Insightful Investing

While all of our International Funds brought home double digit returns in the third quarter, they were led by our favorite Julius Baer International Equity (BJBIX) with a 13.9% return. Unfortunately, those of you who did not get in before this fund closed to new investors earlier this year are missing a long term winner. Not to worry though, our new recommendation for last quarter was not that far behind. UMB Scout WorldWide (UMBWX) gained 12.7% for the quarter.

Moving over to domestic equities, next in line was another one of last quarters new recommendations, Kinetics Paradigm (WWNPX), a Mid Cap fund which gained 9.8% for the quarter. That was followed by RS Partners (RSPFX), which continues to lead our Small Cap choices, this time earning 8.7%. Its too bad this one is also closed to new investors. Not to be out done by smaller capitalization rivals, an 8.4% return by Large Cap Growth pick Fidelity Contrafund (FCNTX) was not too far behind. Did you notice anything interesting about these three high performance insightful ideas? They represent three different market capitalizations. That certainly shows the value of picking the right funds.

There is not a lot to say about Bond Funds this quarter because nothing eventful happened. In fact, only two funds moved more than 1% either up or down. Fortunately, High Yield funds Fidelity Capital and Income (FAGIX) and Scudder High Income (MGHVX) gained almost 2%.

Our Mutual Fund Portfolios and Best Fidelity Funds have been updated through December 2004. The investment performance history of our mutual fund portfolios are tracked on our investment portfolio performance page.

Asset Allocation for 4th Quarter 2005

Cohen and Steers Realty Shares (CSRS) was added to Our Recommended Fund List for this quarter to give you another Real Estate choice if you are not already in the closed Third Avenue Real Estate Value (TAREX) fund.

The Yacktman Fund (YACKX) and Buffalo Small Cap (BUFSX) were dropped from our list because we felt our other choices in these categories are significantly better.

For the last quarter of 2005, we have Decreased our allocation to Bonds by 5% in our Insightful Portfolio by moving that 5% to Hedge Funds. This will Increase our Hedge Fund allocation to 10% in anticipation of increasing interest rates. There have been no changes to our Conservative Portfolio Asset Allocations.

Conservative Asset Allocation October 2005

Insightful Asset Allocation October 2005

Equity markets performed well in the third quarter, despite rising interest rates, a couple of destructive hurricanes, and surging oil and gas prices. For the most part, all categories of equities were up 3% to 5% for the quarter. The big winners for the quarter were international stocks, which posted double digit returns for the last three months. Bonds, on the other hand, went just about nowhere as they dropped less than 1% for the quarter.

Mid Cap stocks led the way for domestic equities, returning almost 6% in the third quarter. Not too far behind were Small Cap stocks with a gain just under 5% and Large Cap stocks earning about 3.5% for the summer.

For the second straight quarter, Growth stocks outperformed Value stocks, though not by much. This sets up a close race between these contrasting investment styles to see which one takes the trophy for 2005, a prize that growth stocks have not won in five years. Drilling down to the details for the quarter, Small Cap Growth stocks led the pack, picking up 6.6%, while Large Cap Value lagged behind, gaining just over half that much at 3.4%.

It looks like Real Estate stocks are finally starting to return back to earth, since at least for this quarter they fit in with all the rest of the domestic equity stocks, returning a respectable 3.5% in spite of rising interest rates.

Bonds continue to hold up well, in spite of the continued tightening of interest rates by the Fed. A 3% return for the last year may not seem like much, but considering the difficult environment, that is a good showing. This should serve as another reminder that that a well diversified asset allocation is the best way to stay ahead of the markets.

Investment Returns September 2005