I started my Finance and Investments blog on November 8, 2005. I have posted 118 times since then, including 41 times during the past year, discussing a number of topics primarily focusing on stock market investing (including tracking a model portfolio), basic coin collecting, and general personal finance issues. Here are some of my favorite posts from 11/2006 - 11/2007:
Best posts relating to Stock Market Investing:
(1) 1980 - 2006 Stock Market Returns for Various Indices
(2) The First BRIC ETF Was Launched In September
(3) How To Construct a BRIC-Tracking Portfolio
(4) Barclays Offers the Only Indian Stock Market ETF
(5) The First Russian Stock ETF Was Launched In April
(6) S&P 500 Dividends (Updated through January 2007)
(7) Historical Earnings and P/E Ratios for the S&P 500 Index
Best posts relating to Coin Collecting:
(1) How to Collect Pre-1982 Pennies and Nickels
(2) New Designs For The U.S. Penny Will Be Introduced In 2009 To Commemorate Lincoln's 200th Birthday
(3) The U.S. Mint Is Implementing A New Rule Abolishing the Melting of Pennies and Nickels
(4) The Melt Value of U.S. Nickel Coins Is Still Increasing
Best posts relating to Miscellaneous Personal Finance Issues:
(1) The Motley Fool Has Lost A Lot Of Credibility Over the Past Few Years
(2) The iShares Emerging Markets ETF Does a Poor Job of Tracking the MSCI Emerging Markets Index
(3) Emigrant Direct Has Onerous Money Transfer Rules
*** See also: Best posts from 11/2005 - 11/2006
Saturday, November 17, 2007
Friday, November 09, 2007
The Evolution of the Russian Stock Market From 1995-2005
Russia is one of my favorite emerging markets and its stock market has delivered incredible stock market returns over the past few years. In research the Russian stock market, I recently discovered an interesting paper analyzing the evolution of the Russian stock market, and its associated risk factors, during the period from 1995 and 2005.
Here is a hot link to a .pdf of the article: Risks of investing in the Russian stock market: Lessons of the first decade
This is the abstract for the paper:
Here is a hot link to a .pdf of the article: Risks of investing in the Russian stock market: Lessons of the first decade
This is the abstract for the paper:
The modern history of the Russian stock market has mirrored ups and downs of the country’s transition as well as swings in investor perceptions. In this paper, we describe the evolution of the Russian stock market over its first decade, with particular attention to the risk factors driving stock returns. First, we analyze the development of the institutional infrastructure and dynamics of the market’s size and liquidity measured by the number of listed and traded stocks, depositary receipts and IPOs as well as trading volume in the local stock exchanges and abroad. Then, we examine major political and economic events, which influenced the investor perceptions of the country risk and were reflected in stock prices. Finally, we carry out quantitative analysis of risk factors explaining considerable time and cross-sectional variation in Russian stock returns. We document a significant role of corporate governance, political risk, and macroeconomic risk factors, such as global equity markets performance, oil prices, and exchange rates, whose relative importance varied a lot over time.
Sunday, November 04, 2007
Fidelity Offers a Low Margin Rate for Wealthy Investors
Some investors attempt to enhance their portfolio returns by using financial leverage, such as options or margin borrowing. Margin borrowing is probably the more popular leverage-enhancing technique used by individual investors. By borrowing "on the margin," i.e., from one's brokerage firm to purchase shares of stock, the investor can achieve large returns in a short amount of time if shares of the stock held rise rapidly. Downside risk is also enhanced for the same reason.
Despite its relatively common use, margin borrowing is unsuitable for many small investors, primarily because the margin interest rates charged by brokerage firms tends to be very high. For example, the FED recently cut its overnight lending rate to banks to 4.50%. However, most brokerages are still charging margin interest rates exceeding 10%.
Fidelity, for example, currently charges a margin interest rate of 10.325% to anyone borrowing less than $10,000. Fidelity, however, provides a great incentive to wealthy investors who want to borrow on the margin. As of October 31, 2007, Fidelity only charges a margin interest rate of 5.25% to anyone borrowing $500k or more, as shown in the chart below:
If I had a large brokerage account, I would certainly consider borrowing from Fidelity to purchase shares of certain equities. For risk tolerant investors, 5.25% seems like a small price to pay for the potential returns possible from margin borrowing. If I were to borrow on the margin, I would probably use the borrowed money to purchase shares of an index-tracking ETF, such as the S&P MidCap 400 Index ETF (symbol: MDY) or the S&P 500 Index ETF (symbol: SPY), to minimize individual company-specific risk.
