they were recommended and held right up to the present. The following data gives you this information.
Our stock portfolio recommendations, when weighted as we recommended, returned 22.3% for the 12 mo. period.
For comparison, one should compare our result to the benchmark 23.0% return of a hypothetical mix of 65% US stocks, 30% non-US developed country stocks, and 5% emerging market stocks, resulting in a slight shortfall for our picks. When one factors in the fact that the benchmark assumes no fees, the two results are comparable.
Two of our international funds, TBGVX and VPACX, underperformed to a significant degree. Why? TBGVX has kept a large cash position hurting returns. And the US dollar weakened hurting returns vs. a non-hedged international fund such as VWIGX. VPACX, consisting of Pacific region stocks, has seriously underperformed international stocks in general. Finally, VFH, which was a good choice several years ago, has lagged a little more recently. Our remaining choices either outperformed our benchmark or were very much similar.
It was our bond portfolio that really excelled compared to its benchmark, the AGG ETF, which returned 4.4%. Our portfolio returned 7.6%, with every one of our 9 recommendations beating AGG. The best performances came from our high yield (SPHIX) and multisector (LSBRX) choices, each with double digit returns. Close behind was our emerging markets bond recommendation, PREMX. Also standing out were developed non-US international bonds (VFRAX) and municipal bonds (VWITX). (Remember that when examining muni bond returns, one's return is increased because the return is not reduced by Federal taxes.)
Our recommended stock funds in the Model Portfolio from July 2011 outperformed the above mentioned stock fund benchmark, 13.5% vs 12.1% (annualized).
11 out of 14 of our choices beat the above benchmark with only our international funds dragging the portfolio down, in spite of the fact that each of our international funds did better than the MSCI developed international fund index.
Our Model Bond Portfolio also outperformed the AGG benchmark, 5.1 vs 3.7%. The pattern of outperformance was similar to the 1 year returns above, although our particular choice of an international bond lagged badly.
Finally, if one had bought and held our recommended stock funds from July 2009, one would have slightly underperformed the benchmark result, 15.7 vs 15.1%, annualized. Since the benchmark doesn't include fund expenses, one can consider the two results identical.
Our best picks were our two small cap funds, VISGX and NAESX, which have returned over 20% each per year. Once again, our international funds brought down our performance, although our two international choices did better than the MSCI developed international fund index.
Our worst performer was a fund we long ago jettisoned, HSGFX.
Our bond fund choices again beat the AGG benchmark, 5.4 to 4.9%, on the strength of PTTRX, VWITX, and VIPSX.
Over the last 5 years, along with the underperformance of international stock funds, there has been generally been little advantage of investing selectively in any one fund category over another, except for the small advantage of small and mid-caps over large caps. These factors have made it hard for any diversified portfolio, such as ours, to do better than one would have by merely investing in an S&P 500 index fund.
However, on the bond side, with relatively big differences between funds from different categories, strategies which pick and choose selectively from the different categories have the opportunity to either excel (as ours did) or seriously underperform. Because we recommended moderate risk investors have anywhere from 25% (recently) to 45% (five years ago) in bond funds, having outperforming picks helped to significantly improve our overall portfolios' performance.