2015 Financial Markets, Mutual Funds, and ETFs Review

As 2015 comes to a close one would think it was a rather quiet year in the financial markets as stocks and bonds gained less than 1.0% for the year. In reality it was quite a volatile year as commodities continued to plummet led by a plunge in oil prices thanks to a significant over supply. The long-awaited stock market correction finally came in August, with the S&P 500 declining (12.5%) from its earlier high to its low point. It was the market’s first correction since 2011. This time around the blame fell on slowing growth in emerging markets and fears in anticipation of the Federal Reserve’s first interest-rate hike in almost 10 years. Stocks have rebounded since then, but as you can see from the results the returns things turned out a lot better than investors anticipated this summer even as the FED finally took action to increase short-term interest rates in December.

The winner this year has been Large Cap Growth stocks which finished up 5.7% thanks to the Technology Sector. On the other hand, Small Cap Value stocks dropped (7.5%) as style had an even larger impact on results than market cap. While developed country international stocks have fallen (3.0%) this year, it is Emerging Markets equities that have taken the biggest hit, falling almost (15.0%).

Investment Returns as of December 2015

Investment Returns as of December 2015

Rising interest rates in 2015 meant that duration had a larger impact on bond returns than it has in years. Wells Fargo Short-Term Hi Yield Bond (SSTHX) was up 2.1% while Fidelity Inflation-Protected Bond (FINPX) fell (2.2%). The rising dollar had an even larger impact on International Bonds as Dreyfus International Bond (DIBAX) fell (6.8%) Payden Global Fixed Income (PYGFX), which is hedged against the dollar, rose 1.5%. Interestingly Emerging Markets Bonds rebounded in spite of the rising dollar from a difficult 2014 as Fidelity New Markets Income (FNMIX) was up about the same as domestic bonds with a gain of 0.2%.

While some of the new equity funds that made it on our favorites list for the coming year were strong performers in 2015, some of the better ones that stayed on board were Parnassus Core Equity (PRBLX) and Congress Mid Cap Growth (CMIDX) which both lost less than (1.0%). The big winner was a closed fund, Brown Capital Small Company (BCSIX), which gained 8.8%. Market Cap had the opposite impact overseas as Fidelity International Growth (FIGFX) gained 3.9% while Wasatch International Opportunities (WAIOX) rose 9.5%. It may not look it, but Driehaus Emerging Markets Small Cap Growth (DRESX) was one of the better performing Emerging Markets fund with a fall of ‘only’ (10.2%). Outside of traditional stocks and bonds a couple of the better performers were AMG Managers Real Estate Securities (MRESX) which gained 5.3% while Boston Partners Global Long/Short (BGRSX) added 6.3%.

As was the case for mutual funds lower duration and emerging markets were the better performing ETS as iShares 3-7 Year Treasury Bond (IEI) gained 1.6% while PowerShares Emerging Markets Sovereign Debt (PCY) gained 2.3%. It was growth all the way for domestic equities with PowerShares Nasdaq 100 (QQQ) gaining 9.5%, iShares S&P Mid Cap 400 Growth (IJK) adding 1.9%, and iShares S&P Small Cap 600 Growth (IJT) rising 2.7%.

Outside of the US, the best stock market ETF on our list was iShares MSCI Japan (EWJ) which picked up 9.2%. A couple of the new strategies that we added to our Favorite ETF list had strong years, in particular WisdomTree International Hedged Quality Dividend Growth (IHDG) which gained 11.8% with a lot of help from its hedge against the US dollar. Another strong performer was iShares MSCI EAFE Small Cap (SCZ) which picked up 9.1%. Our best sector ETF was SPDR S&P Biotech (XBI) which gained 13.6% while anything related to commodities was down at least double digits. A bet on rising dollar using PowerShares DB US Dollar Bullish (UUP) paid off with a 7.0% rise this year. And finally and ETF that seems to have a handle on Long/Short equity has rise from the pack as First Trust Long/Short Equity (FTLS) gained 4.7%.

