Insightful Investing

In an effort to obtain a little more yield for our portfolios, we have moved 2% of our allocation from Short Term Bonds to Intermediate Term Bonds for the 3rd quarter of 2010.

We have made several portfolio changes for 3rd Quarter 2010. Additions to our our list of Top 50 No Load Mutual Funds are Loomis Sayles Global Bond (LSGLX), Fidelity New Millennium (FMILX), Heartland Value Plus (HRVIX), and Westcore International Frontier (WTIFX). These funds replaced Payden Global Fixed Income (PYGFX), William Blair Growth (WBGSX), Allianz NFJ Small Cap Value D (PNVDX), and Artisan International Value Investor (ARTKX).

Our List of the Best Exchange Traded Funds continues to undergo significant changes as the ETF market evolves. We have replaced 15 Funds for a couple of different reasons. The first is to obtain enough liquidity (volume) to be comfortable that the ETF will not be closed. The second is to obtain access to additional asset classes.

Asset Allocation July 2010

The financial crisis in Europe led to a flight to quality by many investors in the second quarter of 2010. While the economy is showing signs of improvement, the continuing poor employment picture has left investors cautious about the sustainability of the recovery. These factors, combined with some much needed profit-taking, led stocks down in the second quarter of 2010.

This was a positive driver for Bond Funds this quarter as Fidelity Inflation Protected Bond (FINPX) gained 3.7%, Metropolitan West Total Return Bond (MWTRX) was up 3.5%, Wells Fargo Advantage Government Securities (STVSX) added 3.4%, while Fidelity Intermediate Government Income (FSTGX) picked up 3.3%.

It is times like these that we included Long/Short Equities in our model portfolios. While most of these funds lost a few percent this quarter, our leading fund, Hussman Strategic Growth (HSGFX), picked up 5.6%.

A couple of funds that deserve mention this quarter were added to our portfolios with risk management in mind.  Wells Fargo Short Term High Yield (STHBX) was just ahead of flat with a gain of 0.1% while  Fidelity Real Estate Income (FRIFX) picked up 0.7%.

It is never fun to write about the stock market in bad times, but given the events of the past decade, we are getting used to highlighting those fund managers that have lost less than their respective indexes.  The leaders of the pack was Forester Value (FVALX) which lost -4.8%, and Intrepid Small Cap (ICMAX) which fell -5.2% for the quarter.

Most ETFs did not fair much better. From an investing point of view, the best bets turned out to be SPDR Gold Shares (GLD) which rocketed ahead by 11.7% and PowerShares DB US Dollar Index Bullish (UUP) which gained 5.3%  in the second quarter of 2010. The flight to quality helped iShares Barclays 7-10 Year Treasury (IEF) finish as our Top Bond ETF with a gain of 7.8%,  while iShares Barclays TIPS Bond (TIP) returned a very respectable 4.0% this quarter.

The iShares SP Small Cap 600 Growth (IJT) was the top domestic stock ETF this quarter with a loss of -6.9%. Not too far behind was SPDR Dividend (SDY) which lost -7.6%. While investors broke even if they invested in iShares MSCI Malaysia (EWM) or iShares MSCI Singapore (EWS), a couple of relatively good performers for the quarter were iShares China 25 Index (FXI). which lost only -3.5%. and SPDR Emerging Markets Small Cap (EWX) which fell a mere -6.5%.

Our July 2010 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through June 2010. The Mutual Funds in our Mutual Fund Portfolios are chosen from our 50 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.

June was another difficult month for the stock market as a drop of -5.2% for Large Cap Stocks resulted in the SP 500 falling -11.4% in the second quarter this year. Small Cap Stocks had an even worse month, losing -7.8% in June, though they ‘ONLY’ lost -9.9% for the quarter. The pressure from the European financial crisis has started to subside, helping International Stocks fare considerably better this month, losing only -1.3%, but that still left them with a -12.5% drop for the quarter.

A ‘flight to quality’ proved to be the theme this quarter with high quality government and corporate bonds adding 3.5% for the quarter. TIPS were up slightly more, returning 3.8% over the last three months. REITs were not hurt as bad as other equities, dropping only -5.2% this quarter,  lowering their gain for the first half of 2010 to a surprising 5.7%, even better than the 5.3% return for bonds so far this year.

Investment Returns June 2010