Insightful Investing

May was a good month for … not much really. An apparent slow down in financial markets took its toll on stocks and commodities. Our leading funds for the month were Brown Capital Mgmt Small Company (BCSIX) which was up 1.6%, Hussman Strategic Growth (HSGFX) and Cohen & Steers Realty Shares (CSRSX) which both gained 1.5%, and Neuberger Berman Real Estate (NBRFX) which added 1.4%. The strong relative performance for the Hussman Fund should have been expected, as this hedged fund normally outperforms in down markets. Even for Bond Funds it was slim pickin’s as most were positive, but not by much. Leading the pack, if that’s what you want to call it, was Fidelity Intermediate Government (FSTGX) Intermediate Government which was up 1.2%, along with Wells Fargo Advantage Government (STVSX), Payden Emerging Markets Bond (PYEMX), and PIMCO Emerging Markets Bond (PEMDX) all of which gained 1.1% in May.

OK, now for the not so good news. For the first time in a while, Large Cap stocks fared better than Small Cap Stocks. Royce Micro-Cap (RYOTX) fell 3.9% in May, while Heartland Value Plus (HRVIX) lost 2.7%. Overall, the rising dollar hurt the results of international funds, in particular international stocks. Fidelity International Discovery (FIGRX) dropped 3.9% while Scout International (UMBWX) surrendered 3.1% this month. At least for now, the high flying returns in Commodities funds came to an end in May resulting in a fall of 6.2% by the Rydex Long/Short Commodities Strategy Fund (RYLFX).

The real action this month was in the Sector ETFs, in particular those invested in Commodities. The iShares Silver Trust (SLV) fell 19.8%, taking a big chunk out of the 150% return this ETF had in the year prior to entering May. The slowing economy also made a big dent  in the recent strong Energy returns as PowerShares DB Energy (DBE) dropped 7.7%. Another significant under performer was iShares S&P Global Timber & Forestry (WOOD) which gave back 5.2% for the month. An important reason why we prefer Mutual Funds or ETFs that can be both long and short commodities was displayed this month as the WisdomTree Managed Futures ETF (WDTI) fell only 2.4%.

Interestingly, our worst US Equity ETFs did not have as bad of a month as some of our Mutual Funds. The iShares Russell Microcap Index (IWC) was down only 2.1% in May while SPDR Dow Jones Industrial Average (DIA) fell only 2.0% for the month. Given the rising dollar, it is not surprising that International ETFs had a tougher month than their domestic counterparts. Market Vectors Russia ETF   (RSX) dropped 6.0%, iShares MSCI Germany Index (EWG) lost 5.7%, and iShares MSCI Australia Index  (EWA) gave back 5.5%

On the good side of the ledger, we had a few ETFs that managed to earn 2.5% in May. Not surprisingly iShares Barclays 7-10 Year Treasury (IEF), Consumer Staples Sector SPDR (XLP), and Health Care Sector SPDR  (XLV) are all defensive ETFs. A couple of other strong defensive performers were the Utilities Sector SPDR (XLU) which picked up 2.1% and the iShares MSCI Switzerland Index (EWL) which gained 1.8%. The most surprising strong performer was the PowerShares Emerging Markets Sovereign Debt (PCY) which earned 2.2%.

Our June 2011 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through May 2011. 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 commodities bubble may have burst this month as traders decided to bail out of Silver which was down as much as 25% by mid May. This quasi precious metal ended the month with a collapse of 20%. Some recent financial data indicates that world economies are starting to show signs of an economic slowdown. This led to investor fears that slowing economies means that there will be less demand for industrial materials. The result was a difficult month for commodities, which overall fell by about 5% in May.

Stocks also took a hit in May as the fear of an economic slow down put a damper on earnings expectations and inflation fears. This led to a drop of almost 2% for both stocks, and inflation protected bonds (TIPS). On the other hand, this was good news for both Bonds which were up a little over 1%, and the Dollar which tacked on almost 2% during the month of May. The rising dollar increased the losses experienced by investors in international stocks as those securities fell almost 3%. Interestingly, Real Estate stocks had returns that were more in sync with bonds than stocks as they also gained a slightly more than 1%.