February 2015 AAII MODEL PORTFOLIOS UPDATED: Love Is in the Air, But No Valentine for Stocks

Posted on February 13, 2015 | Model Portfolios

We may be approaching the season of love, but all is not a bed of roses in the stock market. The S&P 500 index’s total return was -3.0% in January. However, large-cap stocks were not alone in struggling through January: Cupid’s arrow also failed to strike small-cap stocks, as the S&P SmallCap 600 index’s total return was -3.5% in January.

The Model Fund Portfolio saw a decline in January, losing 2.4%, while the Model Shadow Stock Portfolio, which invests in micro-cap value stocks, lost 4.4% last month.

The Model Shadow Stock Portfolio’s 4.4% decline for the month trailed one of its comparison benchmarks and beat the other: The Vanguard Small Cap Index (NAESX) lost 2.2% and the DFA US Micro Cap Index fund (DFSCX) lost 4.9% in January. As we have just completed the first month of 2015, year-to-date returns are the same as one-month returns. Since its inception in 1993, the Model Shadow Stock Portfolio has a compound annual return of 16.5%, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.4% annually over the same period.

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January 2015 AAII MODEL PORTFOLIOS UPDATED: Small Is the New Black

Posted on January 15, 2015 | Model Portfolios

The S&P 500 index lost 0.4% in December, as large caps ended an up-and-down month on a negative note. Apparently large-cap stocks were on Santa’s naughty list last month, as small-cap stocks seemed to be favored instead. The S&P SmallCap 600 index gained 2.9% in December. Last month two new stocks were added to the Model Shadow Stock Portfolio—Global Power Equipment Group (GLPW) and L.S. Starrett Co. (SCX), which James Cloonan discusses in the January AAII Journal.

The Model Fund Portfolio saw a very modest gain in December, rising 0.2%, while the Model Shadow Stock Portfolio, which specifically invests in small-company stocks, rose 4.3% last month.

The Model Shadow Stock Portfolio’s 4.3% increase for the month beat its comparison benchmarks: The Vanguard Small Cap Index (NAESX) gained 1.3%, and the DFA US Micro Cap Index fund (DFSCX) rose 3.4%. Last year, the Model Shadow Stock Portfolio declined 5.8%, trailing the Vanguard Small Cap Index fund (up 7.4%) and the DFA US Micro Cap Index fund (up 2.9%). The Model Shadow Stock Portfolio has a compound annual return of 16.9% since its inception in 1993, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.4% annually over the same period.

The Model Fund Portfolio’s 0.2% gain in December compares to virtually no change for the Vanguard Total Stock Market Index fund. Last year, the Model Fund Portfolio gained 9.9%, while the Vanguard Total Stock Market Index fund rose 12.4%. The Model Fund Portfolio has a compound annual return of 9.4% since inception in June of 2003, slightly underperforming the Vanguard Total Stock Market Index fund over the same time period, which returned 9.5%.

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December 2014 AAII MODEL PORTFOLIOS UPDATED: Large Cap Gains Leave Small Caps Lagging

Posted on December 15, 2014 | Model Portfolios

The S&P index climbed 2.5% in November. Energy prices and strengthening economic data in the US continued to be the themes for the market. With gasoline $3 a gallon (and under) now a reality for consumers, analysts expect that that money will return to the market in the form of consumer spending This would be a welcome change, given the rather poor Black Friday retail sales numbers that came out. Additionally, a weakening China also cast a pall over the market as its economy struggled with a bursting housing bubble and slowing demand across the globe for everything except iPhones. The Model Fund Portfolio climbed 1.3% during November, while the Model Shadow Stock Portfolio, which specifically invests in small-company stocks, fell 2.4%.

The Model Shadow Stock Portfolio’s 2.4% decline for the month trailed its comparison benchmarks: The Vanguard Small Cap Index (NAESX) was up 1.0% and the DFA US Micro Cap Index fund (DFSCX) was down 0.7%. Year-to-date, the Model Shadow Stock Portfolio has declined 9.6%, trailing the Vanguard Small Cap Index fund (up 6.0%) and the DFA US Micro Cap Index fund (down 0.4%). The Model Shadow Stock Portfolio has a compound annual return of 16.8% since its inception in 1993, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.4% annually over the same period.

The Model Fund Portfolio’s 1.3% gain in November compares to a gain of 2.4% for the Vanguard Total Stock Market Index fund. Year-to-date, the Model Fund Portfolio is up 9.7%, while the Vanguard Total Stock Market Index fund is up 12.4%. The Model Fund Portfolio has a compound annual return of 9.4% since inception in June of 2003 beating the performance of the Vanguard Total Stock Market Index fund over the same time period, which returned only 9.6%.

