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%.

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.

Asset Allocation for 3rd Quarter 2015

We are making a few changes to the asset allocation of our model portfolio by reducing the allocation to TIPS and High Yield Bonds to 3% and increasing the allocation to Short-Term Bonds and Long/Short Bonds to 5%. In addition, the allocation to TIPS and High Yield Bonds should be in funds of the short term variety. Also, since our Dynamic Rebalancing System is calling for returning our allocation to International Bonds to its target, this is a good time to rebalance the entire Fixed Income side of the portfolio, while leaving an overweight to equities.

We are replacing Wasatch Long/Short (FMLSX) with Boston Partners Global Long/Short (BGRSX), replacing Lazard Emerging Markets Equity (LZOEX) with Driehaus Emerging Markets Growth (DREGX) and reducing some of our liquid alternative mutual fund by removing Eagle MLP Strategy (EGLAX) and Arbitrage Event-Driven (AEDFX). On the ETF side of the house we are making wholesale changes to somoe of the liquid alternative ETFs by replacing PowerShares S&P 500 Downside Hedge (PHDG), ProShares RAFI Long/Short (RALS) and Barclays S&P 500 Dynamic Veqtor ETN (VQT) with Credit Suisse Long/Short Equity ETN (CSLS), First Trust Long/Short Equity ETF (FTLS), and First Trust CBOE® S&P 500 VIX®Tail Hedge ETF (VIXH).

If you need more information about which funds to include in these allocations, check our Favorite Mutual Funds list, Favorite ETFs , Model Mutual Fund Portfolios, or Model ETF Portfolios.
Asset Allocation July 2015

ETF Investment Portfolios July 2015

Here are our favorite Exchange Traded Fund – ETF Investment Portfolios for July 2015.

