I began writing regular online columns exactly one year ago this week (although my monthly Mutual Funds Trends/Research Newsletter began about 4 years ago.) In many of my columns, I make specific recommendations which funds and fund categories appear most timely.
Although many financial writers may also make similar recommendations, it appears I am one of the few who also regularly go back to review my recommendations at a later date to see just how well they did.
Although online forecasts might conjure images of how to make a lot of money in a short period of time, my columns disavow that in favor of intermediate to long-term strategies.
Toward the end of July 2002, the S&P 500 Stock Index was nearing what turned out to be its current low for the 2000-2003 bear market. At the time, I was recommending a 60% allocation to stocks. In my 7/28/02 online column, I specifically recommended 4 stock funds. These funds, along with their Morningstar category and one year return as of 7/23/03, are shown below:
|
Fund/Symbol |
Morningstar Category |
1 Yr |
|---|---|---|
|
T. Rowe Price Mid-Cap Value (TRMCX) |
Mid-Cap Value |
27.05% |
|
T. Rowe Price Equity-Income (PRFDX) |
Large Value |
23.46 |
|
Fidelity Contrafund (FCNTX) |
Large Blend |
21.22 |
|
Vanguard Emerging Markets Index (VEIEX) |
Emerging Markets | 15.05 |
All but Contrafund have outperformed the majority of their peer category over the 1 yr. period.
What looks good now?
We would continue to stick with all of the above funds. While growth funds have performed better than we expected a year ago, we do not think the current run of outperformance by this category is worth the added risk, especially in light of the possibility that many investors have run up this category too far, riding a 4 month long wave of momentum, likely being overly optimistic that the economy will recover more assuredly than the economic data yet confirm.
Here are the specific bond funds we recommended exactly a year ago, along with their one year return as of 7/23/03:
|
Fund/Symbol |
Morningstar Category |
1 Yr |
|---|---|---|
|
American Century International Bond (BEGBX) |
World Bond |
19.42% |
|
Vanguard Inflation Protected Securities (VIPSX) |
Intermediate Government |
10.43 |
|
Vanguard Short Term Corporate (VFSTX) |
Short-Term Bond |
6.19 |
|
Vanguard High Yield Corporate (VWEHX) |
High Yield Bond | 15.73 |
All but Vanguard High Yield have outperformed the majority of their peer category over the 1 yr. period. (The typical taxable bond fund has returned about 7% over the same period.) Although contrary to our expectation of a year ago that shorter-term bonds would outperform long-term ones, our preference for the short end seems to be paying off now. Many long term bond funds have gone down approximately 10% in price in the last 6 weeks alone.
What looks good now? The high yield area continues to look particularly attractive since these, unlike most other bonds, can continue to do well if the economy improves. (Note: Vanguard High Yield is currently not accepting new investors.) Most other categories appear likely to underperform, although world bonds still appear to have a good chance of doing well.