Funds Recommended Here Do Well During the Last 6 Months

Let's look at how our overall strategy of emphasizing certain fund categories, regardless of the picture for the overall market has done during the last 6 months. These strategies have been emphasized on this Web site and in weekly columns that I publish at talking-points.com and several other sites. (Note: Weekly columns are currently suspended.)

• In a 7/28/02 article, I discussed 3 categories of bond funds I felt held above average potential:

  • International Bonds. My pick, American Century International Bond, is up an outstanding +13.55% since then. By contrast, a typical intermediate bond fund, such as Vanguard Total Bond Market Index is up +4.83%.

  • Inflation Protected Bonds. My choice, Vanguard Inflation Protected Securities, has gained +7.42% since then.

  • Corporate Bonds. Here I gave two choices, Vanguard Short Term Corporate, up +3.74%, and Vanguard High Yield Corporate, up +8.78%.

    Note: Results shown are thru 1/24/2003; Vanguard bond fund results are actually higher than shown since they only include dividends thru 12/31/02, and not for January.

  • In that same article, I was relatively enthusiastic about emerging markets stock funds for the intermediate to long term, recommending the Vanguard Emerging Markets Index Fund. Based on that day's NAV, this fund is up modestly +2.21%. (However, if you had your international investments a regional index of European stocks instead, such as the Vanguard European Index, your return would have been negative: -3.09%.)

• In an article on 8/9/02, I stated that "bond funds will continue to perform considerably better than cash, so long as interest rates remain on hold or even fall somewhat, in coming months." Since this is exactly what has happened, one of the main bond funds I have continuously recommended, PIMCO Total Return, has continued to do well. Since the date of that article, this fund has returned +5.15%. Cash, on the other hand, has returned roughly +0.5% over the same period, or an annual rate of about 1.0%.

  Incidentally, in spite of the good returns available from bonds, many disgruntled investors are still parking their non-stock money in cash saying either they don't "ever invest in bonds" or that they don't "understand" them. Obviously, over the last decade or more when bonds have generally done quite well as a result of the secular decline in interest rates, this has been a serious mistake. Bond funds typically do particularly well in a lackluster economy and there has been no exception to that during the last 6 months.

• In a weekly article appearing on Sept. 22, 2002, I did not particularly recommend so-called "bear market" funds such as Hussman Strategic Growth except for "very aggressive investors or for a relatively small part of your overall portfolio." Based on that day's NAV, this fund has actually declined -1.59%. My suggested alternative for investing within a bear market, on the other hand, Vanguard Long Term Treasury, is up slightly: +0.84%.

• Finally, in my Oct. 4, 2002 newsletter on this site, I recommended several specialized categories of funds: T. Rowe Price New Asia and Vanguard Energy. This Asia region fund (which excludes Japan) is up +7.75% since then; the energy fund, part of the natural resources category, is up +4.57.%.

These kind of results help to support my belief that good returns such as these can nearly always be found by looking in areas sometimes neglected by other fund investors and regardless of the fact that we may still be in the worst bear market for most investors in 30 years.

Incidentally, most of my picks are intended to remain valid for at least a year or more after I initially make them. I suggest therefore that you continue to keep your eye on the above categories of funds for the foreseeable future. In the meantime, I will continue to be looking for and reporting on new categories that may also be set to outperform going forward.

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