Insightful Investing

To say that August was a difficult month for stocks may be an understatement, but at least some of our hedged equity funds did show a profit. Hussman Strategic Growth (HSGFX) gained 3.8% and Invesco Balanced-Risk (ABRYX) added 2.5%. Most bond funds had respectable results for the month, especially those with an emphasis in US Government bonds. Wells Fargo Advantage Government Securities (STVSX) picked up 1.8%, Fidelity Intermediate Government Income (FSTGX) earned 1.5%, and Fidelity Inflation-Protected Bond (FINPX) added 0.9%.

While you may have been disappointed with the performance of several of our funds during the market rebound in 2009, many of these experienced limited losses in August, just like they did in 2008. This is a major reason why we tend to favor managers that pay more attention to capital preservation than topping the charts during a raging bull market. In the long run, these funds tend to outperform their peers because they usually have significantly smaller losses when the stock market goes through a difficult period.

Our top stock performers in August were Yacktman Fund (YACKX), which dropped only 1.0%, Forester Value (FVALX) which fell 1.4% and Intrepid Small Cap (ICMAX) which lost 1.8%. Interestingly, while domestic Small Cap funds had a very difficult month, our International Small Cap Funds performed significantly better, led by Westcore International Small Cap (WTIFX) fell only 4.2%.
A couple of our recent high fliers tuned in the worst results in August as Westcore Select (WTSLX) dropped 10.5% and Parnassus Small-Cap (PARSX) which lost 10.3%.

Bonds and some commodities were the strongest performers this month as SPDR Gold Shares (GLD) gained 12.3%, PowerShares DB Agriculture (DBA) gained 5.8%, iShares Barclays 7-10 Year Treasury (IEF) added 4.7%, while iShares Barclays Aggregate Bond (AGG) and PowerShares Emerging Markets Debt (PCY) both earned 1.5%.

There were a few stock ETFs that outperformed the stock market in general, led by SPDR S&P Dividend (SDY) which lost only 0.7% thanks to a strong dividend yield. The iShares MSCI Australia Index (EWA) and iShares MSCI Canada Index (EWC) both performed relatively well, benefiting from the significant contribution natural rersouces contribute to their economy, losing only 3.4% in August.

Our worst Bond ETF was SPDR Barclays Capital High Yield Bond (JNK) which lost 3.0%. On the stock side of the ledger, the biggest losers were
iShares MSCI BRIC Index (BKF) dropping 10.1%, iShares Russell Microcap Index (IWC), down 10.6%, Rydex S&P Equal Weight Financials (RYF) losing 10.9%, SPDR S&P Biotech (XBI) falling 11.2%, and iShares MSCI Germany Index (EWG) collapsing 18.7%.

Those of you who are inclined to do a little trading, the iPath S&P 500 VIX Short-Term Futures ETN (VXX), an ETF we track only to watch the amount of volatility in the stock market, was up 66.4% in August, but is actually down 55.6% in the last year. Now that’s an ETF that has far too much volatility for a long-term investor!

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

August was the worst month for stocks since May of 2010, and would have been the worst since February 2009 had we stopped the clock half way through the month. Continued worries about the US economy and sovereign debt issues in Europe took stocks down into negative territory for 2011. The anxiety in the markets pushed up volatility to its highest level since the financial crisis in 2008.

As always happens in turbulent markets, the bad economic news once again led to a flight to safety. Long term government bonds and gold were the big beneficiaries in August, with bonds up 4.5% and gold up 12.0%.

Thanks to the European markets, International stocks took the biggest hit in August, tumbling 9.0% for the month, with Emerging Markets stocks not far behind with a drop of 8.9%. Domestically, it was not a lot better as Small Cap stocks fell 8.6%, Mid Cap stocks were down 6.9%, and Large Cap stocks lost 5.8%.