ETF / Fund Name  Allocation% ReturnAllocation
ETF Investing PortfolioTickerClass4/1/20153 Mo1 Yr7/1/2015
Money Market FundMM2%0.00.12%
iShares Barclays 1-3 Year Credit BondCSJSTB8%0.10.78%
PIMCO Total Return ETFBONDITB6%(2.1)3.26%
iShares Barclays 0-5 Year TIPS BondSTIPIPB8%0.6(2.0)8%
iShares Core Total US Bond Market ETFAGGITB6%(1.8)1.86%
SPDR BarCap ST High Yield Bond ETFSJNKHYB3%0.3(1.8)3%
SPDR Barclays International Corporate BondIBNDGB4%0.9(16.3)4%
PowerShares Emerging Markets Sovereign DebtPCYEB3%(1.2)(0.3)3%
PowerShares Nasdaq 100QQQLCG3%1.615.23%
SPDR S&P DividendSDYLCV3%(1.9)4.43%
SPDR S&P MidCap 400MDYMCC3%(1.1)6.13%
WisdomTree MidCap EarningsEZMMCC3%(1.3)4.03%
iShares Core S&P Small-Cap ETFIJRSCC3%0.26.63%
WisdomTree SmallCap EarningsEESSCC3%0.53.63%
iShares Russell Microcap IndexIWCMIC2%3.18.52%
iShares MSCI ACWI ex US IndexACWXIntl4%0.3(5.6)4%
SPDR S&P International Small CapGWXIntl4%5.6(2.1)4%
iShares MSCI Emerging Mkt Min Vol IndexEEMVEE4%(1.3)(1.6)4%
WisdomTree Emerging Mkts Small Cap DivDGSEE2%(1.1)(7.1)2%
iShares Dow Jones US Real EstateIYRRE6%(9.3)3.06%
First Trust Long/Short Equity ETFFTLSL/S8%(0.6)0.08%
Morgan Creek Global Tactical AAGTAAHdg4%(3.5)(3.6)4%
Janus Velocity Volatility Hdgd Lg Cp ETFSPXHHdg4%1.22.14%
Proshares Managed Futures StrategyFUTSCom4%(2.8)0.04%
Portfolio Return / Value100%(0.8)0.5100%
ETF and Mutual Fund PortfolioTickerClass4/1/20153 Mo1 Yr7/1/2015
Money Market FundMM0.00.1
Baird Short-Term BondBSBSXSTB4%0.00.85%
iShares Barclays 3-7 Year Treasury BondIEIIGB4%(0.6)2.34%
iShares Barclays 0-5 Year TIPS BondSTIPIPB4%0.6(2.0)3%
Metropolitan West Total Return BondMWTRXITB6%(1.5)1.76%
Wells Fargo Short Term High Yield BondSTHBXHYB4%0.41.53%
Dreyfus International BondDIBAXGB6%(3.4)(5.1)6%
Payden Emerging Markets Bond AdviserPYEWXEB4%(0.5)(1.2)4%
SEIX Floating Rate High Income **SAMBXFRB4%0.81.94%
Metropolitan West Unconstrained BondMWCRXAB4%(0.1)1.05%
Parnassus Core EquityPRBLXLCC2%(0.4)4.52%
PowerShares Nasdaq 100QQQLCG2%1.615.22%
SPDR S&P DividendSDYLCV2%(1.9)4.42%
WisdomTree MidCap EarningsEZMMCC2%(1.3)4.02%
Congress Mid Cap GrowthCMIDXMCG2%(0.5)13.12%
WisdomTree MidCap DividendDONMCV2%(3.4)3.82%
WisdomTree SmallCap EarningsEESSCC2%0.53.62%
iShares S&P SmallCap 600 GrowthIJTSCG2%0.99.52%
Aston/Silvercrest Small CapASCTXSCV2%(0.8)4.52%
Westcore Micro Cap OpportunityWTMIXMIC2%0.14.22%
FMI InternationalFMIJXIntl4%(2.0)4.84%
Wasatch International OpportunitiesWAIOXIntl4%3.24.74%
Harding Loevner Emerging MarketsHLEMXEE2%0.3(6.9)2%
Driehaus Emerging Markets Small CapDRESXEE2%3.04.82%
Harding Loevner Frontier Emerg MktsHLMOXEE2%1.3(11.0)2%
AMG Managers Real Estate SecuritiesMRESXRE4%(9.7)5.64%
Third Avenue Real Estate ValueTVRVXRE2%(1.6)3.72%
Invesco Balanced-Risk Allocation**ABRZXHdg5%(2.8)(0.3)5%
Diamond Hill Long-Short **DIAMXL/S5%1.02.35%
Hancock Horizon Quant Long/Short **HHQAXL/S5%(0.6)7.05%
AQR Managed Futures StrategyAQMNXMF5%(8.4)14.85%
Portfolio Return / Value100%(1.2)2.9100%
Easy ETF PortfolioTickerClass4/1/20153 Mo1 Yr7/1/2015
Money Market FundMM2%0.00.12%
iShares Barclays 1-3 Year Credit BondCSJSTB10%0.10.710%
iShares Barclays 0-5 Year TIPS BondSTIPIPB8%0.6(2.0)8%
iShares Barclays Intermediate Credit BondCIUITB10%(1.0)1.210%
PowerShares International Corporate BondPICBITB10%0.1(12.1)10%
SPDR S&P DividendSDYLC6%(1.9)4.46%
PowerShares Nasdaq 100QQQLC6%1.615.26%
WisdomTree MidCap EarningsEZMMC10%(1.3)4.010%
WisdomTree SmallCap EarningsEESSC8%0.53.68%
PowerShares Intl Dividend AchieversPIDIntl12%(0.9)(8.8)12%
iShares MSCI Emerging Mkt Min Vol IndexEEMVEE6%(1.3)(1.6)6%
iShares Dow Jones US Real EstateIYRRE6%(9.3)3.06%
Proshares Managed Futures StrategyFUTSMF6%(2.8)0.06%
Portfolio Return / Value100%(1.1)(0.3)100%