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Copyright 2019 Tom Madell, PhD, Publisher
Nov 2019. Published Oct 31, 2019.

Time to Reconsider These 35 Funds

In last month's Newsletter, I showed performance results for my currently recommended stock and bond funds. As I spelled out in detail in my Jan. 2019 Newsletter, these recommendations are based on those funds out of the many that I myself presently own in which, additionally, I have my biggest positions. Although these investments probably began with relatively small positions, they grew much larger as a result of strong performance and additional purchases based on forward-looking prospects. These currently recommended funds are meant as a replacement for my previously recommended funds which appeared in my quarterly Model Portfolios, the last of which was presented in my Oct. 2018 Newsletter.

There is some overlap between my currently recommended funds and my prior Model Portfolio funds. For example, nine of the currently recommended stock funds were among the 15 stock funds in that last Model Portfolio. But how should investors evaluate the remaining funds in the Oct. 2018 Newsletter Model Portfolio that that did not make it to my currently recommended list, especially if they still own any of them? The same goes for all of the previous recommendations I made prior to Oct. 2018. For instance, I frequently included Fidelity Contra (FCNTX) in many of my Model Portfolios. Readers might have asked themselves do I still look favorably on this fund and all such other funds or not?

To answer these questions, I examined all my prior Model Portfolios between Oct. 2014 and Oct. 2018, finding a total of 20 stock funds and 15 bond funds in these Portfolios but not in my current recommendations. Were these funds, which I once regarded highly enough to have included them in my Model Portfolios, no longer recommended? Actually, the answer is that, for the most part, I still recommend most of them with one or two exceptions.

While most all of these funds are still highly regarded by me, I wanted to focus on the particular funds which, for me, were what I would call the "best of the best" based on my own experience. These are the funds that made it to my currently recommended list in the Oct., 2019 Newsletter. I regard most all of these 35 funds as still good ones to own, but for me, not as good as the ones shown in last month's Newsletter. In fact, I still own many of these what I will call "discontinued" funds.

In the tables below, I show these discontinued funds, how well they have done over the last 5 years annualized, and whether such performance is in the top half of their category competition. For example, a Large Value fund was compared to all other Large Value funds, not to all funds in general. Such data can be found on the morningstar.com site. (All data is as of Oct. 25, 2019.)

Discontinued Domestic Model Portfolio Stock Funds

Fund 5 Year Return In Top Half of
Its Category?
Fidelity Low Priced Stock (FLPSX) 6.87% No
Fidelity Large Cap Stock (FLCSX) 8.80 No
Fidelity Contra (FCNTX) 12.20 Yes
T Rowe Price Value (TRVLX) 8.19 Yes
Vanguard US Value (VUVLX) 7.15 No
Vanguard Energy ETF (VDE) -5.80 Yes
Vanguard Utilities ETF (VPU) 11.59 Yes
Vanguard Financials ETF (VFH) 11.06 Yes
Vanguard Dividend Growth Inv (VDIGX) 11.44 Yes
Vanguard Small Cap Value Index Fund (VISVX) 7.58 Yes
AMG Yacktman Fund Service Class (YACKX) 8.58 Yes
T. Rowe Price Eq. Inc (PRFDX) 7.72 No
T. Rowe Price Dividend Growth (PRDGX) 12.02 Yes
Oakmark Investor (OAKMX) 8.18 No
Vanguard Value ETF (VTV) 9.79 Yes

Discontinued International Model Portfolio Stock Funds

Fund 5 Year Return In Top Half of
Its Category?
Dodge & Cox International Stock (DODFX) 2.05% No
DFA Internat Small Cap Value I (DISVX) 4.29 Yes
Fidelity Overseas (FOSFX) 7.55 Yes
Vanguard Global ex-US Real Est Idx Adm (VGRLX) 6.24 No
Vanguard Precious Metals and Mining Inv (VGPMX)
(now called Vanguard Precious Metals and Mining Inv)
-2.25 No

Discontinued Model Portfolio Bond Funds

Fund 5 Year Return In Top Half of
Its Category?
Harbor Bond Fund (HABDX) 3.38% Yes
PIMCO Total Return ETF (BOND) 3.58 Yes
PIMCO Real Return (PRRIX) 1.93 Yes
Harbor Real Return (HARRX) 1.85 Yes
Vanguard Intermed. Term Tax-Ex. (VWITX) 3.02 Yes
Loomis Sayles Retail (LSBRX) 2.58 No
Metropolitan West Total Return Bond M (MWTRX) 2.83 No
DoubleLine Total Return Bond I (DBLTX) 3.28 Yes
DoubleLine Total Return Bond N (DLTNX) 3.00 No
Vanguard Total Bond Market ETF (BND) 3.03 Yes
Vanguard GNMA (VFIIX) 2.35 Yes
Vang. Long-Term Tax-Exempt (VWLTX) 4.04 Yes
Vanguard Inflation Prot. Sec (VIPSX) 2.05 Yes
Vanguard Emerging Mkts Govt Bd Idx Adm (VGAVX) 5.14 Yes
Dodge & Cox Income (DODIX) 3.53 No

Key Implications

Out of the 20 previously discontinued Model Portfolio stock funds, 12 are ahead of their category average. Out of 15 discontinued bond funds, once again 12 are ahead of their category average. Being in at least the top half of their category average over the past five years is one marker that suggests the fund merited being in one or more of my quarterly Portfolios in the first place.

One would expect my "best of the best" recommendations to be better performers than my discontinued Model Portfolio funds. This turned out to be true to a significant degree for my international stock funds. The discontinued international stock funds, when retained over 5 years, would have averaged an annual return of 3.58%; my currently recommended funds would have averaged 5.13%, both annualized. However, for my domestic stock funds, the discontinued Model Portfolio funds and the currently recommended funds returned nearly the same, 8.36 and 8.25%, respectively. Thus, when I evaluated my Model Portfolio domestic stock funds, the discontinued recommedations still turned out to be just as good performance-wise as my "best of the best" recommendations. This shows how just how difficult it is to "trade up" in search of a better stock fund.

In other words, if you still own any of the discontinued Model Portfolio stock funds, you can be assured that, on average, they performed quite well. They never made my current recommendation list, not for the most part, because their performance was inadequate, but because I decided to narrow my focus to the funds I personally had the most success with down through the years. The same is true for the discontinued international funds, except if you still own VGPMX, this fund is no longer recommended given its poor showing even against its category peers.

For bond funds, as expected, the discontinued funds were, on average, a little less strong performance-wise than my current recommendations. The average return for the former funds was 3.04 vs. 3.66% for the "best of the best" recommendations. Thus, the discontinued Model Portfolio bond funds as a group performed better than their same category peers, but not as well as the funds in my currently recommended group. In spite of this, one could say that any of these discontinued bond funds should be considered as still worth holding.

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