Asset Allocation for 2016

We are approaching 2016 as if we were starting from scratch. You will find that there are changes to the Asset Allocations, the Favorite Mutual Funds list, the Favorite ETFs list, along with our model portfolios. Of note, we have made a slight increase to our equity allocations and redistributed our fixed income allocations. The changes to our lists of favorites are numerous, so let’s just say that we have moved towards managers with a more conservative process as we move into the uncharted territory of interest rates rising from zero. While we would be comfortable investing in all of the mutual funds on our favorites list, many of the ETFs on that favorites list are there just to get a feel for state of financial markets and not for long term investing.

Asset Allocation 2016

If you need more information about which funds to include in these allocations, check our Favorite Mutual Funds list, Favorite ETFs, or Model Investment Portfolios.

Model Investment Portfolios 2016

Here are our model investment portfolios for 2016 with returns as of December 31, 2015.

Fund Name  Allocation% Return
No Load Mutual Fund PortfolioTickerClass1/1/20163 Mo1 Yr
Money Market FundMM2%0.00.1
Baird Short-Term BondBSBSXSTB6%(0.3)0.6
American Century Short Dur Inf Prot DndAPOIXIPB3%(0.5)(0.5)
Metropolitan West Total Return BondMWTRXITB6%(0.6)(0.1)
Wells Fargo Short-Term Hi Yld BondSSTHXHYB4%0.42.1
RidgeWorth Seix Floating Rate Hi Income **SAMBXFRB3%(2.5)(1.2)
Payden Global Fixed IncomePYGFXGB4%0.61.5
Payden Emerging Markets BondPYEWXEB4%0.9(1.1)
Metropolitan West Unconstrained BondMWCRXUB4%0.0(0.0)
BlackRock Global Long/Short CreditBGCAXL/S B4%(0.6)(1.2)
Parnassus Core EquityPRBLXLCC3%4.8(0.6)
American Beacon Bridgeway Lg Cap ValBWLIXLCV3%6.0(1.5)
Scout Mid CapUMBMXMCC3%3.61.4
Congress Mid Cap GrowthCMIDXMCG3%4.2(0.2)
Brown Capital Mgmt Small Company **BCSIXSCG3%9.28.8
ASTON/Silvercrest Small CapASCTXSCV3%1.9(3.3)
Westcore Micro Cap OpportunityWTMIXMIC2%3.6(4.9)
FMI InternationalFMIJXIntl4%3.93.2
Wasatch International OpportunitiesWAIOXISC4%7.19.5
Harding Loevner Emerging MarketsHLEMXEE3%0.7(13.6)
Driehaus Emerging Markets Small Cap GrDRESXEE3%(2.2)(10.2)
AMG Managers Real Estate SecuritiesMRESXRE6%7.55.3
AQR Long/Short EquityQLENXL/S E4%5.916.8
Boston Partners Global Long/ShortBGRSXL/S E4%3.56.3
Wells Fargo Alternative StrategiesWALTXHdg4%1.41.5
AQR Managed Futures StrategyAQMNXMF4%(3.6)1.8
Credit Suisse Managed Futs Strategy **CSAAXMF4%(2.8)3.7
Portfolio Return / Value100%1.91.4
Fidelity Investments PortfolioTickerClass1/1/20163 Mo1 Yr
Cash ReservesFDRXXMM2%0.00.1
Limited Term BondFJRLXSTB8%(0.6)0.6
Intermediate GovernmentFSTGXIGB4%(1.0)0.8
Inplation Protected BondFINPXIPB4%(1.0)(2.2)
Total BondFTBFXITB8%(0.9)(0.6)
Short Duration High IncomeFSAHXHYB4%(2.8)(3.3)
Floating Rate High IncomeFFRHXFRB6%(2.0)(1.3)
New Markets IncomeFNMIXEMB6%1.30.2
