Portfolio Update 7/31/09: All is Full of Love

Another week of gains in all the portfolios. Apparently, All is Full of Love.





The WylieMoney Slowly Portfolio is up year to date more than it is down since I started tracking it. If the second half of the year looks like the first half, I'll have a broadly diversified buy and hold portfolio of mutual funds, invested starting in 2007, that will actually show a slight profit.

Diversity is proving to be the key, however. Adding international funds, bonds and even real estate, has turned out to be a much better strategy than simply investing in the S&P 500.

WylieMoney Slowly


WylieMoney 20 Mostly Managed

Lazy 20 Mostly Index

ETF 20

Three Fund Index

S&P 500

Fund of the Week: REACX American Century Real Estate

Real Estate was up last week with REACX American Century Real Estate earning more than any other fund in my experiment, up 3.96% for the week. My Brokerage has more real estate funds in it than the other portfolios in my experiment which is why it had a better week.


Value Funds lost ground and SWFFX Schwab Financial Services lost the most -2.30% as investors remembered that financial companies suck.

Fund of the Week: JAOSX Janus Overseas

Janus Overseas JAOSX was up 3.25% last week, more than the other 100 funds I track. International funds did well.

Long term government bonds and domestic real estate were down the most. BTTRX American Century 2025 was down the most, -3.72%.

Next WylieMoney Slowly fund: MDIIX BlackRock Intl Index

I have really been slacking with adding funds to the WylieMoney Slowly portfolio.

I'm supposed to pick a new fund before the first of each month and add it to the WylieMoney Slowly Portfolio on the first down day of the month. Well unless Monday is a gargantuan rally, my laziness will pay off as this month has already seen massive declines in my next fun category: Foreign Large Blend.

The fund I choose for the WylieMoney 20 Mostly managed portfolio was MDIIX BlackRock Intl Index My Post.

Of the no-load, no fee mutual funds available in this category through Etrade with a record of more than 5 years, MDIIX has the worst 3 year return, but not not by much. The funds in this category are performing very close to each other.

Since MDIIX has the lowest expenses and non of the other options are significantly outperforming it over 5 years, I'm sticking with it.

So on the next day the markets decline, I'll add a $2500 investment in MDIIX BlackRock Intl Index to the WylieMoney Slowly Portfolio.

Fund of the Week: DVY iShares Dow Jones Select Dividend Index

iShares Dow Jones Select Dividend Index posted a one week gain of 9.10%. Since hundreds of billions of our tax dollars are going to bail out many of the companies held by this fund, it stands to reason that investors want a piece of the action. Investors' tax burden has shrunk profoundly with Capital gains tax changes over recent years, taking tax money paid by everyone and redistributing it to investors through bailouts is just gravy.

Small caps and real estate also posted solid gains. Real Estate has seen a slow but steady rise as our tax dollars have also gone toward bailing out home owners who bought more house than they could afford. Not sure why small caps are up.


The big losers this week were emerging and foreign markets and bonds. Vanguard Emerging Markets Stock ETF VWO lost 8.08%. I guess investors feel that countries that do not have the will or the means to bail out companies that do stupid things aren't as tempting these days.


It is worth noting that VWO lost 8.08% while the Emerging Market fund I picked SSEMX (and actually own) only lost 0.35%. It is odd, that the Vanguard Mutual Fund only lost 0.77%.

The big emerging markets news last week was the collapse of the Russia's Mafia, I mean Market.

Maybe the Vanguard ETF office did not get the memo that the Vanguard mutual fund office got about selling Russian positions as commodities fell over the last few weeks...

Find of the Week: VBR Vanguard Small Cap Value

Of the close to 100 funds I track in my mutual fund portfolio competition, none of the funds posted as strong a rise as Small Cap Value - VBR Vanguard Small Cap Value, up 2.67%.

The other 9 funds rounding out the top ten are all small or mid cap funds.

