Insightful Investing

October provided a nice rebound in the stock market after a difficult third quarter of 2011. This bounce pushed many of our funds back into positive territory for the year. A few of our better performers were FBR Small Cap (FBRYX) up 16.0%, Neuberger Berman Real Estate (NBRFX) gaining 14.5%, Royce Micro-Cap (RYOTX) adding 14.4%, Brown Capital Small Company (BCSIX) rising 14.3%, Westport Fund (WPFRX) earning 13.6%, and Wells Fargo Advantage Growth (SGROX) climbing 13.4%.

Not surprising, some of last month’s weak Bond Funds turned it around to be this month’s best performers. Fidelity High Income (SPHIX) gained 6.1% and Payden Emerging Markets Bond (PYEMX) picked up 5.2%. On the other hand, PIMCO Real Return (PRRDX) managed to hang on reasonably well over the last couple of months thanks to it combiniation of TIPS and Gold, earning 2.1% in October.

A couple of September’s best performers had a difficult time in October, as Forward Commodity L/S Strategy (FCOMX) lost 7.7% and Hussman Strategic Growth (HSGFX) dropped 4.2% for the month.

The turn around for ETFs was even stronger than for Mutual Funds. The biggest beneficiaries of the potential rescue in Europe were some of the International ETFs that have been hit hard over the last couple of months. Market Vectors Russia Index (RSX) gained 20.4%, iShares MSCI Brazil Index (EWZ) picked up 19.9%, iShares MSCI Australia Index (EWA) added 18.3%, and iShares MSCI Chile Index (ECH) earned 18.2%.

Domestically, some of the best performing Stock ETFs were iShares Russell 2000 Growth Index (IWO) which was up 16.0%, iShares S&P MidCap 400 Value Index (IJJ), a gainer of 14.2%, and Rydex S&P 500 Equal Weight Index (RSP), which returned 13.1%.

Just like their mutual fund counter parts, last month’s laggards were this month’s winners for Bond ETFs. SPDR Barclays Capital High Yield Bond (JNK) gained 8.4%, and PowerShares Emerging Markets Sovereign Debt (PCY) gained 5.3%. On the other side of the ledger, iShares Barclays 20+ Year Treasury Bond Index (TLT) lost 3.8%, and WisdomTree Managed Futures (WDTI) fell 4.1%.

As usual, there were some sectors that were stronger than the overall markets, as SPDR S&P Homebuilders (XHB) was up 21.4%, Energy Select Sector SPDR (XLE) gained 19.1%, and Materials Select Sector SPDR (XLB) added 17.4%.

We have added two funds to our watch list this month. With all the turmoil in Eurpoe, we decided that an International Fund that focuses on the Pacific/Asia region is likely to have better returns than a more diversified fund, so Matthews Asia Dividend Investor (MAPIX) has been added to our funds. Now that a ‘Fund of Funds’ Managed Futures product is now available as a Mutual Fund, we have added Grant Park Managed Futures Strategy (GPFNX) to our watch list as well.

Our November 2011 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through October 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.

What a difference a month makes. In an effort to save a lot of time and effort in writing these comments, we could just take the results for September and change all those negative signs to plus signs, but that would not do justice to the incredible turn around experienced by the stock market in October. Interestingly, the month started and ended with terrible down days, but just about every day in between was up. Stocks enjoyed their best month in 20 years, thanks to the prospect of a new plan to recapitalize European banks. While the US economy has been showing signs of improvement, domestic markets are still being held hostage by events happening overseas.

In many ways, the story for October really was the opposite of September. Leading the charge were Small Cap Stocks which were up 15.9%. Mid Cap Stocks gained 13.8%, Emerging Market Equities, picked up 12.3%, and Large Cap Stocks added 10.9% for the month. The only investments to fall in October were the ones that held up best last quarter. Specifically, Long Term Government Bonds gave back 4.5%, but that still left them as the best place to be in the last year besides Precious Metals.

Our suggestion to rebalance your portfolio to its target allocations last month proved to be a good move for the month of October. While investors that held on during the market turmoil over the last few months are happy now that financial markets have rebounded, those who took action are ahead of the game as they now have more dollars in their portfolio.