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November 2014 AAII MODEL PORTFOLIOS UPDATED: Small Caps Lead the Way

Posted on November 14, 2014 | Model Portfolios

The S&P 500 index climbed 2.3% in October, although it was far from a smooth ride. There was a sell-off in the early-to-mid part of the month, but the markets rebounded strongly from those lows. This could indicate strong buyer interest sitting on the sidelines waiting for an opportunity to buy in, which would be bullish, but the signs are far from clear. Instability across the globe continues to be an issue. We have seen defaults that are not defaults in Argentina and a shortage of, well, everything in Venezuela. Despite all this uncertainty, or perhaps because of it, the oil glut pushed prices down even more, and $3 per gallon gas was a welcome surprise for many Americans. While all stock styles performed well last month, small caps outpaced large-cap stocks. Whether this signifies a return of the small caps is unclear. The Model Fund Portfolio climbed 3.0%, while the Model Shadow Stock Portfolio, which is heavily concentrated in small-cap stocks, rose 3.2% during October.

The Model Shadow Stock Portfolio’s 3.2% gain for the month trailed its comparison benchmarks: The Vanguard Small Cap Index (NAESX) was up 4.5%, and the DFA US Micro Cap Index fund (DFSCX) was up 6.5%. Year-to-date, the Model Shadow Stock Portfolio has declined 7.4%, also trailing the Vanguard Small Cap Index fund (up 5.0%) and the DFA US Micro Cap Index fund (up 0.3%). The Model Shadow Stock Portfolio has a compound annual return of 17.1% since its inception in 1993, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.4% annually over the same period.

The Model Fund Portfolio’s 3.0% gain in October compares to a gain of 2.7% for the Vanguard Total Stock Market Index fund. Year-to-date, the Model Fund Portfolio is up 8.3%, while the Vanguard Total Stock Market Index fund is up 9.8%. The Model Fund Portfolio has a compound annual return of 9.4% since inception in June of 2003, matching the performance of the Vanguard Total Stock Market Index fund over the same time period.

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October 2014 AAII MODEL PORTFOLIOS UPDATED: MODEL FUND PORTFOLIO SPECIAL ALERT

Posted on October 23, 2014 | Model Portfolios

There are two changes to the Model Fund Portfolio. As of October 1, 2014, we removed FMI Common Stock (FMIMX) from the Model Fund Portfolio. Underperformance compared to its high fees was the primary driver to sell, along with the risk associated with the fund operating as a closed fund.

We are replacing FMIMX with First Trust US IPO (FPX). First Trust US IPO is an exchange-traded fund that tracks an index of larger U.S. initial public offerings. It modifies the capital weighting so that very large capitalized companies do not dominate.

If you are following the Model Fund Portfolio, then all existing holdings, including the new holding, should be equally weighted (nine if you own the closed fund CHTTX, or eight if you don’t). You can accomplish this easily by selling FMI Common Stock fund and putting the proceeds into the First Trust US IPO fund.

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October 2014 AAII MODEL PORTFOLIOS UPDATED: This Way and That Way

Posted on October 15, 2014 | Model Portfolios

The S&P 500 index climbed 4.0% in August, pushing past any resistance to trade at new all-time highs. Eventually, the bears will be right and there will be a pullback, but it hasn’t happened yet. While global worries ranging from war in Ukraine, Syria and Iraq to a possible European Union recession continued to dominate headlines last month, these concerns didn’t slow down the indexes like they did in July. Data continued to point to a slowly strengthening economy, and with Fed chair Janet Yellen insisting that the Federal Reserve is in no rush to raise interest rates, the market’s climb had little to oppose it. Earnings were overall better than expected and supported the story of a strengthening economy. The positive momentum carried over to both the Model Shadow Stock Portfolio and the Model Fund Portfolio, although only the Model Shadow Stock Portfolio beat its benchmark in August. The Model Fund Portfolio was up 3.6% for the month, while the Model Shadow Stock Portfolio, which concentrates on small-cap stocks, rose 6.4%. The Model Shadow Stock Portfolio can experience greater short-term volatilities because it is made up of stocks trading in the “shadows” of Wall Street, and are therefore more likely to be mispriced. While there may be negative periods in such a portfolio, over time the portfolio tends to significantly outperform the S&P 500. Short-term volatility is the price to be paid for higher long-term expected returns. While in July this worked against the Model Shadow Stock Portfolio, in August it turned in the portfolio’s favor.