The worst one week performance was -3.90% posted by HIINX Harbor International My Post. The other 9 funds that struggled are all Foreign equity funds.

Perhaps investors watched Russia invade Georgia and decided international markets are not worth the risk (unless you are siding with Russia) and watched Phelps win 8 gold medals and said, American will power is were it's at!

Or more likely, international markets have been on fire and small caps have struggled and investors are taking profits and looking for the next big (little) thing.

I'm adding SSEMX SSgA Emerging Mkt to Today

This month, I'm adding and SSEMX SSgA Emerging Mkt fund to the WylieMoney Slowly portfolio, and today is the day I'm doing it.

Next WylieMoney Slowly fund Category is Emerging Markets

When I first researched no load no fee mutual funds available through Etrade and was looking for an Emerging Markets fund, I choose SSEMX SSgA Emerging Mkt My Post.

SSEMX closed to new investors but even though Etrade does not know it yet (see above), it has reopened:


So I added it in with the other funds available through Etrade and there are 4 options:


SSEMX has the lowest expenses, but DREGX Driehaus Emerging Markets Growth has 5 stars. Unfortunately it looks like DREGX also has a new manager so past performance was acheived by someone else.

DREGX has outperformed SSEMX over the 3 year and 5 year periods, but is lagging a bit recently.


DREGX has much higher turnover meaning the tax hit is likley to be higher:


Also, DREGX has a $10,000 minimum initial investment which is above my cutoff for this experiment.

So even if it did not have high turnover and a new manager, I would not pick it.

SSEMX is the pick and I'll add it to the WylieMoney Slowly portfolio the first day that markets tank in August.

Fund of The Week: DJP iPath Dow Jones-AIG Commodity

Once again, DJP iPath Dow Jones-AIG Commodity posted the best one week performance. Another Natural Resources fund, PNRZX Jennison Natural Resources Z also made the top 1o. The other 8 funds were bond funds, though the gains were not great.

This week, value funds (which invest in Financial companies, among others) and international funds took the biggest pounding with emerging markets really taking a blow.

Next WylieMoney Slowly Fund: MIOFX Marsico International Opportunities

As we move into June, it is time to add the 14th fund to the WylieMoney Slowly portfolio. The 14th category I picked was Foreign Large Cap Growth. My original pick was JAOSX Janus Overseas My Post. Unfortunately, this fund is closed to new investors. The options available all have significantly higher expenses and have not come close to the performance of JAOSX over 1 year, 3 years or 5 years.

That said, this has still been a strong category. There appear to be three top options based on one year and 5 year records.


The top three all have pretty high turnover which is not great for a taxable portfolio and have a lot of their portfolio invested in their top 10 holdings which means there is less diversity than one might hope.


Etrade lists one of the funds expense ratio at 15.14%.


Wondering if this is bad information, I looked up the fund on Morningstar and find that the expense ratio is actually 1.5%. Much more reasonable, but still not great.
I then checked the other two top performing funds in my list and Etrade has a different expense ratio for both of those funds as well. The top performing funds' expenses appear to be 1.37%, not 1.42%.

Harbor International Growth's expenses were only off by .01%, but it is still odd that Etrade appears to have this wrong.


I already picked a Harbor International fund for the Foreign Large Value category My Post so I am going to go with MIOFX Marsico International Opportunities. So the first day in June that Equities take a beating, I'll add MIOFX to the WylieMoney Slowly Portfolio.

Next WylieMoney Pick: Harbor International HIINX

The next fund I will add to the "WylieMoney Slowly" portfolio is a Foreign Large Cap Value fund. I have hypothetically invested $2500 in one fund per month since I started this experiment last May.

Click on the image below for a larger view.

