Midcaps led the way during January, with the Vanguard Mid Cap Index Fund (VIMSX) rising about 3.65%. It would be nice if midcaps have a strong year in 2007, as they trailed the S&P 500 by about two percentage points during 2006. The next strongest performers in the portfolio were small caps and tech stocks. The Vanguard Small Cap Index (NAESX) rose about 2.40%, the Vanguard Small Cap Value Index (VISVX) rose about 2.01%, and the Nasdaq 100 ETF (QQQQ) rose about 2.11%.
The weakest returns were turned in by the Templeton Russia closed-end fund (TRF) and the iShares Emerging Markets ETF (EEM). TRF plummeted about 15.12% and EEM rose a paltry 0.11%. The Russia stock market was steady during January and the value of the Russian and Eastern European stocks held by TRF was also steady. However, as I have discussed previously, closed-end funds typically trade at a variable premium or discount to their underlying Net Asset Value ("NAV"). According to ETF Connect, TRF traded at a 38.07% premium to its NAV at the end of December 2006 and at a 17.63% premium on January 31, 2007. TRF has traded at an average premium of around 10-15% since its inception in 1995 so TRF's premium compression is probably about over for now. If Russian and Eastern European stocks perform well this year TRF should provide another solid year of returns.
TRF paid a distribution of $566.33 on January 16, 2007. This distribution was declared at the end of December 2006 and I listed this as a "pending distribution" in the portfolio chart for December. As I mentioned in my earlier post regarding my 2007 portfolio rebalancing, this distribution was reinvested in the Vanguard mutual funds in the portfolio because these funds do not charge a transaction fee. On January 17, 2007, the following purchases were made with this distribution:
- Vanguard Index 500 mutual fund (symbol: VFINX): 1.262 shares at $131.81/share, a total investment of $166.33
- Vanguard Midcap Index mutual fund (symbol: VIMSX): 4.970 shares at $20.12/share, a total investment of $100.00
- Vanguard Developed Markets Index mutual fund (symbol: VDMIX): 7.930 shares at $12.61/share, a total investment of $100.00
- Vanguard Small Cap Index mutual fund (symbol: NAESX): 3.045 shares at $32.84/share, a total investment of $100.00
- Vanguard Small Cap Value Index mutual fund (symbol: VISVX): 5.862 shares at $17.06/share, a total investment of $100.00
*The Hypothetical Model Portfolio was created with an investment of $100,000 in securities as of the closing values on December 30, 2005 and an additional $25,000 was invested n securities as of the closing values on December 29, 2006. The reason why the total cost in the chart is greater than $125,000 is because the total cost accounts for the value of distributions reinvested into the mutual funds in the portfolio.
December 2006 Returns