Blue Chip GrowthFBGRXLCG10%7.46.3
Low Priced StockFLPSXMCC8%1.6(0.6)
Small Cap Discovery*FSCRXSCC6%(0.3)(6.2)
International GrowthFIGFXIntl6%4.73.9
Pacific BasinFPBFXIntl6%10.06.0
International Small CapFISMXISC5%3.06.4
Emerging MarketsFEMKXEE5%4.3(10.1)
Real Estate IncomeFRIFXRE6%1.91.7
Real Estate InvestmentFRESXRE6%8.96.0
Portfolio Return / Value100%2.40.8
Easy Mutual Fund PortfolioTickerClass1/1/20163 Mo1 Yr
Money Market FundMM2%0.00.1
Baird Short-Term BondBSBSXSTB12%(0.3)0.6
American Century Short Dur Inf Prot DndAPOIXIPB6%(0.5)(0.5)
Metropolitan West Total Return BondMWTRXITB12%(0.6)(0.1)
Payden Global Fixed IncomePYGFXGB8%0.61.5
Parnassus Core EquityPRBLXLC14%4.8(0.6)
Congress Mid Cap GrowthCMIDXMC12%4.2(0.2)
ASTON/Silvercrest Small CapASCTXSC10%1.9(3.3)
FMI InternationalFMIJXIntl12%3.93.2
Harding Loevner Emerging MarketsHLEMXEE4%0.7(13.6)
AMG Managers Real Estate SecuritiesMRESXRE8%7.55.3
Portfolio Return / Value100%2.40.0
Fidelity NTF Mutual Fund PortfolioTickerClass1/1/20163 Mo1 Yr
Money Market Fund (Cash Reserves)FDRXXMM2%0.00.1
Baird Short-Term BondBSBSXSTB4%(0.3)0.6
Fidelity Intermediate Government IncomeFSTGXIGB4%(1.0)0.8
American Century Short Dur Inf Prot DndAPOIXIPB4%(0.5)(0.5)
Metropolitan West Total Return BondMWTRXITB6%(0.6)(0.1)
Wells Fargo Short-Term Hi Yld BondSSTHXHYB4%0.42.1
Eaton Vance Floating RateEVBLXFRB4%(2.3)(1.9)
Payden Global Fixed IncomePYGFXGB4%0.61.5
Fidelity New Markets IncomeFNMIXEB4%1.30.2
Metropolitan West Unconstrained BondMWCRXAB4%0.0(0.0)
Parnassus Core EquityPRBLXLCC2%4.8(0.6)
Fidelity Blue Chip GrowthFBGRXLCG2%7.46.3
American Beacon Bridgeway Lg Cap ValBWLIXLCV2%6.0(1.5)
Scout Mid CapUMBMXMCC2%3.61.4
Congress Mid Cap GrowthCMIDXMCG2%4.2(0.2)
Fidelity Low-Priced StockFLPSXMCV2%1.6(0.6)
Fidelity Small Cap Discovery *FSCRXSCC2%(0.3)(6.2)
Rice Hall James Small CapRHJMXSCG2%0.7(1.4)
ASTON/Silvercrest Small CapASCTXSCV2%1.9(3.3)
Westcore Micro Cap OpportunityWTMIXMIC2%3.6(4.9)
Fidelity International GrowthFIGFXIntl6%4.73.9
Wasatch International OpportunitiesWAIOXIntl4%7.19.5
Harding Loevner Emerging MarketsHLEMXEE2%0.7(13.6)
Driehaus Emerging Markets Small Cap GrDRESXEE2%(2.2)(10.2)
AMG Managers Real Estate SecuritiesMRESXRE6%7.55.3
AQR Long/Short EquityQLENXL/S E4%5.916.8
Boston Partners Global Long/ShortBGRSXL/S E4%3.56.3
Wells Fargo Alternative StrategiesWALTXHdg4%1.41.5
AQR Managed Futures StrategyAQMNXMF4%(3.6)1.8
Credit Suisse Managed Futs Strategy **CSAAXMF4%(2.8)3.7
Portfolio Return / Value100%1.71.5
ETF / Fund NameAllocation% Return
ETF Investing PortfolioTickerClass1/1/20163 Mo1 Yr
Money Market FundMM2%0.00.1
SPDR Barclays ST Corp BondSCPBSTB8%0.10.9
iShares 0-5 Year TIPS BondSTIPITB6%(0.4)(0.1)
iShares 7-10 Year Treasury BondIEFIPB8%(1.5)1.5
iShares Core US Aggregate BondAGGITB6%(0.5)0.5
iShares 0-5 Year High Yield Corp BondSHYGHYB3%(1.0)(3.8)
iShares International Agg BondIAGGGB4%0.00.0