There may be additional tax benefits that further enhance the desirability of margin borrowing. Qualified dividends are currently taxed at a maximum rate of 15% per year. If one has enough deductions to itemize on one's federal tax returns, one can deduct margin interest against one's federal income taxes, giving the person an additional benefit. If the person is in the highest marginal tax bracket, that person will effectively be deducting the margin interest against income that would be taxed at a rate of 35% per year.
Despite its relatively common use, margin borrowing is unsuitable for many small investors, primarily because the margin interest rates charged by brokerage firms tends to be very high. For example, the FED recently cut its overnight lending rate to banks to 4.50%. However, most brokerages are still charging margin interest rates exceeding 10%.
Fidelity, for example, currently charges a margin interest rate of 10.325% to anyone borrowing less than $10,000. Fidelity, however, provides a great incentive to wealthy investors who want to borrow on the margin. As of October 31, 2007, Fidelity only charges a margin interest rate of 5.25% to anyone borrowing $500k or more, as shown in the chart below:
If I had a large brokerage account, I would certainly consider borrowing from Fidelity to purchase shares of certain equities. For risk tolerant investors, 5.25% seems like a small price to pay for the potential returns possible from margin borrowing. If I were to borrow on the margin, I would probably use the borrowed money to purchase shares of an index-tracking ETF, such as the S&P MidCap 400 Index ETF (symbol: MDY) or the S&P 500 Index ETF (symbol: SPY), to minimize individual company-specific risk.There may be additional tax benefits that further enhance the desirability of margin borrowing. Qualified dividends are currently taxed at a maximum rate of 15% per year. If one has enough deductions to itemize on one's federal tax returns, one can deduct margin interest against one's federal income taxes, giving the person an additional benefit. If the person is in the highest marginal tax bracket, that person will effectively be deducting the margin interest against income that would be taxed at a rate of 35% per year.
Saturday, November 03, 2007
October 2007 Returns For My Model Long-Term Portfolio
My Hypothetical Model Portfolio had its second strongest performance (on a % basis) of 2007 during October. Although the month was volatile, the Portfolio rallied on October 31st when the Federal Reserve cut its benchmark overnight interest rate by 25 basis points to 4.50%. The FED released a statement indicating that it now thinks the risks of recession and higher inflation are in "balance," a signal that the FED is less likely to make another cut down the road.
As of the market close on October 31, 2007, the Hypothetical Model Portfolio was up $5637, or about 3.56% during October. The Hypothetical Model Portfolio is now up about $18567 in 2007, a gain of 12.76%, as shown on the table below (click for a larger image of the table). Based on the strong October returns, the 2007 returns for the Hypothetical Model Portfolio are now ahead of the 10.83% return of the Vanguard S&P 500 Index fund (VFINX), my benchmark proxy for the S&P 500 index.
International stocks generally led the way again in October, most likely due to the FED's interest rate cut, which devalues the U.S. Dollar, and consequently increases the value of foreign-denominated assets such as international equities. The iShares Emerging Markets ETF (EEM) was my best performing holding, rising about 11.87%. The Templeton Russia closed-end fund (TRF) rose about 8.74%, and the Vanguard Developed Markets Index mutual fund (VDMIX) rose about 4.41%.
Tech stocks were also strong performers during October - the Nasdaq 100 ETF (QQQQ) rose an impressive 7.09%. Small caps also performed well, with the Vanguard Small Cap Index mutual fund (NAESX) rising 2.62% and Vanguard Small Cap Value Index (VISVX) returning about 1.34%.
Financials were laggards again - the SPDR Financial components ETF (XLF) dropped 0.97%, whereas the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rose a scant 0.93%.
