Insightful Investing

February was another good month for the stock market as Mid Cap Stocks and Large Cap growth stocks were both up 4.5% while Small Cap Stocks were up 2.4% for the month. International stocks had an even better month, gaining 5.6%, thanks to another bailout of Greece. Emerging Market stocks were even stronger, as a 6% rise in February brings their year to date return up to 18%.

Not all asset classes enjoyed a good February. Like last month, Long Term Government Treasury Bonds continued to fall, dropping 2.1% for the month as investors continued to reverse course from their efforts to avoid risky assets only a few months ago. The Fed continued to say it would be holding interest rates steady for the next couple of years, which turned out to be bad for assets that do well in an inflationary environment. REITs, TIPS, and commodities each fell slightly in February.

Don’t you wish every month was January? This year’s ‘Effect’ was mighty strong with Lazard Emerging Markets (LZOEX) leading the way with a gain of 11.5%, followed by Wasatch Emerging Markets Small Cap (WAEMX) with a 10.9% rise, Westcore International Small Cap (WTIFX) an 8.2% winner, and Scout International (UMBWX) up 7.0%.

As you might have guessed, in the US smaller was better as Royce Micro-Cap (RYOTX) was up 9.4%, Westcore Micro Cap Opportunity (WTMIX) rose 8.0%, FBR Small Cap Investor (FBRYX) gained 7.5%, Brown Capital Mid Cap (BCMSX) earned 6.9%, Wells Fargo Advantage Growth (SGROX) returned 6.8%, and Neuberger Berman Real Estate (NBRFX) picked up 6.1%. In the hedged mutual fund department, Wasatch Long/Short Equity (FMLSX) gained 4.8% and Invesco Balanced-Risk (ABRYX) picked up 3.6%.

It was a good month for all financial markets as Bond Funds also posted nice gains. Fidelity High Income  (SPHIX) was our leading Bond Fund with a gain of 3.4%. Also performing well were Loomis Sayles Global Bond (LSGLX) which earned 2.8%, Payden Emerging Markets Bond (PYEMX), PIMCO Real Return D (PRRDX), and PIMCO Total Return  (PTTDX) which all picked up 2.6%.

Precious Metals were the biggest ETF winners in January as iShares Silver Trust (SLV) jumped 19.8% to lead the pack. Next in line were several sector ETFs which were led by SPDR S&P Biotech (XBI) with a gain of 15.4%, followed by SPDR Dow Jones International Real Estate (RWX) and SPDR S&P Homebuilders (XHB) both up 9.2%.

Some of the strongest returns came from overseas as iShares MSCI Brazil Index (EWZ) climbed 14.3%, SPDR S&P Emerging Markets Small Cap (EWX) picked up 14.0%, and iShares MSCI Germany Index (EWG) which recovered nicely from the European Debt Crisis to post a gain of 11.0%

iShares Russell Microcap Index (IWC) was our top domestic equity ETF with an 8.7% gain, PowerShares Nasdaq 100 (QQQ) was next with a rise of 8.4% followed by iShares S&P SmallCap 600 Value Index (IJS) which was up 7.9%, and iShares Russell Midcap Growth Index (IWP) which earned 7.2%.

The top bond ETFs in January were SPDR DB International Inflation Protected Bond (WIP) which returned 4.6%, SPDR Barclays Capital International Corp Bond (IBND) which earned 3.5%, and SPDR Barclays Capital High Yield Bond (JNK) which was up 2.6%.

Our February 2012 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through January 2012. The Mutual Funds in our Mutual Fund Portfolios are chosen from our Best Mutual Funds. The ETF’s in our ETF Investment Portfolios are chosen from our List of 100 Best Exchange Traded Funds. The investment performance history of our mutual fund portfolios and ETF investment portfolios are tracked on our investment portfolio performance page.

The January effect was in full force to ring in 2012 with the strongest start for stocks in 15 years. True to form, smaller was better as Micro Cap Stocks led the way with a jump of 8.5%, followed by Small Cap Stocks which rose 7.5%, Mid Cap Stocks which were up 6.1%, and Large Cap Stocks which gained 4.5%. Growth stocks continued to outperform Value stocks as the former picked up 6.1% while the latter gained just 4.0%. The big winner in January was actually Emerging Markets stocks, which flew up 11.4%, while International stocks in general were up 5.4%.

On the other end of the spectrum, Long Term Government Treasury Bonds had the only red number on our sheet of benchmark returns. While a drop of 0.1% is not much of a fall, it still put an end to a nice run of positive months. For the moment, at least, the flight to quality and rise in volatility caused by the European debt crisis has taken a back seat to some decent economic news in the good ole USA. A good month for stocks is usually a good month for High Yield Bonds, and January was no exception, as they picked up 3.0%. Good news on the economy also signals that inflation could pick up some time soon, a fact that helped push TIPS up 2.4% for the month.