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

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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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