The results of the holdings in the Hypothetical Model Portfolio have been very disparate through the first 10 months of 2007. EEM, QQQQ, and VDMIX are leading the way with phenomenal returns of 46.44%, 27.71%, and 18.62%. Four of the holdings, on the other hand, have had abysmal returns - TRF, XLF, DVY, and VISVX have returns -9.92%, -6.54%, 0.49%, and 1.03% respectively for the year. The winners have more than made up for the weak performance for the poor performers, and the portfolio is currently nearly a full two percentage points ahead of the 10.83% return of the Vanguard S&P 500 Index fund (VFINX), my benchmark proxy for the S&P 500 index, as discussed above.
Three of the holdings in my Hypothetical Model Portfolio paid dividends during October. As I mentioned in a previous post, I reinvest the dividends from mutual fund holdings when distributed. I allow dividends from closed end funds or the ETFs to accumulate in the "CASH" column until it reaches at least $100, at which point I invest the CASH in the mutual funds lagging my benchmark asset allocation by the largest amount at the time. The reason why I wait until $100 is accumulated is because that is the minimum amount required to invest in a Vanguard mutual fund at a time.
At the end of September, the CASH column totaled $66.05. On October 1st, DVY paid a dividend of $0.59722/share (a total of $59.72). This dividend payment was immediately moved into CASH, and the CASH column accumulated a total of $125.77 as of October 1, 2007. As of that date, the most underperforming mutual fund holding was VISVX. Accordingly, on the following date, October 2, 2007, $125.77 was invested in VISVX to purchase an additional 7.207 shares at $17.45/share.
Two other holdings paid dividends in October. On October 3, 2007, XLF paid a dividend of $0.2554/share (a total of $25.03), which was moved to "CASH" on the table shown below. QQQQ paid a dividend of $0.026/share (a total of $5.46) on October 31st, which was also moved to "CASH" on the table shown below.
I anticipate that the portfolio returns will continue to be volatile for the rest of 2007 and will probably be slightly higher by the end of December, 2007.
*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.
September 2007 Returns
As of the market close on October 31, 2007, the Hypothetical Model Portfolio was up $5637, or about 3.56% during October. The Hypothetical Model Portfolio is now up about $18567 in 2007, a gain of 12.76%, as shown on the table below (click for a larger image of the table). Based on the strong October returns, the 2007 returns for the Hypothetical Model Portfolio are now ahead of the 10.83% return of the Vanguard S&P 500 Index fund (VFINX), my benchmark proxy for the S&P 500 index.
International stocks generally led the way again in October, most likely due to the FED's interest rate cut, which devalues the U.S. Dollar, and consequently increases the value of foreign-denominated assets such as international equities. The iShares Emerging Markets ETF (EEM) was my best performing holding, rising about 11.87%. The Templeton Russia closed-end fund (TRF) rose about 8.74%, and the Vanguard Developed Markets Index mutual fund (VDMIX) rose about 4.41%.
Tech stocks were also strong performers during October - the Nasdaq 100 ETF (QQQQ) rose an impressive 7.09%. Small caps also performed well, with the Vanguard Small Cap Index mutual fund (NAESX) rising 2.62% and Vanguard Small Cap Value Index (VISVX) returning about 1.34%.
Financials were laggards again - the SPDR Financial components ETF (XLF) dropped 0.97%, whereas the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rose a scant 0.93%.
The results of the holdings in the Hypothetical Model Portfolio have been very disparate through the first 10 months of 2007. EEM, QQQQ, and VDMIX are leading the way with phenomenal returns of 46.44%, 27.71%, and 18.62%. Four of the holdings, on the other hand, have had abysmal returns - TRF, XLF, DVY, and VISVX have returns -9.92%, -6.54%, 0.49%, and 1.03% respectively for the year. The winners have more than made up for the weak performance for the poor performers, and the portfolio is currently nearly a full two percentage points ahead of the 10.83% return of the Vanguard S&P 500 Index fund (VFINX), my benchmark proxy for the S&P 500 index, as discussed above.
Three of the holdings in my Hypothetical Model Portfolio paid dividends during October. As I mentioned in a previous post, I reinvest the dividends from mutual fund holdings when distributed. I allow dividends from closed end funds or the ETFs to accumulate in the "CASH" column until it reaches at least $100, at which point I invest the CASH in the mutual funds lagging my benchmark asset allocation by the largest amount at the time. The reason why I wait until $100 is accumulated is because that is the minimum amount required to invest in a Vanguard mutual fund at a time.
