Insightful Investing

It was such a good quarter in the financial markets that it was hard to find one of our funds that lost money, so we will provide some highlights of the good news. Lazard Emerging Markets (LZOEX) was our leading fund in the 2nd Quarter, raking up a huge gain of 34%. Next in line was Royce Micro-Cap (RYOTX) which picked up 31% and Cohen & Steers Realty Shares (CSRSX) taking on 30%.

While most Bond funds were close to the flat line for the quarter, a couple of previously battered categories provided our best performing bond funds. Leading the way was Fidelity High Income (SPHIX), which added almost 20% for the quarter, and Fidelity New Markets Income (FNMIX) which up 18%.

At first glance you might be disappointed with many of our fund performances last quarter, that is until you look at how well those funds have done over the past year or longer. It should not surprise you that those funds that held up best during the crash did not rise as much as their poorer performing peers through the recent market rally. Good funds did not have as much ground to make up in the the first place. Even so, we were disappointed by the results of James Market Neutral (JAMNX) which worked well when the market fell last year, but lost ground during this quarter’s market rally, dropping 9%.

Our July 2009 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through June 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 3rd Quarter 2009

We are making a few changes for the third quarter. We will be replacing the Well Fargo Short Term High Yield (STHBX) with Metropolitan West High Yield Bond (MWHYX) due to a better environment for longer term High Yield Bonds. Payden Emerging Markets Bond (PYEMX) replaces PIMCO Developing Local Markets D (PLMDX) and Wasatch-1st Source Long/Short (FMLSX) replaces James Market Neutral (JAMNX) due to poor performance.

We are also replacing Fidelity Small Cap Enhanced Index (FSCRX) with Fidelity Small Cap Value (FCPVX) to give us an actively managed choice for Small Cap stocks in our Fidelity portfolio.

For the second half of the year, we are reducing our High Yield Bond exposure and adding those dollars to Emerging Equities which are recovering faster than any other asset class.

Asset Allocation July 2009

Look at all of those positive numbers for the stock market this quarter. Long time no see. We finally had a good quarter as the stock market continued the rally it began in March well into June before heading out on a summer vacation. As often happens, last quarter’s laggard, Real Estate, was one of this quarter’s stars. You would think that a gain of 30% in the second quarter would make up for a loss of 30% in the 1st quarter, but the math does not work that way. REITS are still showing a loss of 12% half way through 2009.

OK, the real winner this quarter, was actually Emerging Market Equities, which continued to lead the market by picking up 35% for the quarter to reach the mid year milestone with a gain of 36%.

Continuing with our hit parade, International stocks were up 26%, High Yield Bonds 23%, Small Cap Stocks 21%, Mid Cap Stocks 20%, and Large Cap Stocks 16%. Obviously, the smaller the better was the marching call in the first half of 2009, but an even simpler call would be to say that the worse an asset class performed last year, the better it has performed so far this year.

With the recovery in the stock market and rock bottom interest rates, Bonds had a flat quarter, with long term government bonds fell slightly as investors continued to unwind their safe haven investing from 2008.

Investors have taken comfort in the fact that governments across the world have committed to spend trillions of dollars to bail out the economy. While that may have put a stop to the financial market free fall, there is still a long way to go. The biggest fear right now seems to be that government spending will eventually lead to high inflation. This continues to give a significant lift to commodities, and is also a good environment for inflation protected bonds (TIPs) which are structured to provide a return that stays ahead of inflation. Stocks, on the other hand, are already showing signs that it is time for investors to slow down and catch their breath. The current pull back from the market rally should provide a better opportunity to increase your stock market exposure once again.

Investment Returns June 2009