Saturday, September 22, 2007

August 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio rebounded in August after registering negative returns in June and July. As of the market close on August 31, 2007, the Hypothetical Model Portfolio was up $1324, or about 0.88% during August. The Hypothetical Model Portfolio is now up about $6756 in 2007, a gain of 4.64%, as shown on the table below (click for a larger image of the table). The 2007 returns for the Hypothetical Model Portfolio now slightly trail the 5.14% return of the benchmark Vanguard S&P 500 Index fund (VFINX).

Tech stocks led the way in August, with the Nasdaq 100 ETF (QQQQ) rising 2.82%. QQQQ is now up an impressive 13.38% this year. I certainly never would have predicted at the beginning of the year that QQQQ would be one of the top performing U.S. stock market indices for the year.

Financials also performed very well in August, gaining back some of the ground they lost in June and July. The SPDR Financial components ETF (XLF) rose about 2.58% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rose about 2.05%.

Other broad U.S. stock market indices also registered decent returns. The Vanguard S&P 500 Index fund (VFINX) returned about 1.50%, the Vanguard Small Cap Value Index (VISVX) returned about 1.45%, and the Vanguard Small Cap Index mutual fund (NAESX) returned around 1.34%.

International stocks struggled during the month, with the Templeton Russia closed-end fund (TRF) dropping about 6.46% and the Vanguard Developed Markets Index mutual fund (VDMIX) dropping around 0.66%. TRF's return this year has been awful. As I have previously discussed, the primary reason for TRF's subpar returns has been due to premium compression of its closed-end shares due to the introduction of the first Russian stock market ETF. The Net Asset Value ("NAV") for TRF was actually up around 4% as of the end of August, but the shares were down more than 20% because the NAV premium fell from around 38% at the beginning of January 2007 down to about 0.67% as of the end of August.

The Model Portfolio's returns have been very volatile so far this year. Many pundits apparently think that the country is headed for recession. The FED will do everything in its power to prevent the U.S. economy from contracting and if the FED is successful, I expect the markets to soar much higher. On the other hand, if the FED is not successful, we will probably experience the first bear market since the awful contraction between 2000 and 2002.

*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.

July 2007 Returns

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