At the end of September, the CASH column totaled $66.05. On October 1st, DVY paid a dividend of $0.59722/share (a total of $59.72). This dividend payment was immediately moved into CASH, and the CASH column accumulated a total of $125.77 as of October 1, 2007. As of that date, the most underperforming mutual fund holding was VISVX. Accordingly, on the following date, October 2, 2007, $125.77 was invested in VISVX to purchase an additional 7.207 shares at $17.45/share.
Two other holdings paid dividends in October. On October 3, 2007, XLF paid a dividend of $0.2554/share (a total of $25.03), which was moved to "CASH" on the table shown below. QQQQ paid a dividend of $0.026/share (a total of $5.46) on October 31st, which was also moved to "CASH" on the table shown below.
I anticipate that the portfolio returns will continue to be volatile for the rest of 2007 and will probably be slightly higher by the end of December, 2007.
*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.September 2007 Returns
Sunday, October 21, 2007
Historical Earnings and P/E Ratios for the S&P 500 Index
The S&P 500 index is one of the most famous and widely followed U.S. stock market indices. It was created in 1957, although data for stocks representative of the index have been determined by backdating the index into the 19th century, as I previously discussed in an earlier post about historical dividends for the S&P 500 index.
The chart below illustrates the end-of-year closing values for the S&P 500 index, the earnings of the index, and the trailing P/E ratio for the index. The earnings shown below are "as-reported" earnings that take into account all of the various write-offs or other non-recurring expenses, as opposed to "operating earnings," which omit non-recurring expenses. There are supposedly non-recurring expenses for most of the companies in the index almost every year, so it makes sense to account for them.
From 1957 through 2006, the average end-of-year trailing P/E ratio for the index was 17.58. However, as shown in the chart above, the trailing P/E ratio of the S&P 500 index fluctuated widely during the past 50 years.
During the 1960s, the average end-of-year trailing P/E ratio for the S&P 500 index was about 17.90. During the 1970s, the average end-of-year trailing P/E ratio plummeted to 11.99 during the inflationary economic conditions prevalent during that decade. The average end-of-year trailing P/E ratio rose slightly to 12.25 during the 1980s, and soared to 22.55 during the stock market boom of the 1990s. From 2000-2006, the average end-of-year trailing P/E ratio rose to an unsustainable 26.22 as economic conditions in the U.S. deteriorated and the stock market bubble burst. The data from 2000-2006 is skewed due to the substantial pullback in corporate earnings during 2001 and 2002.
The chart below (click on the image for a larger view) illustrates the annual trailing P/E ratio for the S&P 500 versus the average end-of-year trailing P/E ratio of 17.58 between 1957 and 2006. As shown, the trailing P/E ratio at the end of 2006 was below the average end-of-year P/E ratio of the index over the past 50 years. Accordingly, although valuations have clearly changed over time and are influenced by external events such as deteriorating or improving economic conditions, an argument can certainly be made that the S&P 500 had a reasonable valuation at the end of 2006 based on the S&P 500 data over the past 50 years.
The chart below illustrates the end-of-year closing values for the S&P 500 index, the earnings of the index, and the trailing P/E ratio for the index. The earnings shown below are "as-reported" earnings that take into account all of the various write-offs or other non-recurring expenses, as opposed to "operating earnings," which omit non-recurring expenses. There are supposedly non-recurring expenses for most of the companies in the index almost every year, so it makes sense to account for them.
