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Copyright 2021 Tom Madell, PhD, Publisher
Jan. 2021. Published Jan. 5, 2021.
Did You Profit From These Fund Recommendations? I Did
by Tom Madell, Ph.D.---
Welcome to the new year! While it was a devastating prior year in most respects, not so for most fund investors. Let's hope we all can surmount the remaining challenges, especially to those most deeply affected.
But now, I feel it is time to "crow" a little about the last five years. After reading through the half decade results presented below in this article, I think you will see why.
Just to give a little background: I have spend a significant portion of my free time over the last 21 years trying to help the average fund investor better their investing results, and as an aftermath, their overall financial health and subsequent well-being. All these years, I have worked with no profit motive of my own, other than using whatever research I came up with to do better, myself, as an investor. To these ends, I have continuously published an almost completely unknown, free mutual fund and ETF investing Newsletter without real visibility other than a small Web presence.
That's really a shame because I do believe that anyone who came across my non-promoted Newsletter and truly followed my advice over the years between 1999 and 2020 would likely be highly better off financially as a result. (Any feedback in this regard, either supporting or disputing, will be greatly appreciated. In fact, you might even get your name and comments published in an investing book, if I can get an outside editor or publisher to express an interest - do you know any such person or member of the media you would be willing to contact?)
But given that nearly everyone, myself included, has come to view most investment advice as wrong far too often, and possibly self-serving, many, many people have shrugged off my advice as not to be taken too seriously, trusted, or followed. This is probably especially true since I am not a person who has a background as a financial advisor but just someone who became strongly interested in mutual fund investing about 35 years ago. Of course, there are perhaps other ordinary investors who might fit this description. So what might qualify me as a person that a reader should have confidence in enough to trust the advice I give about fund investing? Sad to say, even my close family members and friends aren't particularly prone to read my Newsletter or to follow my recommendations.
Obviously, no one's advice, mine included, can ever be close to 100% correct so I've had my share of miscalls with my own money down through the years. But these miscalls have quite often been quickly recognized and reversed whenever possible; you will see a few examples of this below. In truth, though, the mistakes have been greatly outnumbered by correct calls, and in the realm of investing, a long history of successful recommendations can far overshadow fund recommendations that did not pan out.
While I can't now review here all articles I've written over the last 21 years to substantiate these assertions (although you could by looking through the past issues of over 21 years of my Newsletters at my funds-newsletter.com website), I can at least go back over the last 5 years of Newsletters and highlight the advice I gave that was "spot on" while, in balance, mentioning some of the things I got wrong.
I will proceed beginning with 2016 and review some of the most actionable recommendations I made, all the way through the end of 2020. Of course, anything I said over the last few months of 2020 has probably not had enough time elapsed to judge the merit worthiness of the suggestions. (Note: Just to define what I mean by "actionable" recommendations, these are those that are concrete and specific as opposed to theoretical or merely general in nature; they are almost always recommendations involving specific funds or categories of funds.)
2016
In the January 2016 Newsletter, I listed those US fund categories my research rank ordered as having the relatively best prospects vs. the worst over the next 3 to 5 years. My research has always targeted long-term performance as opposed to much shorter periods. (Note: The basis was for making these ratings can be found near the beginning of the article.)
First, I listed the 9 U.S. fund categories that are part of the Morningstar "Style Box" or 3x3 grid which includes Growth vs. Value and Small vs. Large and ranked each in terms of long-term prospects. I found, in order of top favorability, the following: Large Growth, Mid-Cap Growth, Large Blend and Small Growth.
As of the close of Dec. 2020, the annualized returns for the average fund in each of these categories were 18.25, 17.74, 13.37, and 17.89%, respectively. (Note: All the remaining performance results shown in this article, unless otherwise stated, are annualized through Dec. 31, 2020.)
The remaining 5 categories in my ordered list all showed lower returns than the above 4. Thus, 5th rated was Large Value at 9.41%. These performance outcomes turned out to have been a remarkably accurate reflection of actual results 5 years later.
The lowest 4 rated categories, labeled "Reduce/Sell, still showed positive returns, although much less than top recommended 4 returns with 6th and 7th rated categories, Small (7.87) and Mid-Cap Value (8.77), rather severely underperforming each of the aforementioned 4 categories. The 8th and 9th categories, Mid-Cap (11.02) and Small-Cap Blend (10.47), did manage to do better than my research suggested.
These somewhat marginal results for Reduce/Sell recommendations, and for the returns of Sector funds below, have prompted me to no longer automatically issue a Reduce/Sell recommendation when certain criteria my research determined were met, as was the case in the Jan. '16 Newsletter.
