Insightful Investing

In an effort to obtain a little more yield for our portfolios, we have removed 2% of our allocation from Short Term Bonds, Intermediate Term Bonds, and Long/Short Futures, and added 2% to Global Bonds and 4% to Long/Short Equities for the 4th quarter of 2010.

We have made several changes for 4th Quarter 2010 that have added new funds to our model portfolios.

We have added several funds to our list of Top 50 No Load Mutual Funds during the quarter, resulting in a list of 70 no load Mutual Funds. The new additions include PIMCO Real Return (PRRDX), Hussman Strategic Total Return (HSTRX), Dreyfus International Bond (DIBRX), FBR Large Cap Investor (FBRPX), Heartland Select Value (HRSVX), WesMark Small Company Growth (WMKSX), Wasatch International Opportunities (WAIOX), Harding Loevner International Small Company (HLMSX), Harding Loevner Emerging Markets (HLEMX), Wasatch Emerging Markets Small Cap (WAEMX), and AQR Managed Futures Strategy (AQMNX).

After making major changes to our Best ETFs List of Exchange Traded Funds last quarter, we only added a couple of ETFs this time around. The new additions are GreenHaven Continuous Commodity Index (GCC) and PowerShares DB Precious Metals (DBP).

Asset Allocation October 2010

In September’s strong rebound for the financial markets, many of our Stock Mutual Funds were strong performers, while those funds that performed well in the August correction were not able to keep up. Thanks to a weaker dollar, our International Mutual Funds were the leading performers in the third quarter with Lazard Emerging Markets (LZOEX) gaining 20.7% in the last three months, Fidelity International Discovery (FIGRX) picking up 18.0% and Scout International (UMBWX) returning 17.4%.

Our US Stock Mutual Funds performed well too, with Growth stocks leading the way, as Westcore Select (WTSLX) gained 17.3%, Scout Mid Cap (UMBMX) picked up 15.2%, and Wells Fargo Advantage Growth Inv (SGROX) added 14.4% during the third quarter of 2010.

In the Bond market, you could really see the impact of a weaker dollar on some of our funds. The Dreyfus International Bond Fund (DIBRX) gained 10.7%, while PIMCO Foreign Bond (USD-Hedged) (PFODX), which uses hedging to reduce the impact of the currency markets, only returned 3.0% this quarter. Payden Emerging Markets Bond (PYEMX) also proved to be a strong performer, returning 8.4% in the last three months. In the US bond market, Fidelity High Income (SPHIX) was our leading performer, with a 6.6% return.

We had some even stronger performances by our ETFs, especially in Emerging Markets, which were led by a gain of 27.8% by iShares MSCI Chile Index (ECH) and iShares MSCI South Africa Index (EZA). A falling dollar helped iShares MSCI Australia Index (EWA) return 25.1% in the third quarter of 2010. As the pressure from the European Financial Crisis subsided iShares MSCI Spain Index (EWP) added 27.7% and iShares MSCI Italy Index (EWI) picked up 21.7%. Both of these factors helped SPDR Dow Jones Intl Real Estate (RWX) gain 24.5% and SPDR DB Intl Govt Infl-Protected Bond (WIP) add 13.3%.

Our October 2010 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through September 2010. The Mutual Funds in our Mutual Fund Portfolios are chosen from our 50 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.

Stocks had their best September in 70 years to more than make up for a dreadful August. The result was a very strong third quarter in 2010. The leader of the pack this quarter was Emerging Market Equities, which picked up a stellar 18.2%. In fact, with investor concerns about financial difficulties in Europe subsiding the dollar fell significantly. This helped International Stocks in general post a strong quarter, picking up 16.2%. In the US, Mid Cap Growth stocks topped the charts with a gain of 14.8%, while Small Cap Value trailed the field with a gain of only 9.2%. It has been a year since there was this significant of a differential between Growth Stocks, which added 13.0% for the quarter, and Value Stocks which picked up only 10.1%. In that case, Value stocks were the place to be. The last time Growth stock outperformed Value stocks by this much was during the dreadful first quarter of 2009, when Growth Stocks lost substantially less than Value Stocks.

Some good economic news in September eased concerns about a double-dip recession, reversing the pessimistic sentiment displayed over the summer. In spite of this, investors continued to pour money into bond funds, rather than stock funds, seeking higher yields than they can get from money market funds. The ‘Flash Crash’ in May apparently still has investors fearful of investing too heavily in stocks. The impact of a falling dollar also helped international bond funds with Global Bonds gaining 10.8% in the third quarter and Emerging Markets Bonds adding 8.3%. Domestically, a strong stock market helped push High Yield Bonds up 6.7% this quarter, while the overall bond market was up 2.5%.

Investment Returns September 2010