| Year | Index Closing Value (EOY) | Index Earnings | Trailing P/E Ratio |
| 1957 | 39.99 | $3.37 | 11.87 |
| 1958 | 55.21 | $2.89 | 19.10 |
| 1959 | 59.89 | $3.39 | 17.67 |
| 1960 | 58.11 | $3.27 | 17.77 |
| 1961 | 71.55 | $3.19 | 22.43 |
| 1962 | 63.10 | $3.67 | 17.19 |
| 1963 | 75.02 | $4.02 | 18.66 |
| 1964 | 84.75 | $4.55 | 18.63 |
| 1965 | 92.43 | $5.19 | 17.81 |
| 1966 | 80.33 | $5.55 | 14.47 |
| 1967 | 96.47 | $5.33 | 18.10 |
| 1968 | 103.86 | $5.76 | 18.03 |
| 1969 | 92.06 | $5.78 | 15.93 |
| 1970 | 92.15 | $5.13 | 17.96 |
| 1971 | 102.09 | $5.70 | 17.91 |
| 1972 | 118.05 | $6.42 | 18.39 |
| 1973 | 97.55 | $8.16 | 11.95 |
| 1974 | 68.56 | $8.89 | 7.71 |
| 1975 | 90.19 | $7.96 | 11.33 |
| 1976 | 107.46 | $9.91 | 10.84 |
| 1977 | 95.10 | $10.89 | 8.73 |
| 1978 | 96.11 | $12.33 | 7.79 |
| 1979 | 107.94 | $14.86 | 7.26 |
| 1980 | 135.76 | $14.82 | 9.16 |
| 1981 | 122.55 | $15.36 | 7.98 |
| 1982 | 140.64 | $12.64 | 11.13 |
| 1983 | 164.93 | $14.03 | 11.76 |
| 1984 | 167.24 | $16.64 | 10.05 |
| 1985 | 211.28 | $14.61 | 14.46 |
| 1986 | 242.17 | $14.48 | 16.72 |
| 1987 | 247.08 | $17.50 | 14.12 |
| 1988 | 277.72 | $23.76 | 11.69 |
| 1989 | 353.40 | $22.87 | 15.45 |
| 1990 | 330.22 | $21.34 | 15.47 |
| 1991 | 417.09 | $15.97 | 26.12 |
| 1992 | 435.71 | $19.09 | 22.82 |
| 1993 | 466.45 | $21.88 | 21.32 |
| 1994 | 459.27 | $30.60 | 15.01 |
| 1995 | 615.93 | $33.96 | 18.14 |
| 1996 | 740.74 | $38.73 | 19.13 |
| 1997 | 970.43 | $39.72 | 24.43 |
| 1998 | 1229.23 | $37.71 | 32.60 |
| 1999 | 1469.25 | $48.17 | 30.50 |
| 2000 | 1320.28 | $50.00 | 26.41 |
| 2001 | 1148.08 | $24.69 | 46.50 |
| 2002 | 879.82 | $27.59 | 31.89 |
| 2003 | 1111.92 | $48.74 | 22.81 |
| 2004 | 1211.92 | $58.55 | 20.70 |
| 2005 | 1248.29 | $69.93 | 17.85 |
| 2006 | 1418.30 | $81.51 | 17.40 |
From 1957 through 2006, the average end-of-year trailing P/E ratio for the index was 17.58. However, as shown in the chart above, the trailing P/E ratio of the S&P 500 index fluctuated widely during the past 50 years.
During the 1960s, the average end-of-year trailing P/E ratio for the S&P 500 index was about 17.90. During the 1970s, the average end-of-year trailing P/E ratio plummeted to 11.99 during the inflationary economic conditions prevalent during that decade. The average end-of-year trailing P/E ratio rose slightly to 12.25 during the 1980s, and soared to 22.55 during the stock market boom of the 1990s. From 2000-2006, the average end-of-year trailing P/E ratio rose to an unsustainable 26.22 as economic conditions in the U.S. deteriorated and the stock market bubble burst. The data from 2000-2006 is skewed due to the substantial pullback in corporate earnings during 2001 and 2002.
The chart below (click on the image for a larger view) illustrates the annual trailing P/E ratio for the S&P 500 versus the average end-of-year trailing P/E ratio of 17.58 between 1957 and 2006. As shown, the trailing P/E ratio at the end of 2006 was below the average end-of-year P/E ratio of the index over the past 50 years. Accordingly, although valuations have clearly changed over time and are influenced by external events such as deteriorating or improving economic conditions, an argument can certainly be made that the S&P 500 had a reasonable valuation at the end of 2006 based on the S&P 500 data over the past 50 years.