PowerShares Emerg Mkts Sov DebtPCYEB3%1.02.3
PowerShares Nasdaq 100QQQLCG3%10.39.5
PowerShares S&P 500 Low VolatilitySPLVLCV3%7.94.0
SPDR S&P Mid Cap 400MDYMCC3%2.5(2.5)
WisdomTree MidCap DividendDONMCV3%4.9(1.1)
WisdomTree Small Cap EarningsEESSCC3%3.6(7.2)
PowerShares S&P Small Cap Low VolatiliyXSLVSCV3%5.32.7
First Trust Dow Jones Micro CapFDMMIC3%4.5(0.1)
iShares MSCI ACWI ex USACWXIntl4%2.2(5.8)
WisdomTree Intl Hdgd Qual Div GrIHDGIntl4%7.611.8
iShares MSCI EAFE Small CapSCZISC4%5.59.1
iShares MSCI Emerging Markets Min VolEEMVEE4%(1.0)(12.0)
iShares MSCI Emerging Markets Small CapEEMSEE2%4.1(7.1)
iShares Cohen & Steers REITICFRE5%8.36.0
First Trust Long/Short EquityFTLSL/S4%4.64.7
Credit Suisse Long/Short Eq ETNCSLSL/S4%4.56.0
Janus Velocity Volatility HedgedSPXHHdg4%2.8(4.0)
First Trust MS Mgd Futures StratFMFMF4%(0.7)(0.7)
Portfolio Return / Value100%2.50.9
ETF and Mutual Fund PortfolioTickerClass1/1/20163 Mo1 Yr
Money Market FundMM2%0.00.1
Baird Short-Term BondBSBSXSTB4%(0.3)0.6
iShares 3-7 Year Treasury BondIEIIGB4%(1.2)1.6
iShares 0-5 Year TIPS BondSTIPIPB3%(0.4)(0.1)
Metropolitan West Total Return BondMWTRXITB6%(0.6)(0.1)
Wells Fargo Short-Term Hi Yld BondSSTHXHYB3%0.42.1
Payden Global Fixed IncomePYGFXGB6%0.61.5
Payden Emerging Markets BondPYEWXEB4%0.9(1.1)
RidgeWorth Seix Floating Rate Hi Income **SAMBXFRB4%(2.5)(1.2)
Metropolitan West Unconstrained BondMWCRXAB4%0.0(0.0)
Parnassus Core EquityPRBLXLCC2%4.8(0.6)
PowerShares Nasdaq 100QQQLCG2%10.39.5
PowerShares S&P 500 Low VolatilitySPLVLCV2%7.94.0
Scout Mid CapUMBMXMCC2%3.61.4
Congress Mid Cap GrowthCMIDXMCG2%4.2(0.2)
WisdomTree MidCap DividendDONMCV2%4.9(1.1)
ASTON/Silvercrest Small CapASCTXSCC2%1.9(3.3)
Rice Hall James Small CapRHJMXSCG2%0.7(1.4)
PowerShares S&P Small Cap Low VolatiliyXSLVSCV2%5.32.7
Westcore Micro Cap OpportunityWTMIXMIC2%3.6(4.9)
FMI InternationalFMIJXIntl4%3.93.2
Wasatch International OpportunitiesWAIOXIntl4%7.19.5
Harding Loevner Emerging MarketsHLEMXEE3%0.7(13.6)
Driehaus Emerging Markets Small Cap GrDRESXEE3%(2.2)(10.2)
AMG Managers Real Estate SecuritiesMRESXRE3%7.55.3
iShares Cohen & Steers REITICFRE3%8.36.0
AQR Long/Short EquityQLENXL/S E4%5.916.8
Boston Partners Global Long/ShortBGRSXL/S E4%3.56.3
Wells Fargo Alternative StrategiesWALTXHdg4%1.41.5
AQR Managed Futures StrategyAQMNXMF4%(3.6)1.8
Credit Suisse Managed Futs Strategy **CSAAXMF4%(2.8)3.7
Portfolio Return / Value100%1.91.6
Easy ETF PortfolioTickerClass1/1/20163 Mo1 Yr
Money Market FundMM2%0.00.1
SPDR Barclays ST Corp BondSCPBSTB10%0.10.9
iShares 0-5 Year TIPS BondSTIPIPB6%(0.4)(0.1)
iShares Core US Aggregate BondAGGITB12%(0.5)0.5
iShares International Agg BondIAGGITB10%0.00.0
PowerShares Nasdaq 100QQQLC6%10.39.5
PowerShares S&P 500 Low VolatilitySPLVLC6%7.94.0
WisdomTree MidCap DividendDONMC10%4.9(1.1)
PowerShares S&P Small Cap Low VolatiliyXSLVSC8%5.32.7