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September 2014 AAII MODEL PORTFOLIOS UPDATED – Race to the Top

Posted on September 15, 2014 | Model Portfolios

The S&P 500 index climbed 4.0% in August, pushing past any resistance to trade at new all-time highs. Eventually, the bears will be right and there will be a pullback, but it hasn’t happened yet. While global worries ranging from war in Ukraine, Syria and Iraq to a possible European Union recession continued to dominate headlines last month, these concerns didn’t slow down the indexes like they did in July. Data continued to point to a slowly strengthening economy, and with Fed chair Janet Yellen insisting that the Federal Reserve is in no rush to raise interest rates, the market’s climb had little to oppose it. Earnings were overall better than expected and supported the story of a strengthening economy. The positive momentum carried over to both the Model Shadow Stock Portfolio and the Model Fund Portfolio, although only the Model Shadow Stock Portfolio beat its benchmark in August. The Model Fund Portfolio was up 3.6% for the month, while the Model Shadow Stock Portfolio, which concentrates on small-cap stocks, rose 6.4%. The Model Shadow Stock Portfolio can experience greater short-term volatilities because it is made up of stocks trading in the “shadows” of Wall Street, and are therefore more likely to be mispriced. While there may be negative periods in such a portfolio, over time the portfolio tends to significantly outperform the S&P 500. Short-term volatility is the price to be paid for higher long-term expected returns. While in July this worked against the Model Shadow Stock Portfolio, in August it turned in the portfolio’s favor.

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August 2014 AAII MODEL PORTFOLIOS UPDATED – Signs of a Pullback

Posted on August 15, 2014 | Model Portfolios

The S&P 500 index declined 1.5% in July, putting a smile on the face of many a bear who have been wrong for so long. Still, the decline is too small to even qualify as a pullback. Global worries ranging from war in the Ukraine, Syria and Iraq to a possible recession in the European Union dominated headlines last month and weighed on the indexes. Even a solid jobs report in the U.S. could not push the markets higher in July. This resulted in a “risk off” month that impacted the model portfolios, but to different degrees. Still, despite all the negative headlines and the rotation out of small cap stocks, both the Shadow Stock Portfolio and the Model Fund Portfolio beat their benchmarks in July. The Model Fund Portfolio declined only slightly for the month, while the Model Shadow Stock Portfolio, which concentrates on small-cap stocks, dropped significantly. The Model Shadow Stock Portfolio can experience greater short-term volatilities because the portfolio is made up of stocks trading in the “shadows” of Wall Street and more likely to be mispriced. While there may be periodic negative periods in such a portfolio, over time the portfolio tends to significantly outperform the S&P 500. Short-term volatility is the price to be paid for higher long-term expected returns.

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Model Fund Portfolio: Adjust Risk Based on Personal Factors

Posted on August 5, 2014 | Model Portfolios

Performance figures for the Conservative Portfolio are being dropped because the proper risk exposure is unique to each investor.

The Model Fund Portfolio is up 7.5% and the All-ETF Portfolio is up 7.7% year-to-date. This compares to 7.0% for the S&P 500 index as represented by the Vanguard S&P Index fund (VFINX).

Results for the Model Fund Portfolio over longer periods can be viewed in Figure 1 and Tables 1 and 2. Performance for the All-ETF Portfolio is shown in Table 3. The Vanguard REIT Index (VNQ) exchange-traded fund continues to lead the pack and is making up for the weak period a year ago. The iShares MSCI Frontier 100 (FM) exchange-traded fund, up 9.9% year-to-date, is still outperforming the Vanguard Emerging Markets Stock Index (VWO) exchange-traded fund, which is up 7.1% year-to-date.
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JULY 2014 AAII MODEL PORTFOLIOS UPDATED – An Exhausted Bull Reaches New Highs

Posted on July 15, 2014 | Model Portfolios

On June 24, the S&P 500 index touched a new high of 1968.17. While many bears have been patiently waiting for what they feel is a long-overdue correction, the market pushed into record territory during a bumpy June. Fuel for the upward move was provided by the Federal Reserve, which recently reaffirmed its focus on jobs over financial stability, as well as by improving jobs and consumer confidence data. This move higher lifted all boats, but the Model Shadow Stock Portfolio especially benefited as it invests in more volatile micro- and small-cap stocks. The Model Fund Portfolio trailed the Model Shadow Stock Portfolio as it holds less risky assets, but it still performed well for the month.

The Model Shadow Stock Portfolio gained 7.4% in June, outperforming the Vanguard Small Cap Index fund (NAESX), which gained 5.0%, and the DFA US Micro Cap Index fund (DFSCX), which gained 4.3%. For the year, the Model Shadow Stock Portfolio is now down 0.7%, trailing NAESX, which is up 6.4%, and DFSCX, which is up 1.5%. The Model Shadow Stock Portfolio has a compound annual return of 17.8% from its inception in 1993, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.4% annually over the same period.

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