After a messy May 2010, June vexed many investors and managers and ended the quarter on a sour note. In short, the second quarter — with June in particular — was the sort of market environment is where my all-weather strategy fared well.
For the record, the S&P 500 Total Return Index was -5.23% for the month of June, bringing year-to-date performance to -6.65%. The rolling 12-month performance ended the month at +14.43%. The results for my model investment portfolios are listed below.
- U.S. Mutual Funds Tumble 10% In A Volatile Second Quarter
After a very volatile second quarter, stock mutual funds suffered their steepest loss since 2008 and snapped a four-quarter winning streak to erase all of their 2010 gains. The culprits: The European debt crisis, poor housing data and lingering unemployment roiled markets worldwide. . . . Investors dumped equities for the safety of gold and U.S. Treasuries. Investors pulled out a net $132.3 billion from mutual funds in the second quarter and took refuge in bond funds, which took in $44.2 billion, according to Lipper. Government bond funds returned as much as 4.95% in the second quarter. - Bond Investors Fled To Safety In June And Q2
Investor worries over the state of the global and U.S. economies soured the bond market in June. That cast a shadow of wariness over the whole second quarter. Investors flocked to the perceived safety of taxable bonds in general and to Treasuries in particular. U.S. Treasury funds soared 10.06% on average in Q2, building on June’s 3.76% gain, according to preliminary Lipper Inc. data. - Paulson Said to Lose 6.9% in June With Advantage Plus Fund
John Paulson, the billionaire who has been betting on a U.S. economic recovery, lost 6.9 percent in June in his Advantage Plus hedge fund to bring his first-half decline to 8.8 percent, investors said. . . . Paulson’s smaller Recovery Fund, marketed as a purer play on economic growth, fell 12 percent in June, the investors said. The fund rose 9 percent in the first half. - Hedge Funds ‘Frozen in Headlights’ Cut Trading
Hedge-fund managers, Wall Street’s best compensated and supposedly smartest investors, are dazed and confused. Reeling from the worst second-quarter performance in a decade, hedge funds have scaled back trading as they struggle to figure out where markets are headed amid sometimes vicious crosscurrents in stock, commodities and other markets, according to brokers and managers. . . . U.S. stock market trading last month had its steepest June decline in at least 13 years. Daily trading volume for the Standard & Poor’s 500 Index of the largest U.S. companies averaged 1.09 billion shares in June, 20 percent less than in May. The 15 percent decrease last year was the second-biggest slump between May and June in Bloomberg data going back to 1997. - Managers Find Havens in Gold, China and Real Estate
MUCH went awry in the stock market in the second quarter, and stock mutual funds suffered accordingly, losing an average of 10 percent, according to Morningstar. Even so, the quarter’s better performers managed to limit losses and, in a few cases, grub out some gains. They found havens both in expected places, like gold and China, and in unpredictable ones, like real estate.
U.S. Dollar Core Portfolio
This portfolio is ideal for retirement plans or individuals in the wealth-seeding phase (see definition).
June 2010: +0.74% YTD: +3.32% 12-Month: +10.21%
Your account must be able to buy and sell four funds:
- S&P 500 INDEX: SPY (or IVV) or VFINX or FSMKX or PREIX
- MSCI EAFE INDEX: EFA or VDMIX or FIENX or PIEQX
- 7-10 YEAR TREASURY BOND: IEF or VFITX or FIBAX or PRTIX
- TIPS BOND: TIP or VIPSX or FINPX or PRIPX
This portfolio is reweighted once per month, making it suitable for conservative taxable accounts or retirement accounts where the plan administrator severely limits investment choices and the number of transactions you can make each year.
U.S. Dollar Satellite Portfolio
This portfolio is risk-oriented, suitable for trading accounts or those in the wealth-building phase.
June 2010: +0.04% YTD: +7.98% 12-Month: +27.68%
Your account must be able to buy and sell six funds:
- RUSSELL 2000 INDEX: IWM or VEXMX or FCPGX or PEXMX
- MSCI EMERGING MARKETS INDEX: EEM or VEIEX or FEMKX or PRMSX
- 20+ YEAR TREASURY BOND: TLT or VBLTX or FLBAX or PRULX
- U.S. BASIC MATERIALS SECTOR INDEX: IYM or VAW or FSDPX or PRNEX
- U.S. REAL ESTATE INDEX: IYR or VGSIX or FRESX or TRREX
- GOLD: GLD or VGPMX or FSAGX or T. Rowe Price N/A
This portfolio extends the core portfolio and is reweighted once per week. Individuals managing larger sums in flexible retirement accounts or trading accounts may allocate up to 35% to this portfolio to take advantage of additional asset classes and frequent tactical adjustments.