Sunday, October 14, 2007
September 2007 Returns For My Model Long-Term Portfolio
My Hypothetical Model Portfolio registered its strongest performance (on a % basis) in nearly a year during September. The Portfolio was down for the month until the Federal Reserve unexpectedly cut interest rates by 50 basis points on September 18th, sparking a strong stock market rally. The FED said the rate cut was intended to "help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."
As of the market close on September 28, 2007, the Hypothetical Model Portfolio was up $6173, or about 4.06% during September. The Hypothetical Model Portfolio is now up about $12929 in 2007, a gain of 8.89%, as shown on the table below (click for a larger image of the table). The 2007 returns for the Hypothetical Model Portfolio still slightly trail the 9.10% return of the benchmark Vanguard S&P 500 Index fund (VFINX), my benchmark proxy for the S&P 500 index.
International stocks led the way in September, with the iShares Emerging Markets ETF (EEM) rising about 11.57%, the Templeton Russia closed-end fund (TRF) rising sbout 9.61%, and the Vanguard Developed Markets Index mutual fund (VDMIX) rising about 5.39%. The FED's rate cut weakens the U.S. currency relative to foreign currencies and was a major cause of the strong returns for foreign stocks during September.
Tech stocks were also strong performers during September - the Nasdaq 100 ETF (QQQQ) rose a strong 5.20%. Large caps also performed well, with VFINX rising 3.72%.
Financials were laggards - the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rose a scant 0.30% and the Vanguard Small Cap Value Index (VISVX), a fund holding many financial stocks, rising just 1.69%.
Through the first 9 months of 2007, foreign and tech stocks have been carrying the Hypothetical Model Portfolio. EEM has led the way, with a return of about 30.9%, QQQQ has returned about 19.26%, and VDMIX has appreciated about 13.58%.
One of the holdings in my Hypothetical Model Portfolio, VFINX, paid dividends during September. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested. VFINX paid a dividend of $0.62/share (a total of $153.38) which was reinvested on September 21 to purchase an additional 1.091 shares at a price of $140.49/share.
I was glad to see decent returns during September. I anticipate that the portfolio will rise a few more percentage points over the last three months of the year and will close out 2007 up 10-15% for the year.
*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.
August 2007 Returns
As of the market close on September 28, 2007, the Hypothetical Model Portfolio was up $6173, or about 4.06% during September. The Hypothetical Model Portfolio is now up about $12929 in 2007, a gain of 8.89%, as shown on the table below (click for a larger image of the table). The 2007 returns for the Hypothetical Model Portfolio still slightly trail the 9.10% return of the benchmark Vanguard S&P 500 Index fund (VFINX), my benchmark proxy for the S&P 500 index.
International stocks led the way in September, with the iShares Emerging Markets ETF (EEM) rising about 11.57%, the Templeton Russia closed-end fund (TRF) rising sbout 9.61%, and the Vanguard Developed Markets Index mutual fund (VDMIX) rising about 5.39%. The FED's rate cut weakens the U.S. currency relative to foreign currencies and was a major cause of the strong returns for foreign stocks during September.
Tech stocks were also strong performers during September - the Nasdaq 100 ETF (QQQQ) rose a strong 5.20%. Large caps also performed well, with VFINX rising 3.72%.
Financials were laggards - the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rose a scant 0.30% and the Vanguard Small Cap Value Index (VISVX), a fund holding many financial stocks, rising just 1.69%.
Through the first 9 months of 2007, foreign and tech stocks have been carrying the Hypothetical Model Portfolio. EEM has led the way, with a return of about 30.9%, QQQQ has returned about 19.26%, and VDMIX has appreciated about 13.58%.
One of the holdings in my Hypothetical Model Portfolio, VFINX, paid dividends during September. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested. VFINX paid a dividend of $0.62/share (a total of $153.38) which was reinvested on September 21 to purchase an additional 1.091 shares at a price of $140.49/share.
I was glad to see decent returns during September. I anticipate that the portfolio will rise a few more percentage points over the last three months of the year and will close out 2007 up 10-15% for the year.
