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The No-Load Fund Investor The No-Load Fund Investor

Highlights of the Current Issue
of The No-Load Fund Investor

From The No-Load Fund Investor, 4/17...

Growth Returns

Though the S&P 500 was essentially unchanged in March, ‘growth’ stocks tended toward gains while ‘value’ stocks went the other way. In fact, on average the funds and ETFs of the growth style in our coverage gained 0.9%, while those of the value style fell 0.4%. For the entire first quarter, growth gained an average of 7.3%, vs. 3.5% for value. Within growth, the best performers so far this year have been of the fast-growing ‘blue chip’ variety, representing a reversal from 2016, when such funds and ETFs struggled to manage any gains at all.

International equity funds and ETFs dominate the list of top performers for March. Though we continue to much prefer the U.S. market for the long term, foreign equities will outperform on a short-term basis from time to time, especially on rebounds from poor performance.

Best Buys Commentary. Partly because they include international and global equity recommendations, the vast majority of our Best Buys model portfolios beat the S&P 500 in March. With the exception of our speculative Master Aggressive model (up 7.1% in the first quarter), the best year-to-date performance has been turned in by our equity-heavy Price models, which have benefited from a stronger slant toward the growth style than is present in our other models.

It appears that Janus Enterprise T (JAENX) is no longer available at Schwab and Fidelity Brokerage. Though we are marking the fund as ‘closed to new investors’ in the Best Buys models in which it appears, we are not removing it at this time. Because few similar actively managed funds exist, investors at Schwab and Fidelity Brokerage who need an alternative to Janus Enterprise should consider a low-expense mid-cap core ETF, such as SPDR S&P MidCap 400 (MDY) or Vanguard Mid-Cap (VO).

To learn about other Best Buys activity, see the April issue of The No-Load Fund Investor.

Rate-Hedged Bond ETFs

Various ETF providers offer bond ETFs that hedge away interest rate risk, leaving credit risk as essentially the only major concern about which their investors need to worry. In a period likely including fiscal stimulus from Washington, decent economic growth and slightly rising inflation, interest rates are likely to rise while credit risk declines for many companies—a perfect environment for interest-rate hedged bond ETFs. Therefore, these investments are worthy of consideration at this time.

Here’s basically how they work: the managers of the ETF devote its assets to various parts of the bond market (usually U.S. investment-grade or high-yield corporate bonds) and then hedge the portfolio’s interest rate risk away by selling enough Treasury futures to bring the duration of the entire ETF down to zero. Investors are left with the interest from the bond portfolio, minus the cost of hedging, with virtually no risk of significant decline in net asset value if interest rates rise.

On the flip side, investors lose out on any gains that would accrue if interest rates fall; meanwhile, if interest rates fluctuate in a narrow range, investors may lose a little as compared to an unhedged portfolio because of the expense of the Treasury futures and slightly higher management fees.

iShares is a leader among ETF providers with rate-hedged bond portfolios, offering four, each of which invests in an existing iShares ETF and then hedges away its rate risk. In our April issue, we provide total return and other data for the iShares rate-hedged ETFs, along with comparable data for their conventional siblings.


Model Portfolios

Sample Model Portfolio from the Current Issue
of The No-Load Fund Investor

Wealth Builder Portfolio

Fund

Obj.

Beta

% Weighting

Price QM Small Cap Gr Eq agg gr 1.06 10%
RiverPark Large Growth growth 1.10 5%
Price Blue Chip Growth growth 1.02 5%
Vangd Total Stock Market Idx growth 0.99 15%
Amer Century MidCap Val growth 0.87 10%
Artisan Global Opps global 0.97 10%
Causeway Int'l Value int'l 0.86 5%
Grandeur Peak Glbl Stalwarts global 0.87* 5%
Vangd U.S. Value gr-inc 0.96 10%
Vangd Equity Income gr-inc 0.89 10%
Fidelity New Markets Inc. bond 0.36 5%
Vanguard Prime Money Market money mkt 0.00 10%
* = Estimated
N = New this month
H = Hold
W = increased portfolio weighting
D = Deletion this month
Average portfolio beta: 0.83
Average expense ratio: 0.65%
Since January 1, 1988, $10,000 has grown to $177,043


Best Buy Portfolios

 

Wealth Builder

Pre-Retirement

Retirement

Income & Preservation

Cash 10% 15% 20% 20%
Bonds 5% 15% 30% 60%
U.S. Equities 70% 60% 45% 15%
Int'l Equities 15% 10% 5% 5%
Portfolio returns since 1/1/88 through most recent month ($10,000 original investment) $177,043 $157,977 $114,316 $16,094
since 2/1/09
Average portfolio Beta 0.83 0.69 0.48 0.22
Average expense ratio 0.65 0.63 0.50 0.60

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