WisdomTree Intl Hdgd Qual Div GrIHDGIntl12%7.611.8
iShares MSCI Emerging Markets Min VolEEMVEE6%(1.0)(12.0)
iShares Cohen & Steers REITICFRE6%8.36.0
First Trust Long/Short EquityFTLSLSE6%4.64.7
Portfolio Return / Value100%3.62.4
The 2% Solution PortfolioTickerClass1/1/20163 Mo1 Yr
Money Market FundMM0.00.1
Baird Short-Term BondBSBSXSTB2%(0.3)0.6
Pioneer Short Term IncomeSTABXSTB2%(0.2)0.6
Fidelity Intermediate Government IncomeFSTGXIGB2%(1.0)0.8
iShares 7-10 Year Treasury BondIEFIGB2%(1.5)1.5
American Century Short Dur Inf Prot DndAPOIXIPB2%(0.5)(0.5)
iShares 0-5 Year TIPS BondSTIPIPB2%(0.4)(0.1)
Baird Core Plus BondBCOSXITB2%(0.9)(0.1)
DoubleLine Total Return BondDLTNXITB2%(0.5)2.1
Metropolitan West Total Return BondMWTRXITB2%(0.6)(0.1)
AllianzGI Short Duration High IncomeASHAXHYB2%(1.5)(0.5)
Wells Fargo Short-Term Hi Yld BondSSTHXHYB2%0.42.1
iShares International Agg BondIAGGGB2%0.00.0
Payden Global Fixed IncomePYGFXGB2%0.61.5
Fidelity New Markets IncomeFNMIXEB2%1.30.2
Payden Emerging Markets BondPYEWXEB2%0.9(1.1)
Eaton Vance Floating RateEVBLXFRB2%(2.3)(1.9)
Fidelity Floating Rate High IncomeFFRHXFRB2%(2.0)(1.3)
RidgeWorth Seix Floating Rate Hi Income **SAMBXFRB2%(2.5)(1.2)
BlackRock Global Long/Short CreditBGCAXAB2%(0.6)(1.2)
Metropolitan West Unconstrained BondMWCRXAB2%0.0(0.0)
Parnassus Core EquityPRBLXLCC2%4.8(0.6)
PowerShares Nasdaq 100QQQLCG2%10.39.5
PowerShares S&P 500 Low VolatilitySPLVLCV2%7.94.0
Scout Mid CapUMBMXMCC2%3.61.4
Congress Mid Cap GrowthCMIDXMCG2%4.2(0.2)
WisdomTree MidCap DividendDONMCV2%4.9(1.1)
ASTON/Silvercrest Small CapASCTXSCC2%1.9(3.3)
Rice Hall James Small CapRHJMXSCG2%0.7(1.4)
PowerShares S&P Small Cap Low VolatiliyXSLVSCV2%5.32.7
Westcore Micro Cap OpportunityWTMIXMIC2%3.6(4.9)
Fidelity International GrowthFIGFXIntl2%4.73.9
FMI InternationalFMIJXIntl2%3.93.2
Matthews Asia Dividend InvestorMAPIXIntl2%4.93.9
Wasatch International OpportunitiesWAIOXISC2%7.19.5
Harding Loevner Emerging MarketsHLEMXEE2%0.7(13.6)
Driehaus Emerging Markets Small Cap GrDRESXEE2%(2.2)(10.2)
Matthews Emerging AsiaMEASXEE2%4.8(2.6)
Fidelity Real Estate IncomeFRIFXRE2%1.91.7
AMG Managers Real Estate SecuritiesMRESXRE2%7.55.3
iShares Cohen & Steers REITICFRE2%8.36.0
AQR Long/Short EquityQLENXL/S E2%5.916.8
Boston Partners Global Long/ShortBGRSXL/S E2%3.56.3
Hancock Horizon Long/Short **HHQAXL/S E2%0.40.1
Lazard Fundamental Long/ShortLLSOXL/S E2%2.55.6
AQR Global MacroQGMNXHdg2%(0.4)1.4
Wells Fargo Alternative StrategiesWALTXHdg2%1.41.5
Abbey Capital Futures Strategy **ABYAXMF2%(0.5)3.9
AQR Managed Futures StrategyAQMNXMF2%(3.6)1.8
Aspen Managed Futures Strategy **MFBPXMF2%(1.7)(2.8)
Credit Suisse Managed Futs Strategy **CSAAXMF2%(2.8)3.7
Portfolio Return / Value100%1.61.1
* Funds Closed to New Investors. Choose an open fund in the same category for your portfolio.
** Loaded funds that are available from some brokers, including Schwab, without load fee.