Next, I listed my most highly favored to less favored list for 5 international fund categories, all labeled "Holds." My top choice was Emerging Markets. The category wound up returning 11.94% over 5 years, better than 3 of the remaining 4 categories The exception was for Diversified Pacific/Asia which returned 14.03. The remaining categories in order of preference at the time were, Japan at 8.99%., Europe at 7.29, and Diversified International at 7.51.
My success in performance-ordering 14 sector funds was more spotty with my top choice of Precious Metals, called a "Buy," which returned 21.19%. However, Technology did even better at 24.98%. Two other risky Buy recommendations, namely Energy (-10.24) and Commodities (+1.51) did not do well at all, while a 3rd, Natural Resources (9.70), performed adequately. Lowest on my ordered list of Holds were Global Real Estate (5.15), US Real Estate (5.46), and Financials (8.70). My 3 Reduce/Sell recommendations, Health (11.44), Industrials (13.21), and Utilities (10.24) did better than I expected.
2017
In the Aug. Newsletter, published that July, I highly recommended bond funds over cash, regardless of the fact that interest rates, and therefore, dividend payouts, were still quite low.
For the 2 years since the start of July 2017 through June 2019, the U.S. bond market has outperformed cash, 3.48% vs. 1.82%, all annualized. Over the following year between July 2019 and June 2020, the differences were even more dramatic, +8.85% for the U.S. vs. 1.31% for cash. (See below under the 2020 heading for how bonds have done after June 2020.)
Note that for bond funds, I consider economic variables such as the apparent direction of interest rates, with a projected outlook over the next 1 to 2 years, rather than 3 to 5 years as with stock funds.
2018
In the June Newsletter, I identified some of the relatively few funds that had both long tenured lead managers (10+ yrs) and that had beaten a measure of the total stock market, namely Vanguard Total Stock Market Index Inv (VTSMX), by at least 1% annually. I regarded these funds rarities since most managers don't stay that long at a given fund. (Note: these funds could have had additional managers as well.) I stated that these funds should be considered among one's top choices available if one decides to go with one or more managed funds because you would be getting some of the best proven fund managers available.
Since the May 24, 2018 publication date of the article, the following tables show how much $10,000 invested in each of the funds has increased over approximately 2.5 years and whether the same lead manager has remained with the fund: (Note: as a base reference for this data, a fund that has increased $5,000 in value would have gone up, in percentage terms, 50%, not annualized; for bonds, a fund up $2,000 would be up 20%, not ann.)
Stock Funds
| Fund Name (Symbol) |
Category | 5/24/18 - 12/31/20 Increase |
Same Manager? |
| Fidelity Large Cap Growth Enhanced Idx (FLGEX) | Large Growth | $6,320 | No; see Note below |
| Fidelity Contrafund (FCNTX) | Large Growth | 5,499 | Same |
| Fidelity Focused Stock (FTQGX) | Large Growth | 6,634 | Same |
| T. Rowe Price Blue Chip Growth (TRBCX) | Large Growth | 5,991 | Same |
| T. Rowe Price QM US Small-Cap Gr Eq (PRDSX) | Small Growth | 4,420 | Same |
Compare these increases to VTSMX which increased $4,502. Thus, 4 out of 5 beat the benchmark by a considerable amount.
International Stock Funds
| Fund Name (Symbol) |
Category | 5/24/18 - 12/31/20 Increase |
Same Manager? |
| Fidelity International Capital Appreciation Fund (FIVFX) | Foreign Large Growth | $4,080 | Same |
| Fidelity International Growth Fund (FIGFX) | Foreign Large Growth | 3,804 | Same |
| T. Rowe Price Overseas Stock (TROSX) | Foreign Large Blend | 1,265 | Same |
| Vanguard International Explorer Inv (VINEX) | Foreign Small/Mid Growth | 655 | Same |
| Vanguard International Growth Inv (VWIGX) | Foreign Large Growth | 7,335 | Same |
Compare these increases to that of the Vanguard Total International Stock Index Fund Admiral (VTIAX) which increased $1,574. Therefore, 3 out of 5 of the funds did significantly better than the index. The average increase of all 5 was $3428.