• Mid Cap Blend NTIAX Columbia Mid Cap Ind My Post I 1
  
• Global Equity JSVAX Janus Contrarian My Post M 2
  
• Bond Gov. Long BTTRX American Century Tar My Post M 3
• Large Cap Growth JAGIX Janus Growth & Incom My Post M 4
• Small Cap Value BRSVX Bridgeway Small-Cap My Post Q 5
• Foreign Large Growth JAOSX Janus Overseas My Post M 6
• Mid Cap Growth BPTRX Baron Partners My Post M 7
  
• Large Cap Blend SLASX Select American Shares S My Post M 8
• Specialty Real Estate - SSREX SSgA T. Act. REIT My Post M 09
• Large Cap Value - AAGPX A. Beacon Lg Cap Val My Post M 10
• Small Cap Growth - BGRFX Baron Growth My Post M 11

The 12th category I picked for the original WylieMoney Portfolio was Foreign Large Value so it is the 12th fund I will add 'slowly.' And as I do each month, I look to Etrade to see if a better option than I originally picked, HIINX Harbor Intl My Post, is available.

I'll save you some suspense. HIINX is still the best.

Lowest Turnover Ratio by a lot meaning likely lower Capital Gains distributions, which is key to keeping taxes low in a taxable account.


Tied with two additional options for the highest star rating- 4 in this case. Not the lowest Expense Ratio, but not the highest. Longest Manager Tenure meaning that performance was achieved with the folks currently in charge.

And what a performance it has been. Only one other fund has come close to its three year performance and that fund has higher expenses and almost three times the turnover.


So on the first day in April that markets tank, I'll add HIINX, Harbor International to the WylieMoney Slowly portfolio.

Investing My 2007 IRA Contribution

I added my Roth IRA contribution for 2007 at the beginning of the year (you can add an IRA contribution for 2007 any time up until tax day in 2008), but I have not invested it yet. Actually, the Roth IRA I have been tracking in the Portfolio experiment is just mine, but as I mentioned here (see point #3), I manage both my and my wife's IRAs as one:


So I built a portfolio at Morningstar of our combined IRAs and will use it in the weekly portfolio updates going forward:


Last year, I added some international and small and mid cap domestic ETFs to fill in some category gaps.

• VWO Vanguard Emerging Markets Stock ETF -Diversified Emerging Mkts
• EFA iShares MSCI EAFE Index -Foreign Large Blend
• EFV iShares MSCI EAFE Value Index -Foreign Large Value
• VOE Vanguard Mid-Cap Value ETF -Mid-Cap Value
• VB Vanguard Small Cap ETF -Small Blend

As you can see in the image above, VWO was the top performing holding since 5/01/2007 but the other 4 holdings lost money. That's ok though. These are all index funds and they cover broad indexes that I intend to add to over the years. If global markets and small and mid sized American companies have not added value by the time I retire, my IRA will be the least of my concerns.

So the question is, what should I invest in now?

For the most part I feel pretty good about the diversity of different markets, different fund companies, and different styles (managed vs index) that I have picked so far.

I thought about adding a gold fund, MIDSX Midas, last year but opted not to. I was willing to invest in the super hot Emerging Market sector but not also in the super hot gold sector. Well, chasing performance would have paid off, in the short term- MIDSX was up 31% in 2007 and crushed other funds in its category by 8%. I am not sure why Morningstar has it at 2 stars. M* bases its star rating on performance in light of a fund's risk compared to similar investments. This fund has high expenses and is volatile, but over the long term has crushed its competition.


Anyway, I did not invest in a gold fund and with gold over $900 an ounce, I can't bring myself to invest in one now either.

Except that I am interested in adding a commodity fund which may include gold. One option is DBC PowerShares DB Commodity Index Tracking Fund which invests about 10% in gold. DBC is heavily weighted in oil though and I have an Energy fund PRNEX T. Rowe Price New Era that gives me coverage of oil.

I like the sector diversification of DJP iPath Dow Jones-AIG Commodity Index Total Return ETN better. I wish it was not an ETN, since investing in an ETN means I have to pay attention to Barclays as a bank. If Barclays goes under, this investment would be worthless. I already invest in a few individual companies. BXP Boston Properties makes up over 7% of my IRA investments and it lost 22% last year so I have a high tolerance for volatility and am already tracking individual companies so this is not a problem, just not ideal.