Mutual Fund, ETF, and Financial Markets Update October 2015

The long-awaited stock market correction finally came in August, with the S&P 500 declining (12.5%) from its recent high to its low point. It was the market’s first correction since 2011. This time around the blame fell on slowing growth in emerging market, and China in particular, the crash in commodity prices, and fears surrounding anticipation of the Federal Reserve’s first interest-rate hike. Stocks rebounded by the end of the quarter to cut the losses almost in half as the final tally was a fall of (7.3%). Small Cap Growth stocks took the biggest hit as the former high flyer dropped an unlucky (13.1%) while their Large Cap Growth brethren held on better than other domestic stock categories by falling only (5.3%).

The flight to quality in this risk-off environment pushed bonds up 1.2% which actually helped REITs as falling interest rates pushed them up 3.1% for the quarter. You could not hide by investing overseas as a (17.9%) drop in Emerging Market Equities was a drag on International stocks which fell (10.6%). Following the FED’s decision to hold interest rates steady, stocks headed south to test the August lows as the quarter came to a close. As I write the quarter’s update stocks have started off the 4th quarter with a strong upward move, so its possible they could finish the year in the plus column.

The 3rd Quarter of 2015 was a difficult across the board, but as often happens in volatile financial markets most Managed Futures funds did their job with AQR Managed Futures Strategy (AQMNX) leading all of our funds with a gain of 6.2%. This was followed by Credit Suisse Managed Futures Strategy (CSAAX) and AMG Managers Real Estate Securities (MRESX) which both gained 2.1%. Traditional bond funds performed well this quarter, with Fidelity Intermediate Government Income (FSTGX) being the best of our domestic bond funds with a 1.2% gain, while International Bond funds that hedge against a rising US dollar were also able to provide positive returns as PIMCO Foreign Bond (USD-Hedged) (PFODX) picked up 1.7%.

This was one of those quarters that we will be highlighting stock funds that lost the least. On the home front the larger the better as Parnassus Core Equity (PRBLX) lost (4.4%), Parnassus Mid-Cap (PARMX) fell (5.4%), and Hodges Small Cap (HDPSX) dropped (8.6%). Overseas funds were not any better as FMI International (FMIJX) which lost (7.0%) and Wasatch International Opportunities (WAIOX) which declined (6.1%) would be considered good performers.

As might be expected given the difficult financial markets this quarter, iShares Barclays 20+ Year Treas Bond (TLT) topped our list of ETFs with a gain of 7.8%, while iShares Core Total US Bond Market ETF (AGG) added 1.7% and SPDR Barclays International Treasury Bond (BWX) tacked on 1.3%. Interestingly Utilities Select Sector SPDR (XLU) was the leading sector ETF with a 3.5% gain, followed by Credit Suisse Long/Short Equity ETN (CSLS) with a rise of 1.8% and iShares FTSE NAREIT Real Estate 50 (FTY) which added 1.5%.

On the other side of the tracks PowerShares Nasdaq 100 (QQQ) lost only (5.1%), WisdomTree MidCap Dividend (DON) dropped (6.1%), and iShares S&P SmallCap 600 Growth (IJT) fell (6.7%). The top performing country ETF was iShares MSCI Switzerland Index (EWL) which dropped (7.1%) while you only had to cross the border to lose (9.3%) by investing in iShares MSCI Mexico Index (EWW). SPDR S&P Biotech (XBI) wiped out all of its gains from the first half of 2015 with a collapse of (24.8%) this quarter.