Insightful Investing

Intermediate Bond Funds benefited most from the FOMC actions to lower interest rates as both Fidelity Intermediate Government (FSTGX) and Metropolitan West Total Return Bond (MWTRX) picked up 3.1% for the quarter.

Our Kinetics funds continue to do so well that Morningstar has moved them up the ladder in market cap categories. Kinetics Paradigm (WWNPX) was our leading Large Cap Growth Fund with an amazing 10.7% return in the 3rd Quarter. Kinetics Small Cap Opportunity (KSCOX) is getting too big for its britches as its 6.8% return for the quarter, along with its 39.2% return for the past 12 months, have pushed it into the Mid Cap Fund Category. The leading Mid Cap Growth Fund with Wells Fargo Advantage Discovery (STDIX) with a 7.0% gain. Fidelity International Discovery (FIGRX) led the relatively strong International Stock Funds with a return of 5.7% for the quarter.

On the more difficult side of the ledger, there were a few funds had a rougher quarter than the average. RS Value (RSVAX) fell -6.1%, RS Partners (RSPFX) dropped -8.4%, and Northern Small Cap Value (NOSGX) lost -5.0%. These funds, along with a few others were replaced in our recommended list for next quarter.

Our Mutual Fund Portfolios and Best Fidelity Funds have been updated through December 2006. The investment performance history of our mutual fund portfolios are tracked on our investment portfolio performance page.

Asset Allocation for 4th Quarter 2007

We are making many changes going into the 4th quarter this year. Since we are cautious about the financial markets moving towards year end, we have moved more towards managers that are good at capital preservation. RS Value (RSVAX), RS Partners (RSPFX), Northern Small Cap Value (NOSGX), Royce Value Plus Investment (RYVPX), TCW Dividend Focused (TGIGX), Westcore Plus Bond (WTIBX), and Westcore Flexible Income (WTLTX) have been removed from our recommended lists for this reason. Atlas Growth Opportunities (ASGIX), William Blair International Growth (WBIGX), Fidelity Low-Priced Stock (FLPSX) have been removed because they are presently not open to new investors.

With all the changes above you knew we had to add some funds. In Large Cap, we added 1st Source Monogram Income Equity(FMIEX) and Gabelli Equity Income (GABEX). New Mid Cap funds are Fidelity Leveraged Company Stock (FLVCX) and Allianz CCM Mid Cap (PMCDX). On the small cap side we are now tracking Turner Emerging Growth (TMCGX) and Allianz NFJ Small Cap Value (PNVDX). Finally, we added Fidelity Intermediate Government (FSTGX) and PIMCO Low Duration (PLDDX) to our bond collection.

The combination of the lowering of short term interest rates by the FED and continued financial market uncertainty have led us to a more conservative approach to our Asset Allocation for the 4th quarter of 2007. We have taken 2% from Large Cap, Mid Cap, Small Cap, and Real Estate and added 4% each to Short Term Bonds and Intermediate Bonds.

Asset Allocation October 2007

If you thought the roller coaster ride in the first half of 2007 was fun, you must have enjoyed the 3rd quarter. It was sort of like going on the same ride, but at twice the speed as the stock market experience a similar amount of activity in half the time. The higher volatility was welcomed by traders, but kept investors on the edge of their seats.

The continued sub-prime mortgage worries and meltdown in the real estate markets inspired the Federal Reserve Open Market Committee to lower short term interest rates for the first time in four years. When you add this to all the turmoil Intermediate Term Bonds with a 2.8% return started looking better than the 0.3% return of High Yield Bonds.

Large Cap Growth continued to outdistance Small Cap Value in the third quarter. The scoreboard showed big guys turning in gains of 4.2% which the little guys last 6.3%. That’s a 10% differential that is certainly helped by the fact that the falling dollar helps those large companies that do a lot of business overseas, and the financial stocks that are often considered to be Value stocks lost a lot of that in recent months. While REITs continue to trail the pack in 2007, they actually bounced back slights this quarter, but they may only be taking a breather.

Investment Returns September 2007