Insightful Investing

Apparently something had to bounce this quarter, as our biggest surprise was finding Cohen and Steers Realty Shares (CSRSX) was actually up 4.2% this quarter, and in fact, it is even up 1.5% for 2008. The other interesting surprise was that the iShares Russell 2000 Value Index (IWN) ETF was up 6.6% while Small Cap Value funds were actually down 1.5%. Given the uncertainty in the financial markets, it was not a surprise to us that Intermediate Government Bond funds were up, including our choice Fidelity Intermediate Government (FSTGX).

Not a lot of good things to say about Stock Mutual Funds this quarter, especially when our leading performers on a a relative basis were Artisan Mid Cap Value (ARTQX) and Ashton/Montag and Caldwell Growth (MCGFX), losing -6.4% and -9.4% respectively. You know its been a tough market when UMB Scout International (UMBWX) lost -17.4% and performed better than most of its peers.

Our Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through December 2007. The investment performance history of our mutual fund portfolios and ETF investment portfolios are tracked on our investment portfolio performance page.

Asset Allocation for 4th Quarter 2008

We are replacing a few funds this quarter, Metropolitan West Total Return Bond (MWTRX) with TCW Total Return Bond (TGLMX), Allianz CCM Mid Cap (PMCDX) with Wells Fargo Advantage Discovery (STDIX), Fidelity Leveraged Company (FLVCX) with Fidelity Mid Cap Value (FSMVX), and Turner Emerging Growth (TMCGX) with WesMark Small Company (WMKSX).
In addition, we reduced our International allocation by eliminating Julius Baer International Equity (BJBIX). Also note that Julius Bear Global High Income has changed names to Artio Global High Income.

We are continuing to invest even more defensively by reducing our stock allocations to very low levels and bumping up our allocations to Cash, Short Bonds, and Intermediate Bonds to 20% each.

Asset Allocation October 2008

To say that the stock markets of the world got hammered in the third quarter of 2008 would be an understatement. Unfortunately, as we write this recap of the 3rd Quarter, the 4th Quarter is starting off looking like it has the potential to be even worse.

The financial crisis has inspired the governments of developed nations to make a coordinated effort to try to rescue the financial system of the entire world. In the United States that means a $700 Billion Bail Out on top of what it had already agreed to spend on Fannie Mae, Freddie Mac, and AIG. The fear of inflation that hurt the stock market, and the pocketbook of anyone who drives a car, last quarter, made an abrupt about face. We are now hoping that the recession will not be too bad.

International stocks started heading south faster than the US market this quarter as America’s financial troubles spread enough misery overseas to actually push the dollar higher against most foreign currencies, especially the EURO. That made international returns even worse for US investors, who lost -21% on their international investments for the quarter. With the financial crisis largely influenced by the Real Estate market, it probably does not surprise you that Real Estate was next in line, taking a 15% hit. Since many funds had to start dumping their most liquid assets, Large Cap stocks dropped 8%, while Small Cap stocks only fell 1%. Signs of a recession helped Value stocks outperform Growth stocks if you want to call -5% to -12% out performance.

Bonds continued to be the only safe place to hide, returning 1% for the quarter and 5% over the last year. Even then, the “R” word took down High Yield Bonds over -8% and Inflation Protected Bonds (TIPS) almost -4% .

Recession fears hurt commodity markets even more than the stock market at a time when many people were just starting to invest in them.

Once again, the financial markets gave us an example of why it pays to have a well diversified portfolio and to rebalance your portfolio when one or more asset classes becomes too large a piece of the pie.

The time to start getting your feet wet in the stock market is not likely to occur before the November elections.

Investment Returns September 2008