My Hypothetical Model Portfolio registered a negative return during June 2007. As of the market close on June 29, 2006, the Hypothetical Model Portfolio was down $1682.12, or about 1.06% during June. However, due to strong results earlier in the year, the Hypothetical Model Portfolio is still up about $10,992 in 2007, a gain of 7.56%, as shown on the table below (click for a larger image of the table). The Model Portfolio is still outperforming the 6.91% return of the benchmark Vanguard S&P 500 Index fund (VFINX).
Foreign holdings were the best performers, led by the 3.82% increase in the iShares Emerging Markets ETF (EEM) and the 2.96% gain in the Templeton Russia closed-end fund (TRF). June was the first month since December 2006 during which TRF has posted a gain. Perhaps the premium compression of TRF is finally over.
Financials were the worst portfolio performers during June, with the SPDR Financial components ETF (XLF) dropping 4.00% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) dropping 3.99%. Financials performed poorly due to the overhang from problems in the subprime lending market. Another poor performer during June was the Vanguard Small Cap Value Index (VISVX), which dropped 2.51%. VISVX has a fairly large exposure to financial stocks and is now paying the price for it.
Three of the holdings in my Hypothetical Model Portfolio paid dividends in June. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested, but the dividends from ETFs or a closed end fund (i.e., the Templeton Russia closed-end fund (TRF)) are not reinvested- they will accumulate as "CASH" on the performance table below until at least $100 has accrued, at which point that money will be reinvested in one of the mutual fund holdings. The reason I am doing this is because the index mutual funds in this portfolio do not charge a transaction fee for reinvesting dividends. To reinvent dividends for any of the ETFs or TRF, on the other hand, would cause me to incur transaction fees for the trading commissions.
The Vanguard Index 500 mutual fund (VFINX) paid a dividend of $0.57/share (a total of $139.82), which was reinvested on June 22nd to purchase an additional 1.011 shares at a price of $138.82/share. TRF paid a long-term capital gain of $3.9272 on June 19th (a total of $251.34), which was moved to "CASH" on the table shown below. Finally, the S&P 500 Financial components ETF (XLF) paid a dividend of $0.204 on June 27th (a total of $19.98), which was moved to CASH.
As of June 29, 2007, there was a total of $347.45 in CASH. Because this amount was greater than $100, I reinvested this money in the Vanguard mutual fund holdings that lagged my target allocation by the largest amount. In this case, VISVX and VFINX were the only two Vanguard mutual fund holdings of which less than the target allocation amounts were held as of June 29th. Accordingly, on the 29th, $200 from CASH was re-invested in VISVX to purcash 11.179 shares at $17.89/share, and $147.45 was re-invested in VFINX to purchase 1.065 shares at $138.43/share. I put more into VISVX than into VFINX because VISVX trailed its target allocation by a larger amount than VFINX. These re-investments are indicated on the June chart below.
*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.
May 2007 Returns