*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.August 2007 Returns
Sunday, September 30, 2007
The iShares Emerging Markets ETF Does a Poor Job of Tracking the MSCI Emerging Markets Index
The iShares Emerging Markets ETF (symbol: EEM) and the Vanguard Emerging Markets ETF (symbol: VWO) both track the same index, the MSCI Emerging Markets Index. However, iShare's EEM has underperformed the underlying index by about 5% so far in 2007 due to a tracking error. Through the end of August 2007, EEM had appreciated about 17.33% for the year, whereas Vanguard's VWO had appreciated about 22.10%. The reason for the performance difference from the two ETFs that track the same index is due primarily to sampling techniques and, to a lesser extent, the larger expense ratio of EEM (0.75%) versus that of VWO (0.30%).
Index funds often fail to purchase all of the securities in the index being tracked. As I understand it, the funds often do this because some of the securities in the index are not very liquid and the purchase of even a small number of shares can substantially move the price of some securities. Moreover, the transaction costs can theoretically be reduced by purchasing a smaller number of different securites in a smaller number of trades.
There are 830 different securities in the MSCI Emerging Markets Index. iShares' EEM holds shares of 552 securities of the MSCI Emerging Markets Index. VWO, on the other hand, holds shares of 858 securities (i.e., VWO holds shares of some securities that are not even in the index in an effort to better track the index).
I'm not sure how iShares decides which of the securities to hold and which to avoid. However, EEM's 5% tracking error this year is very disconcerting. I own shares of EEM in my own accounts. I purchased them a couple years ago because EEM had a much larger trading volume than VWO and the bid/ask spread was lower. However, the trading volume of VWO has definitely increased over the past year or so and the bid/ask spread has been decreasing. From now on, I will probably only purchase shares of VWO because it does a much better job of tracking the MSCI Emerging MArkets Index.
Index funds often fail to purchase all of the securities in the index being tracked. As I understand it, the funds often do this because some of the securities in the index are not very liquid and the purchase of even a small number of shares can substantially move the price of some securities. Moreover, the transaction costs can theoretically be reduced by purchasing a smaller number of different securites in a smaller number of trades.
There are 830 different securities in the MSCI Emerging Markets Index. iShares' EEM holds shares of 552 securities of the MSCI Emerging Markets Index. VWO, on the other hand, holds shares of 858 securities (i.e., VWO holds shares of some securities that are not even in the index in an effort to better track the index).
I'm not sure how iShares decides which of the securities to hold and which to avoid. However, EEM's 5% tracking error this year is very disconcerting. I own shares of EEM in my own accounts. I purchased them a couple years ago because EEM had a much larger trading volume than VWO and the bid/ask spread was lower. However, the trading volume of VWO has definitely increased over the past year or so and the bid/ask spread has been decreasing. From now on, I will probably only purchase shares of VWO because it does a much better job of tracking the MSCI Emerging MArkets Index.
Thursday, September 27, 2007
New Designs For The U.S. Penny Will Be Introduced In 2009 To Commemorate Lincoln's 200th Birthday
The U.S. Mint is changing the designs on the Lincoln penny in 2009 to commemorate the 200th anniversary of Abraham Lincoln's birthday and the 100th anniversary of the Lincoln penny. The face of the penny has remained the same since its introduction in 1909. The design on the reverse side, however, was changed in 1959 from wheat stalks to the current design of the Lincoln Memorial.
The U.S. Mint recently revealed that it will introduce four rotating designs on the 1-cent coin for 2009 that will depict different aspects of Lincoln’s life. Here are some of the designs being considered:
The commemorative coins will only be made in 2009; in 2010, news pennies will include a new permanent design.
I expect that the 2009 pennies will become collectors’ items, just like the 2004 and 2005 Westward Journey nickels have become. When 2009 rolls around, I will be sure to purchase a few rolls of the new pennies from my local bank branch.
*** Update - September 23, 2008 ***
The U.S. Mint revealed the four new designs for the U.S. penny in a ceremony on September 22, 2008. The four designs shown above in this post were merely among the proposed designs. The designs that are actually going to be used are discussed in a recent post I wrote discussing the new designs for the 2009 U.S. penny.
