Friday, August 03, 2007

May 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio performed very well during May, generating its largest dollar increase since January 2006 and the largest return, on a percentage basis, since October 2006, matching the 3.47% return achieved during April 2007. As of the market close on May 31, 2007, the Hypothetical Model Portfolio* closed up by $5,299.73 during May. The Hypothetical Model Portfolio is now up $12,674 in 2007, a gain of 8.71%, as shown on the table below (click for a larger image of the table).

All of my holdings were up except for the Templeton Russia closed-end fund (TRF), which had its fifth consecutive monthly drop in value due primarily to its ongoing premium compression, as I have discussed previously. The other nine holdings in the Model Portfolio all rose, led by the 4.93% return of the iShares Emerging Markets ETF (EEM) , the 4.41% return of the Vanguard Small Cap Index mutual fund (NAESX), and the 4.34% return of the Vanguard Midcap Index mutual fund (VIMSX). Financials lagged slightly during May, with iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rising only 1.97% and the SPDR Financial components ETF (XLF) rising 2.40%.

Through the end of May, the Model Portfolio is up 8.71%, slightly trailing the 8.74% return of the Vanguard Index 500 mutual fund (VFINX). Four of the holdings are up over 11% so far this year. VIMSX is the biggest winner so far, having risen 13.12% in 2007, EEM has risen 11.06%, the Vanguard Developed Markets Index mutual fund (VDMIX) has risen 11.03%, and NAESX has risen 11.02%. The only negative performer so far has been the 2006 portfolio leader, TRF, which is now down a huge 21.25% in 2007.

None of the holdings paid dividends during May. However, QQQQ paid a dividend during April (on April 30, 2007) that I inadvertantly neglected to mention during my summary of the April results. The QQQQ dividend was $0.027/share, a total of $5.67. This dividend is listed in the chart below and was added to the CASH position. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested, but the dividends from ETFs or 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.

As of May 31, 2007, the premium on TRF is still a relatively low 6.18%, down from the typical double digit premium of the past few years. I still suspect that TRF's premium compression is pretty much over and expect TRF to start outperforming other holdings in the Hypothetical Model Portfolio just like it did during the last few months of 2006.

*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.

April 2007 Returns

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