Insightful Investing

Hussman Strategic Growth (HSGFX) was one of the few funds we suggested to have a positive return, picking up 7% for the 1st quarter, thanks in no small part to the hedging of the investment manager.

Bond funds continued to perform reasonably well in this market environment, with the exception of some foreign bonds, which were hurt by a stronger dollar. Well Fargo Short Term High Yield (STHBX) recovered 4.7% for the quarter to join a trio of Fidelity Bond Funds with strong performance results. Fidelity New Markets Income (FNMIX) returned 6.4%, Fidelity High Income (SPHIX) added 5.3%, and Fidelity Inflation Protected Bond (FINPX) gained 4.2% in the 1st quarter.

Once again, our leading stock funds were those that lost the least. Leading the pack was Buffalo Small Cap (BUFSX), falling only -1%, Lazard Emerging Markets (LZOEX) dropping -2.3%, and Aston/Montag and Caldwell Growth (MCGFX) losing -5.4%. All of these funds demonstrated the fact that good managers show their value more in Bear markets than they do in Bull markets. Put another way, it is easier for a manger to beat an index when the market is going down, than when it is going up.

Our April 2009 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through March 2009. The investment performance history of our mutual fund portfolios and ETF investment portfolios are tracked on our investment portfolio performance page.

Asset Allocation for 2nd Quarter 2009

The only change we are making this quarter is to add Westcore Select (WTSLX) since our screening left us without a Mid Cap Growth fund to start the year. Preferably we will stay invested in a fund for at least a year, but may replace an underperforming fund after 6 months.

For the 2nd quarter, we are reducing our Short Term Bond exposure and spreading those dollars around among equity categories as we begin to move more of our assets from bonds to stocks as the financial markets show signs of recovery.

Asset Allocation April 2009

The good news: we finally had a positive month in March for the Stock Market. The bad news: that still left us with a loss of -11% for Large Cap Stocks in the 1st quarter of 2009. On the other hand, Emerging Market stocks, which had taken the worst beating in 2008, rebound strong enough in March to break even for the quarter. As we start the second quarter, the financial markets are looking better, or should we say, not looking any worse. The US government has committed to spend trillions of dollars to bail out the economy. While that may have put a stop to the market free fall, we are not out of the woods yet.

The real loser for the quarter was once again Real Estate. After showing signs of recovery with a strong December, the bottom fell out of REITs as they ended the quarter with a loss of -30%.

When the market collapsed in the 4th Quarter of 2008, it did not matter which style of stocks you were invested in, Growth or Value, they all were hit hard. As the market has started to show some sign of recovery a divergence has developed as Growth stocks lost only half as much as Value stocks in the 1st quarter of the new year.

Bonds continued to be a safe place to hide in the first quarter. You really did not earn much in that asset class, but at least you held your own. High Yield bonds bounced back the most with a 6% return.

There were two forces working on commodity markets in the first quarter. Recession fears brought down most commodities, but the fear that government spending would eventually lead to high inflation gave a significant lift to Precious Metals, led by gold. This environment also help TIPs, which are structured to provide a return that stays ahead of inflation.

The stock market normally shows signs of recovery before the economy, so we think its recent strength is an indication that it may have hit bottom in early March. We do expect to pull back from this bear market rally at least once before we can say the worst is over. That should provide a better opportunity to increase your stock market exposure once again.

Investment Returns March 2009