Investing Newsletter July 2004

Not a lot of good news for our funds in the 2nd Quarter, but then again with all the volatility we were happy to say there was not a lot of bad news. While most of our Bond Funds dropped a percentage point or two, the average Stock Fund made up for that by picking up a point or two.

Interestingly, all of our leading funds gained between 3.5% and 4% this quarter, with no real regard for asset class. Once again ABN AMRO Mid Cap (CHTTX) was a leader for the Mid Cap Stock. The Yacktman Fund (YACKX) and Fidelity Value (FDVLX) joined it on top this quarter. Selected American (SLASX) and Fidelity Contrafund (FCNTX) led the Large Caps Funds, while Royce Special Equity (RYSEX) was our leading Small Cap Fund.

While you might think an uneventful quarter would not lead to many changes in our favorite mutual fund list you better think again. While none of our funds have lost money in the last year, in some cases we feel there are better places to invest your money, so make sure you read the whole newsletter this quarter. A list of our Favorite Mutual Funds was updated in July with information through June 2004.

Asset Allocation for 3rd Quarter 2004

There are several changes to our Favorite Fund List and Model Portfolios this quarter, but this does not mean you have to go online tomorrow and sell those funds we have dropped and buy our new additions. In fact, with the current market environment, we suggest you park the money from any funds that you sell, and any new money you have available to invest, in Short Term Bonds. As always, you should consider your tax situation before selling any of your funds in a taxable account.

We will start with the Bond Funds first, where we added TCW Galileo Total Return Bond (TGMNX). We have been watching this one for a while and given the limited number of good bond choices now, we decided it was time to give our readers another option.

After a couple of quarters of trailing the average funds in their categories, its time to move on and consider selling Fidelity Equity Income II (FEQTX) and the Fidelity Mid Cap Stock Fund (FMCSX). Vanguard Growth and Income (VQNPX), on the other hand, is taking too much risk for our comfort level so that’s another fund we would consider selling. One of our long time favorites, the Royce Low Priced Stock (RYLPX), is still performing better than average, but its success has attracted too much capital for a Small Cap fund. We suggest moving down the hallway and investing in Royce Premier (RYPRX) as a Small Cap Core choice in the future.

Small Cap Funds continue to close their doors, and this quarter is no exception as Royce Special Equity (RYSEX) is now closed to new investors. We have replaced this fund with the Third Avenue Small-Cap Value (TASCX) as a Small Cap Value choice for your portfolio. In addition, when Babson Enterprise (BABEX) was brought into the Tamarack Fund family, Tamarack Enterprise (TETSX) was also closed to new investors and therefore removed from our list. We also managed to come up with a new Small Cap Growth choice as we have added Neuberger Berman Fasciano (NBFSX) this quarter.

Another fund that closed this quarter was William Blair International Growth (WBIGX) which we decided not to replace at this time. We have, however, added the Jensen Fund (JENSX) as a Large Cap Growth choice.

The Insightful Investing Newsletters starts its second year with the stock market in poor shape technically as the S& P 500 has again made lower highs and lower lows. In addition to reshuffling our portfolios, we are reducing our equity exposure by 5%, so now would be a good time to rebalance your portfolio. Moreover, we suggest that any new money you have available to invest be placed in Short Term Bonds for now.

 

Conservative Asset Allocation July 2004

Conservative Asset Allocation July 2004

Insightful Asset Allocation July 2004

Insightful Asset Allocation July 2004

 

Financial Markets Update July 2004

If you just looked at the final numbers, you would think the 2nd Quarter was relatively flat, but the uncertainty of terrorism and the specter of inflation combined with good corporate earnings resulted in considerable volatility for the markets. For the first time in a while, we have to focus on the quarter’s losers rather than its winners. Real Estate’s stellar 12% return in the 1st Quarter was cut in half with a loss of almost 6%. Rising interest rates also had a negative impact on Bonds, as they fell 2.5 % this quarter. If it were not for a good June, the quarter would have been considerably worse for equities.

In the stock market, it was not so much a change of leadership that put Large Cap Growth at the top of the packs, as much as it was Small Cap Value slowing down. The S & P 500 Index doubled its return for the year by squeaking by another gain of less than a 2% for the quarter, which still leaves the Small Caps the leading asset class this year with almost 7% appreciation, even after a flat quarter. It will take some time for us to know if this quarter signaled a role reversal, or was just a bump in the road for equities.

The rising interest rates helped the dollar this quarter resulting in a flat quarter for International stocks.


Investment Returns ending June 2004

Investment Returns June 2004