Insightful Investing Newsletter July 2005

2nd Quarter 2005 Market Recap

All you had to do was take the return chart for the first quarter and turn it upside down to get the second quarter. Well, not exactly. What that tells you is that the market has gone almost nowhere in 2005, except for the one asset class that was beginning to show signs of running out of gas last quarter. Real Estate more than made up for a terrible first quarter by leading the pack with a gain of almost 15% for the quarter, and 6% for the year.

The equity markets, along with around $60 per barrel Oil, seem to stabilize this quarter. While Mid Cap Stocks and Small Cap Stocks both gained just over 4% for the quarter, Large Cap Stocks and International Stocks were close enough to break even for the quarter, and for all of 2005 as well, that we might as well just say that stocks have been treading water in 2005. While that sounds a bit disappointing, we regard it a good showing considering the 33% increase in oil prices this year.

Bonds continue to hold up well, in spite of the continued tightening of interest rates by the Fed. A 3% return for the quarter keep them on track to match the 6% to 7% they have averaged over the past 5 years. While only the contrarians may have expected these results, it reminds us that a well diversified asset allocation is the best way to stay ahead of the markets.

Speaking of contrarian thinking, Growth equities out paced Value equities by all of 0.5% for the quarter. While that may not sound like much, its been pretty rare in the last 5 years. Last quarter we suggested that it could it be time for the market to revert to the mean and start favoring growth stocks again. It looks like that might be starting to happen.

2nd Quarter 2005 Fund Review

Vanguard REIT Index (VGSIX) led a strong comeback for Real Estate Funds. A 14.4% gain by this index fund topped the 14.2% return by new addition Neuberger Berman Real Estate (NBRFX). While Third Avenue Real Estate Value (TAREX) did not keep up with these two funds for the quarter, a 9.7% return in 2005 actually leads all of our Real Estate Funds this year. Unfortunately, this fund is closing to new investors.

Next in line were a couple of new entries in the Mid Cap Fund category. Kinetics Paradigm (WWNPX) gained 9.7% for the quarter, while RS Value (RSVAX) picked up 6.8%. They were followed by Artisan Mid Cap Value (ARTQX), a fund we recommended a while ago, with a 6.2% return.

Large Growth Funds led the big stock funds this quarter, with Atlas Growth Opportunities (ASGIX) bringing home 3.5% for the quarter, and Fidelity Contrafund (FCNTX). 

Is not surprising that the Small Cap Funds were led by funds that we have recommended in the past, but have since been closed to new investors. RS Partners (RSPFX) continues to be a star performer with gaining 6.2% for the quarter, but if you did not purchase this fund when we recommended it over a year ago, you have missed out. Leading those Small Cap Funds that you can purchase were Vanguard Explorer (VEXPX) at 4.1%, Fidelity Small Cap Independenc (FDSCX) at 4%, and a new Royce Fund for this quarter, Pennsylvania Mutual Inv (PENNX) at 3.7%.

Several of our recommended International Funds continue to perform well, but they have also closed to new investors. The leader of this group was William Blair International Growth (WBIGX) which returned 2.3% for the quarter. We are adding UMB Scout WorldWide (UMBWX) for this edition of the newsletter, which gained 1.8% for the quarter. It replaces our favorite International Fund Julius Baer International Equity (BJBIX) which is no longer open.

There was not a lot of difference between Bond Funds this quarter as all categories had a good quarter. TCW Galileo Total Return Bond (TGMNX) was the leading Intermediate Bond Fund with a gain of 3.0% and Westcore Flexible Income (WTLTX) topped our High Yield funds with a return of 2.8% in the second quarter.
* Annualized Returns

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