Bond Funds
| Fund Name (Symbol) |
Category | 5/24/18 - 12/31/20 Increase |
Same Manager? |
| Fidelity Capital & Income Fund (FAGIX) | High Yield | $2,220 | Same |
| Fidelity New Markets Income (FNMIX) | Emerging Markets | 1,115 | No |
| Fidelity High Income (SPHIX) | High Yield | 1,364 | No |
| Fidelity Focused High Income (FHIFX) | High Yield | 1,897 | No |
| Fidelity Total Bond Fund (FTBFX) | Intermediate | 2,151 | Same |
| T. Rowe Price U.S. Treasury Long-Term Fund (PRULX) | Long Government | 3,992 | Same |
| T. Rowe Price Tax-Free High Yield (PRFHX) | High Yield Muni | 1,361 | Same; see * below |
| T. Rowe Price Corporate Bond (PRPIX) | Corporate | 2,458 | No |
| Vanguard High-Yield Corporate Inv (VWEHX) | High Yield | 1,991 | Same |
Compare these increases to the benchmark Vanguard Total Bond Market Adm. (VBTLX) which increased $1,971; 5 out of 9 funds wound up beating the index.
2019
Starting in my Jan. 2019 Newsletter, I began to no longer recommend Model Portfolios showing exact percentages to consider investing in each of a large number of funds because they implied a level of precision in picking funds and recommended allocations to each that was, at least in recent years, not proving to beat benchmark index funds. Instead, I began listing a shorter number of funds that I myself owned and had experienced the best results with, typically over many years.
It is too soon to evaluate what the long-term effectiveness of these funds will be, that is, over a full 3 to 5 years, although almost all the funds have been doing quite well over the last 2 full years. In fact, a highly diversified portfolio consisting of all 13 stock funds, including international funds, in equal proportions would have returned a rather astounding 24.5% annualized over the period. For bonds, a portfolio of all 8 bond funds returned 7.6% annualized.
By adopting what I now referred to as "Recommended Funds" and eliminating many, but not all, of the prior Model Portfolio funds, the result was that many funds that I had previously looked favorably upon were now like stranded "orphans;" anyone who still owned them might have felt at a loss as to their continued attractiveness.
To improve this situation, my Nov. 2019 Newsletter went back over all these orphan funds, 35 in all, and tried to determine whether they were still worth keeping in one's portfolio. I based these judgements on whether they were in the top half of all funds in their identical morningstar.com category based on each fund's prior 5 year performance data. As it turned out, the majority of these funds were indeed still doing well as measure against their competition. This is as it should have been had my prior Model Portfolios been successful in identifying good fund choices.
To bring this data up-to-date, it was revealing to examine how the same funds had fared since then, that is, between the start of 2020 and year end. The results are presented below along with a table showing the same comparisons for my current Recommended Funds.
Discontinued ("Orphan") Domestic (U.S.) Model Portfolio Stock Funds
| Fund | In Top Half of Its Category? |
| Fidelity Low Priced Stock (FLPSX) | Yes |
| Fidelity Large Cap Stock (FLCSX) | No |
| Fidelity Contra (FCNTX) | No |
| T Rowe Price Value (TRVLX) | Yes |
| Vanguard US Value (VUVLX) | No |
| Vanguard Energy ETF (VDE) | No |
| Vanguard Utilities ETF (VPU) | No |
| Vanguard Financials ETF (VFH) | Yes |
| Vanguard Dividend Growth Inv (VDIGX) | No |
| Vanguard Small Cap Value Index Fund (VISVX) | Yes |
| AMG Yacktman Fund Service Class (YACKX) | Yes |
| T. Rowe Price Eq. Inc (PRFDX) | No |
| T. Rowe Price Dividend Growth (PRDGX) | No |
| Oakmark Investor (OAKMX) | No |
| Vanguard Value ETF (VTV) | No |
| Dodge & Cox International Stock (DODFX) | Yes |
| DFA Internat Small Cap Value I (DISVX) | No |
| Fidelity Overseas (FOSFX) | No |
| Vanguard Global ex-US Real Est Idx Adm (VGRLX) | No |
| Vanguard Precious Metals and Mining Inv (VGPMX) (now called Vanguard Global Capital Cycles Inv) |
Yes |
Now just 7 out of 20 stock funds were in the top half against their category competition.
Discontinued ("Orphan") Model Portfolio Bond Funds
| Fund | In Top Half of Its Category? |
| Harbor Bond Fund (HABDX) | Yes |
| PIMCO Active Bond ETF (BOND) | No |
| PIMCO Real Return (PRRIX) | Yes |
| Harbor Real Return (HARRX) | Fund liquidated |
| Vanguard Intermed. Term Tax-Ex. (VWITX) | Yes |
| Loomis Sayles Retail (LSBRX) | No |
| Metropolitan West Total Return Bond M (MWTRX) | Yes |
| DoubleLine Total Return Bond I (DBLTX) | No |
| DoubleLine Total Return Bond N (DLTNX) | No |
| Vanguard Total Bond Market ETF (BND) | Yes |
| Vanguard GNMA (VFIIX) | No |
| Vang. Long-Term Tax-Exempt (VWLTX) | Yes |
| Vanguard Inflation Prot. Sec (VIPSX) | Yes |
| Vanguard Emerging Mkts Govt Bd Idx Adm (VGAVX) | Yes |
| Dodge & Cox Income (DODIX) | Yes |
Here, more promisingly, 9 out of 14 bond funds were still in the top half against their category competition.