Canadian Dollar Core Portfolio
This portfolio is versatile. It is suitable for Canadian retirement plans and individuals in the wealth-seeding phase. It is also used to diversify U.S. Dollar holdings.
June 2010: -0.09% YTD: +1.20% 12-Month: +9.12%
Your account must be able to buy and sell five funds:
- XSP: iShares CDN S&P 500 Index Fund
- XIN: iShares CDN MSCI EAFE Index Fund
- XIC: iShares CDN Composite Index Fund
- XRB: iShares CDN Real Return Bond Index Fund
- XLB: iShares CDN Long Bond Index Fund
This portfolio is reweighted once per month, making it suitable for conservative taxable accounts or retirement accounts. Investors seeking currency diversification should consider allocating a combination of up to 65% Canadian Core Portfolio/35% U.S. Satellite Portfolio.
Thrift Savings Plan “Growth” Portfolio
This portfolio is for individuals participating in the Thrift Savings Plan, a retirement savings plan for civilians who are employed by the United States Government and members of the uniformed services.
June 2010: -0.54% YTD: +1.38% 12-Month: +11.69%
The growth portfolio uses the F, C, S, and I Funds and is reweighted once per month.
Thrift Savings Plan “Income” Portfolio
This portfolio is for individuals participating in the Thrift Savings Plan, a retirement savings plan for civilians who are employed by the United States Government and members of the uniformed services.
June 2010: +0.04% YTD: +1.62% 12-Month: +5.26%
The growth portfolio uses the G, F, C, S, and I Funds and is reweighted once per month.
Past Performance
These all-weather portfolios are designed to minimize the investment roller coaster. Slow and steady wins the race.
| Year | S&P 500 Index (Total Return) | U.S. Dollar Core Portfolio | Canadian Dollar Core Portfolio | U.S. Dollar Satellite Portfolio | Thrift Savings Plan “Growth” | Thrift Savings Plan “Income” |
| 2009 | 26.46% | 4.53% | 11.83% | 20.38% | 11.37% | 5.37% |
| 2008 | -37.00% | -5.43% | -13.03% | -11.26% | -13.13% | -2.10% |
| 2007 | 5.49% | 11.68% | 6.54% | 13.96% | 8.75% | 6.62% |
| 2006 | 15.79% | 6.22% | 13.91% | 20.96% | 11.50% | 7.62% |
| 2005 | 4.91% | 5.38% | 20.85% | 11.63% | 6.62% | 5.40% |
| 2004 | 10.88% | N/A% | 11.32% | N/A% | 10.25% | 6.74% |
| 2003 | 28.68% | N/A% | 15.92% | N/A% | N/A% | N/A% |
| 2002 | -22.10% | N/A% | -19.46% | N/A% | N/A% | N/A% |
Please Note
The charts above illustrate the performance of a hypothetical $100,000 investment made in the investment plan since inception. Figures include reinvestment of capital gains and dividends, but do not reflect the effect of any applicable brokerage commission charges and income taxes, which would lower these figures. This chart is not intended to imply any future performance of the investment plan.
Past performance is not a guarantee or a reliable indicator of future results. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk; investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets.
Hedge Your Portfolio
Diversification is the first line of defense in normal market conditions. During time of extreme volatility, it may become necessary to liquidate a portfolio or, for tax purposes, hedge exposure with inverse funds.
Hedge ratios are published daily. To learn more about portfolio construction, please visit The Knowledge Base.
Reweighting the Portfolio
The portfolios are reweighted periodically to adapt to ever-changing market conditions. The U.S. Satellite portfolio is reweighted weekly while the Core and TSP portfolios are reweighted monthly to conform to limits imposed by administrators of conservative retirement plans and the U.S. government Thrift Savings Plan.
Results achieved will be closer to published returns if subscribers reweight as directed. Due to the value of the account, tax status, commission and other transaction costs, subscribers may choose to adjust their portfolio only when it has drifted from the suggested weighting by a material amount.
No comments yet.