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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, 7/14...

Good for Investors

The U.S. stock market continued to perform well in June. However, unlike the year’s previous months, June proved to be a good one for small caps, which outperformed large-cap stocks by significant margins.

The Russell 2000 index of small-cap stocks gained 5.2% (vs. 1.9% for the large-cap S&P 500) and is now up 2.5% year-to-date. Meanwhile, the S&P is up 6.1% for the year before dividends, and about 7.0% including them. Broad indexes of international stocks are lagging, however. Case in point: the MSCI EAFE Index gained 0.8% in June and is up only 3.0% year-to-date, before dividends.

On average, the diversified U.S. stock funds in our database gained a strong 3.1% in June and are up 5.3% for the year. The top performing groups for the year so far have been healthcare and natural resources/metals, funds of which dominated the list of top performers for the month.

Best Buys Changes/Commentary. We are making no changes in our broad Best Buys allocations this month. Also, given the differences in prospects and valuations among various types of stocks, we are comfortable with the equity mixes in the models. We also feel that we are generally well positioned in the fixed income markets, with relatively little exposure to conventional, taxable, long-term bonds and more to intermediate-term fare.

However, we are removing TCW Emerging Markets Local Currency (TGWNX) from our Best Buys models. Currency losses have caused the fund to stop paying dividends on a regular basis. Depending on the specific model, we are replacing the fund with either MatthewsAsia Strategic Income (MAINX) or Fidelity New Markets Income (FNMIX), both of which are profiled in our July issue. Please see The No-Load Fund Investor’s Best Buys models for the changes.

How to Lower Risk

As the stock market continues to move higher, it is reasonable to consider ways to lower your risk and protect your gains. Some investors may seek to do so through market timing, which is the most aggressive approach. This means attempting to sell when securities prices are high and likely to fall, and hoping to buy back in when they are low and likely to rise. It is not uncommon for “market timers” to invest virtually100% of their wealth in equities when they think stocks will rise, and to sell all their equities when they believe a bear market is in store.

Others prefer rebalancing, which is a more measured approach. This entails establishing a target asset allocation, and then, either at regular intervals or when the actual allocations deviate by significant percentages from the target, trimming their most appreciated assets and buying more of others in the portfolio to the extent that the original target weightings are reestablished. Still others maintain their positioning but augment their investment plan with hedges that are designed to go up in value when the market falls. The various alternatives available for this purpose include inverse mutual funds and exchange traded funds, as well as options and futures that increase in value as the stock market falls.

A more measured approach would be to maintain one’s equity weighting while reducing the risk of the specific holdings. For example, one could reduce holdings in aggressive growth or growth funds, while increasing exposures to growth-income, equity-income or even some sector funds that are likely to hold up better than most other stock funds during a difficult market environment.

If one could engage in market timing successfully over decades, it would clearly be the best strategy. Just imagine being able to miss the market’s most severe downturns! However, after several decades of interviewing and tracking many of the most prominent money managers, investment strategists and investment advisory publishers, your editor has yet to identify anyone utilizing a 100% in-or-out strategy that has helped investors either to become fabulously rich, or to significantly reduce risk while capturing something approximating the market’s long-term return.

You can read our full analysis of portfolio risk-mitigation techniques 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




% Weighting

Price Health Sciences sector 0.97 5%
Price Divsfd Small Cap Gr agg gr 1.31 10%
RiverPark Large Growth growth 1.10 5%
Vangd Total Stock Market Idx growth 1.07 15%
Amer Century MidCap Val growth 0.93 10%
Causeway Int'l Value int'l 1.35 5%
Dodge & Cox Global Stock - N global 1.29 5%
Artisan Global Sm CP global 1.23* 5%
Artisan Global Opps global 1.18 10%
Vangd U.S. Value gr-inc 1.09 10%
Vangd Equity Income gr-inc 0.85 10%
Fidelity New Markets Inc. - N bond 0.36 5%
Vanguard Prime Money Market money mkt 0.00 5%
TCW Emerg Mkts Local Curr - D bond
* = Estimated
N = New this month
H = Hold
W = Change in portfolio weighting
D = Deleted this month
Average portfolio beta: 1.01
Average expense ratio: 0.77%
Since January 1, 1988, $10,000 has grown to $148,698

Best Buy Portfolios


Wealth Builder



Income & Preservation

Cash 5% 10% 15% 20%
Bonds 5% 15% 30% 60%
U.S. Equities 75% 65% 50% 15%
Int'l Equities 15% 10% 5% 5%
Portfolio returns since 1/1/88 through most recent month ($10,000 original investment) $148,698 $133,423 $102,512 $15,056
since 2/1/09
Average portfolio Beta 1.01 0.85 0.60 0.28
Average expense ratio 0.77 0.73 0.61 0.61

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