Currently Recommended Stock Funds
| Fund | In Top Half of Its Category? |
| Vanguard Extended Market Idx (VEXAX) | Yes |
| Vanguard Small Cap Idx (VSMAX) | Yes |
| Vanguard Small Cap Growth Idx (VSGAX) | No |
| Vanguard 500 Index (VFIAX) | Yes |
| Vanguard Pacific Index (VPADX) | Yes |
| Vanguard International Growth (VWILX) | Yes |
| Vanguard Europe Idx (VEUSX) | No |
| Vanguard Emerging Markets Idx (VEMAX) | No |
| Tweedy, Browne Global Value (TBGVX) | No |
| Vanguard Equity Income (VEIRX) | Yes |
| Vanguard Windsor II (VWNFX) | Yes |
| Vanguard Total Stock Market Index (VTSAX) | Yes |
| Vanguard Growth Idx (VIGAX) | Yes |
So, 9 out of 13 my currently recommended stock funds were in their top half vs. their competition, a much better outcome than for the orphan funds.
Currently Recommended Bond Funds
| Fund | In Top Half of Its Category? |
| Vanguard California Interm-Term Tax-Exempt (VCAIX) | Yes |
| PIMCO Total Return Instl (PTTRX) | Yes |
| Vanguard Total Bond Market Index (VBTLX) | Yes |
| Vanguard High Yield (VWEHX) | Yes |
| Vanguard Short-Term Investment-Grade (VFSTX) | Yes |
| PIMCO International Bond (PFRAX) | No |
| Vanguard Total International Bond Index (VTIBX) | No |
| Vanguard Inflation Prot. Sec. (VAIPX) | Yes |
Here, 6 out of 8 bond funds were in their top half vs. their competition, also a better outcome than for the orphan funds.
In summary, less than half of the orphaned funds (16 out of 34) were recently performing in the top half of their comparison groups; But for my newer Recommended Funds, both stock and bond funds, the great majority were (15 out of 21 funds).
What these results suggest is that orphaned Model Stock Portfolio funds were generally not performing as well as desirable against their competition, while my newer Recommended Funds generally were. It, therefore, seems then that the switch away from Model Portfolio funds initiated in Jan. 2019 was leading to better fund recommendations.
2020
In the lead article in the Feb/Mar. Newsletter entitled "A Few Words of Advice Regarding the Current Sell-Off," I said that corrections like the one happening then, apparently induced by the onset of the coronavirus, were not that rare. I added that some investors were selling mainly out of fear of even bigger drops ahead but, in some cases, to preserve profits gained during the preceding nearly 11 year bull market.
I then asked "is such selling right now what the average investor should do? I then answered "do yourself a favor and keep holding your fund positions as is. All losses thus far are really just "paper losses." Your funds will undoubtedly bounce back. The coronavirus will not last forever." Although stocks continued to drop severely into a bear market in the first 3 weeks of March, on Mar. 23 stocks turned back up and since that point Vanguard Total Stock Mkt Idx Admiral (VTSAX) is up 76.9%, not annualized. My advice was correct so I hope readers who followed it were able to enjoy one of the few good things that happened in 2020 - excellent stock market returns.
Similarly, in the July 20 Newsletter, in an article entitled "Cash Is Trash; Choose Bond Funds Instead," I advised investors to shun cash for the majority of their portfolio that they choose not to invest in stocks, and instead, invest in bond funds. Since then, the average return on many types of bond funds have ranged from about 2% for short-term corporate bonds, 3% for intermediate-term munis, 4.5% for inflation-protected bonds 5% for global bonds, to 9% for high yield bonds, all not annualized, meaning double those figures for annualized rates. Only longer-term US treasury bonds did not participate in the generally good returns. In the meantime, cash returned a mere 0.05, not annualized. Thus far, cash has indeed been trash as compared to much higher returns for most bond funds.
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In an upcoming Newsletter, I plan to spell out my new recommendations and suggestions for the upcoming year. Stay tuned!
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