In this Newsletter:
In spite of the severely negative returns posted by most categories of stock mutual funds in '00, our model portfolio finished the year ahead by 3.1%. This represents an outperformance of the S&P 500 by 13.2%, the Nasdaq by 42.4, and the Dow Jones Industrials Average by 9.3!
By using a portfolio such as ours and approximating our suggested guidelines, either using our specific recommended funds, or other similar funds from the same fund categories, the average mutual fund investor would have been much less likely to experience the poor performance suffered by the typical stock fund investor. Our model is updated quarterly.
The following are the fund categories we particularly favor during the first 3 mos. of 2001:
The following fund categories represent those we do not feel will perform particularly well in the first Qtr.:
As some mutual fund investors sometimes fail to recognize, not all stock or bond fund categories are created equal! Thus, although all the major indexes of stock market performance were unanimously negative in 2000, had you initially chosen or subsequently switched to our recommended categories of funds, several of which were anticipated in advance in many of our Newsletters, you would have had a much better shot at avoiding the year's more severe losses, and possibly even posted a modest positive return.
So what type of fund should you be holding as we begin 2001? And, if you currently own different categories of funds or are anticipating adding one or more categories, how much of your overall portfolio should you consider placing in each category?
While it may be difficult and impractical to greatly alter your portfolio (and even at times unwise if you are truly a long-term investor), we offer our model portfolio as a guide to suggest both the type of funds to currently hold for maximum performance and in what percentages. To see our recommended funds for a long-term portfolio, see Our Long-Term Recommended Funds below.
Although most investors won't hold as many different funds as we present, it should be helpful for you to include at least several very different funds across major categories, such as growth, value, and foreign. We feel that this makes even more sense now that many investors have felt the anguish that can come when nearly all of one's investments are held in the most aggressive one or two fund categories, such as sticking only with growth funds, as many investors made the mistake of doing in 2000.
Here are our specific model portfolio recommendations and allocations for the current Quarter:
Fund | Morningstar Style | New Allo- | Previous | 4th Qtr |
|---|---|---|---|---|
Vanguard Index 500 | Large Blend | 10% | 10% | -7.8% |
Vanguard Growth and Income | Large Value | 5 | 10 | -8.6 |
Fidelity Growth and Income | Large Blend | 10 | 0 | -4.0 |
| Vanguard Windsor | Large Value | 15 | 10 | +8.5 |
Vanguard Small Cap Index | Small Cap Blend | 5 | 5 | -6.8 |
| T. Rowe Price Value | Mid Cap Value | 15 | 7.5 | +10.3 |
Fidelity Low Priced Stock | Small Cap Value | 10 | 7.5 | +5.7 |
Vanguard International Growth | Foreign (Large Blend) | 10 | 10 | -1.1 |
Templeton Foreign A | Foreign (Large Value) | 10 | 0 | +5.7 |
Vanguard Index Europe | Foreign (Large Blend) | 10 | 10 | +1.8 |
Note: The following funds from last Qtr's Model Portfolio, with their previous category and allocation shown in ( ), have been removed for this Qtr:
American Century International Growth, (Foreign - Large Growth 5%)
Vanguard Index Pacific (Foreign - Large Value 5%)
TIAA-CREF Growth Equity (Large Growth 5%)
Janus Fund (Large Growth 10%)
Vanguard Extended Market Index (Mid Cap Blend 5%)
Fund | Morningstar | New Allo- | Previous | 4th Qtr |
|---|---|---|---|---|
| Vanguard Short Term Treasury | Low | 10% | 0% | +3.1% |
American Century Target Maturity | High | 15 | 0 | +9.8 |
Vanguard CA Ins Long Term | High | 10 | 10 | +5.0 |
| PIMCO Total Return Instit. | Medium | 45 | 55 | +4.6 |
| Vanguard High Yield | Medium | 10 | 5 | -2.7 |
| American Century International Bond | Medium | 10 | 0 | +7.2 |
Note: The following funds from last Qtr's Model Portfolio, with their previous interest rate sensitivity and allocation shown in ( ), have been removed for this Qtr:
Vanguard Long Term Treasury (High - 20%)
Vanguard Long Term Corporate (High - 10%)
Fund | New Allo- | Previous | 4th Qtr |
|---|---|---|---|
| Vanguard Prime Money Market | 33% | 50% | +1.6% |
Vanguard REIT Index | 67 | 50 | +3.7 |
Although everyone's situation and allocation strategy will differ, we present our weightings for stocks, bonds, and "other" asset classes to give you an idea of where we think the proportional rewards will flow from our 3 basic types of funds in the coming quarter.
Stocks | 50% |
Bonds | 35 |
"Other" | 15 |
Beginning with this issue, each Quarter we will list and rate each of our long-term recommended funds into three shorter range outlooks: positive, neutral, and negative.
Fund | Morningstar Style | 3 Month | 2000 | 5 Yr |
|---|---|---|---|---|
Vanguard Index 500 | Large Blend | neutral | -9.1 | 18.3 |
Vanguard Growth and Income | Large Value | neutral | -9.0 | 18.9 |
| Vanguard Windsor | Large Value | positive | +15.9 | 15.0 |
TIAA-CREF Growth Equity | Large Growth | negative | -20.3% | NA |
Vanguard Small Cap Index | Small Cap Blend | neutral | -2.7 | 11.4 |
Vanguard Extended Market Index | Mid Cap Blend | negative | -15.5 | 13.2 |
| T. Rowe Price Value | Mid Cap Value | positive | +15.7 | 17.5 |
Fidelity Low Priced Stock | Small Cap Value | positive | +18.8 | 15.1 |
| American Century International Growth | Foreign (Large Growth) | negative | -15.0 | 17.9 |
Vanguard International Growth | Foreign (Large Blend) | positive | -8.6 | 10.0 |
| Vanguard Index Pacific | Foreign (Large Value) | negative | -25.7 | -3.9 |
Vanguard Index Europe | Foreign (Large Growth) | positive | -8.2 | 15.8 |
Fund | Morningstar "Interest | 3 Month | 2000 | 5 Yr |
|---|---|---|---|---|
| Vanguard Long Term Treasury | High | positive | +19.7 | 6.8 |
Vanguard Long Term Corporate | High | neutral | 4.9 | 5.7 |
Vanguard CA Ins Long Term | High | positive | 15.1 | 6.3 |
| PIMCO Total Return | Medium | positive | 12.0 | 7.2 |
Fund | 3 Month | 2000 | 5 Yr |
|---|---|---|---|
Vanguard REIT Index | positive | 26.3 | NA |
| Vanguard Prime Money Market | positive | +6.3 | 5.4 |
Have a happy and hopefully prosperous New Year!
Note: Our Newsletter is a free service. However, in order to continue publishing, we need to have a minimum level of readership. If you value this service, you might want to let others know of its availability. As a further service, we will be glad to answer any questions you have on mutual funds investing. Just send your questions/input to tom@funds-newsletter.com
Tom Madell, PhD