Insightful Investing

With International Funds leading the charge in the 4th quarter, its not surprising that our long time favorite Julius Baer International Equiy (BJBIX) led all of our funds with a return of 13.41% return for the quarter. It also topped all of our stock funds with a 31.75% return for the year. Fidelity International Discovery (FIGRX) with an 11.2% return and Vanguard International Value (VTRIX) with a 10% return proved to be the best funds for those fund families by giving International a clean sweep for the quarter and helping them to lead their stock funds for the year as well. Cohen and Steers Realty Shares (CSRSX) continued to lead the Real Estate pack with 9.8% for the quarter, and its 37.1% led all of our funds in 2006.

We had a close race for the best domestic stock fund for the quarter and the year between the Kinetics funds on our recommended list. Kinetics Small Cap Opportunity (KSCOX) brought home 13.0% for the quarter, and 28.5% for the year, just enough to outrun its brother Kinetics Paradigm (WWNPX) which managed to earn 12.2% and 27.8% over the same time periods.

Our bond funds continued to be lead by Westcore Flexible Income (WTLTX) which earned 14.3% for the year and 4.9% for the quarter. While Fidelity Capital & Income (FAGIX) matched that for the quarter, its gain of 12.5% trailed the Westcore fund for the year.

Our January 2007 Mutual Fund Portfolios and Best Fidelity Funds have been updated through December 2006. The investment performance history of our mutual fund portfolios are tracked on our investment portfolio performance page.

Asset Allocation for 1st Quarter 2007

As we move towards an emphasis on ETFs we cut back on the number of Mutual Funds on our List. While Managers Intermediate Duration (MGIDX), William Blair Income N (WBRRX), and DWS High Income Plus (MGHVX) are all good Bond funds, we are sticking with our top choices.

The same goes for stock funds Buffalo Mid Cap (BUFMX), Well Fargo Advantage Mid Cap (SMCDX), Aston/TAMRO Small Cap (NATASX), Excelsior Small Cap (UMLCX) and UMB Scout Small Cap (UMBHX). In addition, we replaced Marsico International Opportunity (MIOFX) with UMB Scout International (UMBWX) and Marsico Growth (MGRIX) with its younger brother Marsico 21st Century (MXXIX) as a Large Cap Growth choice. We also are bring back Third Avenue Real Estate Value (TAREX), which is again open to new investors, to replace Neuberger Berman Real Estate (NBRFX).

Since the Fed has continued to leave interest rates alone, we are moving 2% of our allocation from Intermediate Bonds to Large Cap Stocks in our Recommended Portfolio.

Asset Allocation January 2007

The stock market ended the year on a strong note as the S&P 500 was up 6.7% to finish the year up 15.8%. Mid Cap stocks were up slightly more at 7.7% for the quarter, but trailed the larger stocks slightly with a finish of 15.3%. Small Caps were even stronger with 8.9% for the quarter and 18.4% for the year. International stocks continued to be the place to be, as the falling dollar helped them notch a 10.4% return for the quarter and 26.9% for the year. While looking for returns overseas was the best move for the 4th quarter, Real Estate's 9.7% quarter helped that category easily outdistance all the rest for the year, with an impressive 35.4% return for the year, that included a terrible 2nd quarter.

Value stocks continued to outpace growth stocks in the 4th quarter by an 8.1% to 6.2% margin. That was quite an improvement for growth stocks which finished the year with a 9.5% return. If that trend continues, they have a chance to overtake value stocks in 2007, which finished 2006 with an excellent 22.4% return.

The inverted yield curve had a dampening effect on bonds this quarter as both short term and broad bonds picked up a little over 1% this quarter, and 4% for the year. That does not sound like a lot, but that more than doubled last year's results. In an effort to pick up additional yield moved towards the lower quality high yield bonds that earned 4% for the quarter, and over 10% for the year.

Investment Returns December 2006