Investing Newsletter January 2004

Letting your investment dollars travel overseas proved to be the most profitable place to have your your money in the 4th quarter, as International funds returned 16%. Vanguard International Value (VTRIX) was this quarter’s leader on our watch list with almost a 20% return. It was followed by Julius Baer International Equity (BJBIX) with a 17% return.

Back in the USA, Small Cap Value funds were not far behind, returning over 15% for the year. Babson Enterprise (BABEX) was the leading domestic stock fund that we are followed.

We found it interesting that while the S & P Value Index outperformed the S & P Growth Index in 2003, Growth mutual funds actually outperformed value mutual funds at all market capitalization levels. Once again, small and mid cap fund mangers did a better job of stock picking than large cap managers. This confirms our belief that the right choice of a Small Cap manager is an important asset allocation consideration, while an index fund may be all you need for the Large Cap portion of your portfolio.

Even as the 1-year return of 55% for the average Technology mutual fund was better than the other categories on our watch list, manager choice was critical since the range of returns on these funds was all over the board. In contrast, most Real Estate funds returned close to the 36% performance of the typical Real Estate fund.

While the average Stock fund gained at least 10% for the quarter, the average Bond fund almost picked up enough to make up for its 3rd quarter loses. As expected, the improving economy helped High Yield Bonds. An average gain of over 5% was slightly better than most bond funds for the entire year. Fidelity Capital & Income (FAGIX) was the big winner on our watch list, returning 40% for the year.

A list of our Favorite Mutual Funds for 2004 was updated in January with information through December 2003.

Asset Allocation for 1st Quarter 2004

Cha, Cha, Cha, Changes. We have several of them as we start the new year, several due to funds closing to new investors. Fidelity Low-Priced Stock (FLPSX), Oakmark International (OAKIX), Royce Micro-Cap (RYOTX), William Blair Small Cap Growth (WBSNX) joined the ranks of the many funds on our watch list that closed to new investors this year. If you got into these funds before the door shut, stay with them. If you did not, take action on our suggestions so you do not miss the boat next time.

On the other side of the fence, Vanguard High-Yield Corporate (VWEHX) reopened to new investors.

Now that Fidelity has eliminated the loads on all of its funds, Fidelity Contrafund (FCNTX) can now be added to our Fidelity portfolio without paying a load. In addition, any new investments targeted for a small cap fund should now be used to purchase Fidelity Small Cap Stock Fund (FSLCX).

While we have not changed our asset allocations for the new year, you should notice that we have added several funds to our model portfolios. This provides additional diversification to our portfolios, but it is not something you need to do immediately. Before you sell half of your allocation in Fidelity Equity Income II to invest that money in Fidelity Contrafund, for example, there are a couple of issues you should consider. Besides looking at the tax consequences of making that transaction, you should also make sure you held your investment long enough to avoid a redemption fee.


Conservative Asset Allocation January 2004

Conservative Asset Allocation January 2004

Insightful Asset Allocation January 2004

Insightful Asset Allocation January 2004


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