The other sector I am considering is the financial sector. As hammered as it has been with the sub-prime mess, I'm tempted to invest with the hope that I am picking up a lot of solid companies at good prices. Doing some analysis makes me think twice. The second largest holding I have in my IRA is DVY iShares Dow Jones Select Dividend Index and 50% of that holding is invested in domestic financial companies. The Financial ETF I am interested in is IXG iShares S&P Global Financials which is over 60% invested in foreign companies. The truth is that the fund EFV iShares MSCI EAFE Value Index that I bought last year is over 40% invested in foreign financial companies so I already have exposure there as well.

Since I already have a large stake in DVY, the simplest way to increase my exposure to financial companies is to increase my position in EFV instead of adding yet another fund.

After thinking about all this a bit and doing some research, what I think I am going to do is add a commodity investment (an ETN is not a 'fund'), and then increase my smaller positions that performed poorly last year.

I have my contribution for 2007 plus cash that has accumulated in the accounts from dividends and capital gains distributions. What complicates things is that I only have a specific amount of cash in each account so the amount I can add to each holding depends on which account the cash is in and since I do not want the same holding in two different accounts, which IRA the ETF is already in as well. It is a little complicated, but not rocket science. Here are the investments I will add to and the percentage of the cash I have available I will add to each:

• DJP iPath Commodity Index Total Return ETN- Broad Commodities 30%
• EFV iShares MSCI EAFE Value Index -Foreign Large Value 20%
• EFA iShares MSCI EAFE Index -Foreign Large Blend 10%
• VOE Vanguard Mid-Cap Value ETF -Mid-Cap Value 25%
• VB Vanguard Small Cap ETF -Small Blend 15%

And if I do this, here is what the big picture will look like:

A visit to the Oracle!

I apologize for not posting recently. I had an errand to run. I went to visit the Oracle at Delphi to figure out what the economy will look like in the future...


Surprisingly, I got the answer! I made my way back to Athens to celebrate and then catch a flight back to the US and invest accordingly. I decided to celebrate with some Greek Liquor.


I had a little ouzo, but did not stop there...


When I woke up the next day under the Acropolis, I had no memory of what the Oracle told me. All I can say is that what they say about the dollar is true.


Once I made it back to the states, I headed to Cape Cod for some R&R.


Now to catch up...

What the heck is Janus Contrarian?

When I noted the market was tanking today, I decided to make my hypothetical investment for June in the second fund of the "WylieMoney Slowly" portfolio. In this portfolio I am adding one of the 20 funds I researched each month, starting in May 2007.

The second fund I originally chose was a Global Equity fund: MDISX.

Well according to Etrade, this fund is closed to new investors:

But according to Morningstar, this fund is not closed and is available through Etrade:

Regardless of whether this is a mistake on Etrade's site or not, getting someone to help you is not worth the effort.

So I decided to pick my original runner up, Janus Contrarian JSVAX. This brings me to the title for this post.

Back in November of 2006, it was open to new investors and it was categorized as World Stock or Global Equity. But tonight, as I look it up, it is not. Morningstar lists it as Large Blend which means it invests primarily in Large Cap American companies.

Morningstar also shows that it is a Large Cap Growth fund. Note the red dot.


But more curious to me is the allocation of 37.8% in non-American companies!


Why does this matter? Well funds are compared to their peers. So if your peers are domestic funds and you have been gaining profits from surging international markets, you are going to look great compared to your peers:


But if your peers are World Funds which invest in stocks all over the world, you are not likely to look as stellar:


Well MDISX is 70% invested in international companies so it certainly has more of an international focus now than JSVAX but JSVAX has a 39% turnover ratio so who knows what it looked like last December, much less what it will look like in 6 months.

Regardless, I'm calling it a Global Equity fund and I added it to the WylieMoney slowly portfolio tonight as of today's closing price.