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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, 7/17...

A Financial Rebound

The broad U.S. stock market produced a modest gain in June, with the S&P 500 up 0.6%. However, as compared with performance in the first five months of 2017, some recently lagging areas of the equity market did better, while many of the leaders did worse.

For example, on average the ‘value’ equity funds and ETFs in our coverage gained 1.4% in June, vs. an average of 0.8%for the ‘growth’ investments, even while still trailing growth by more than seven percentage points for the entire first half of the year. The small-cap Russell 2000 Index gained 3.4%, beating the larger-cap S&P 500 by nearly three percentage points, even though it still trails the latter index by almost 4.5 percentage points so far this year (4.8%, vs. 9.2%).

In terms of sectors, information technology took a breather after its torrid run since January, with the average such fund and ETF in our coverage declining 1.4%. Meanwhile, bank stocks, spurred by good results in the ‘Stress Tests’ of the Federal Reserve Board, rallied strongly on renewed potential for dividends and share buybacks, with the average sector fund and ETF for this area up 5.6% in June, after having been down a percentage point or two through May this year.

On the other hand, the energy sector continues its downward slog, with mild to moderate losses adding to significant losses through the first five months of the year. We talk about energy and its effect on the stock and especially bond markets in our July issue.

Appetite for Mid-Cap Growth

While returning to my (editor Mark Salzinger’s) car in mid-June after shopping at a Whole Foods near my home in Indianapolis with my 10-year-old son, I was approached by a television news crew, led by a pleasant reporter. She asked if I’d be willing to answer a few questions. Not wanting to disappoint her (or my obviously intrigued pre-teen), I said sure. She proceeded to ask me my opinion on the company’s pending merger withAmazon; especially what I thought would happen to the prices of the groceries (lower), quality (stay the same) and service (in-person and via drone) at Whole Foods, and how the merger would impact its many competitors in the grocery business (badly). Upon seeing the broadcast clip, once I got past the fact that the television apparently adds 15 pounds to one’s frame and 10 years to one’s appearance, yet subtracts thousands of hairs from one’s head, I thought I acquitted myself well. At least, my wife and kids told me I did, and if I can get their approval, that’s good enough for me.

Though I didn’t share these next thoughts with the television viewing audience, two seemingly contradictory insights concerning the merger have been paramount in my mind. On the one hand, we may be in an era in which the stronger companies continue to get stronger, while the weakest lag farther and farther behind. As Amazon has grown so fast by expanding its older businesses while starting and nourishing new ones, its stock has become so valuable that it can easily purchase other companies to further extend its dominance in retail and even some other areas of the economy. If you are a broad-based retailer not named Amazon, your future seems murky, at best. If you are a grocer not named Whole Foods (and perhaps a couple of others), your outlook seems bleak.

Of course, this has ramifications for investing. If I were primarily a picker of individual stocks, I would avoid the equities of department stores like Macy’s, Target, Kohl’s and Walmart, and grocers like Kroger andWalmart (again).

More broadly, this phenomenon impacts investment style: ‘growth’ versus ‘value.’ If the strong get stronger while the weak get weaker, growth stocks should outperform their value brethren, as it becomes increasingly difficult for any down-and-out companies to bounce back into stronger competitive positions.

Our evaluation of the mid-cap growth space and its best opportunities can be found in the July issue of The No-Load Fund Investor.


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 1.08 10%
RiverPark Large Growth growth 1.11 5%
Price Blue Chip Growth growth 1.03 5%
Vangd Total Stock Market Idx growth 1.00 15%
Amer Century MidCap Val growth 0.87 10%
Artisan Global Opps global 0.94 10%
Grandeur Peak Glbl Stalwarts global 0.87* 5%
Causeway Int'l Value int'l 0.80 5%
Vangd U.S. Value gr-inc 0.96 10%
Vangd Equity Income gr-inc 0.88 10%
Fidelity New Markets Inc. bond 0.34 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 $182,758


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) $181,389 $161,613 $116,240 $16,318
since 2/1/09
Average portfolio Beta 0.83 0.68 0.48 0.22
Average expense ratio 0.65 0.63 0.50 0.60

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