February 2007 Returns For My Model Long-Term Portfolio

February was a very volatile month for my Hypothetical Model Portfolio. The portfolio was performing very well until February 27th when the market corrected with the Dow dropping about 3.3% (416 points), the S&P 500 index dropping about 3.5%, and the NASDAQ composite dropping about 3.9%.

As of the market close on February 28, 2007, the Hypothetical Model Portfolio* decreased in value by $1684.95, or about 1.14% during the month of February. However, despite February's lousy returns, the Hypothetical Model Portfolio is still up about $84.57 in 2007, a gain of 0.06%, as shown on the table below (click for a larger image of the table).

Only two of the holdings failed to decrease in value - the Vanguard Developed Markets Index mutual fund (VDMIX) and the Vanguard Mid Cap Index (VIMSX). VDMIX rose about 0.31% and VIMSX closed the month at the same price at which it ended in January. VIMSX has performed surprisingly well so far this year and is up about 3.65% through the end of February.

Emerging markets were the worst performers, with the Templeton Russia closed-end fund (TRF) decreasing by about 4.40% and the iShares Emerging Markets ETF (EEM) dropping about 3.98%. The only other holding to drop more than 3% was S&P 500 Financial components ETF (XLF), which fell about 3.05%. TRF has now dropped about 18.85% during the first two months of 2007. The primary reason for TRF's poor performance is compression of its closed-end Net Asset Value premium, as I have previously discussed.

It seems as though 2007 is going to be a volatile year. However, stock market valuations, especially those of U.S. markets, are still right around historical averages. Consequently, I don't see a huge sustained market drop happening anytime soon. I still anticipate my Hypothetical Model Portfolio performing well in 2007 and note that despite the February market turbulence, the Hypothetical Model Portfolio is outperforming the S&P 500 Index by about 0.57%.


*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.

January 2007 Returns

The NAV Premium For The Templeton Russia Fund (TRF) Has Plummeted in 2007

The Templeton Russia and Eastern Europe closed-end fund (symbol: TRF) has plummeted since the start of 2007. This has happened despite the fact that the Russia stock market has been strong so far this year. As of February 28, 2007, TRF is down 18.85%, dropping from $87.30 to $70.84 since the start of 2007. The Net Asset Value ("NAV") of TRF, on the other hand, has risen 2.96%, from $63.23 to $65.08. A chart of the TRF share price and its NAV is shown below (FYI, I copied this chart from ETF Connect).

As I have discussed previously, closed end funds almost always trade at a discount or premium to their NAVs. The vast majority of closed end funds trade at a discount to their NAVs. TRF is one of the rare ones that typically trades at a premium. Between the start of 2007 and February 28, 2007, TRF's premium dropped from 38.07% to 8.85%, a drop of nearly 30%, as shown below.
I suspect that most of the compression in TRF's share price is over. TRF has typically traded at a premium of around 10-15% over the past few years and I see no reason as to why this trend will be broken now.