The U.S. Mint recently revealed that it will introduce four rotating designs on the 1-cent coin for 2009 that will depict different aspects of Lincoln’s life. Here are some of the designs being considered:
The commemorative coins will only be made in 2009; in 2010, news pennies will include a new permanent design.I expect that the 2009 pennies will become collectors’ items, just like the 2004 and 2005 Westward Journey nickels have become. When 2009 rolls around, I will be sure to purchase a few rolls of the new pennies from my local bank branch.
*** Update - September 23, 2008 ***
The U.S. Mint revealed the four new designs for the U.S. penny in a ceremony on September 22, 2008. The four designs shown above in this post were merely among the proposed designs. The designs that are actually going to be used are discussed in a recent post I wrote discussing the new designs for the 2009 U.S. penny.
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
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
Saturday, August 25, 2007
How To Construct a BRIC-Tracking Portfolio
I have previously written about the tremendous projected growth of the emerging markets of Brazil, Russia, India, and China (see posts from January 2007 and May 2007). Rapid economic development in each of these countries is projected for decades to come. As I mentioned back in January 2007, Goldman Sachs published a report in 2003 on the BRIC countries and projected that the economies of these countries will grow much faster than any of the current developed markets (including the U.S., Japan, Germany, the U.K., Italy, and France) and the local currencies of the BRIC countries will appreciate some 100-300% against those of the developed markets.
There are popular relatively low-cost emerging markets ETFs currently being offered, such as the iShares MSCI Emerging Markets Index Fund (symbol: EEM), which tracks the MSCI Emerging Markets Free Index. Another popular emerging markets ETF is the Vanguard Emerging Markets ETF (symbol: VWO), which tracks a slightly different emerging markets index, MSCI Emerging Markets Select Index. Both the iShares and the Vanguard ETFs are a good way to invest in emerging markets. However, both invest only around 40% of their assets in the BRIC countries.
I have been waiting for some time for a good BRIC ETF to be introduced that invests only in the BRIC countries. So far, two BRIC ETFs are trading on the market. The oldest is the Claymore BRIC ETF (symbol: EEB), which tracks the Bank of New York's BRIC Select ADR Index, as I discussed back in January 2007. The other BRIC ETF is the SPDR S&P Bric 40 ETF (symbol: BIK), which was introduced in June 2007 and tracks the S&P BRIC 40 Index.
Although I am glad that BRIC ETFs are finally available, I do not like either of the currently available BRIC ETFs. According to ETFconnect, the Claymore ETF invests in the BRIC countries according to these allocations:
I would prefer to see a BRIC ETF that invests about 25% of assets in each of the BRIC countries. Country-specific ETFs and ETNs are available for small investors to create their own relatively low-cost BRIC-tracking portfolio. I personally would invest according to the following allocation:
There are popular relatively low-cost emerging markets ETFs currently being offered, such as the iShares MSCI Emerging Markets Index Fund (symbol: EEM), which tracks the MSCI Emerging Markets Free Index. Another popular emerging markets ETF is the Vanguard Emerging Markets ETF (symbol: VWO), which tracks a slightly different emerging markets index, MSCI Emerging Markets Select Index. Both the iShares and the Vanguard ETFs are a good way to invest in emerging markets. However, both invest only around 40% of their assets in the BRIC countries.
I have been waiting for some time for a good BRIC ETF to be introduced that invests only in the BRIC countries. So far, two BRIC ETFs are trading on the market. The oldest is the Claymore BRIC ETF (symbol: EEB), which tracks the Bank of New York's BRIC Select ADR Index, as I discussed back in January 2007. The other BRIC ETF is the SPDR S&P Bric 40 ETF (symbol: BIK), which was introduced in June 2007 and tracks the S&P BRIC 40 Index.
Although I am glad that BRIC ETFs are finally available, I do not like either of the currently available BRIC ETFs. According to ETFconnect, the Claymore ETF invests in the BRIC countries according to these allocations:
- India - 13.56%
- China - 35.79%
- Brazil - 45.88%
- Russia - ???? (possibly 4.77%)
- India - 6.70%
- China - 40.05%
- Brazil - 26.75%
- Russia - 25.05%
I would prefer to see a BRIC ETF that invests about 25% of assets in each of the BRIC countries. Country-specific ETFs and ETNs are available for small investors to create their own relatively low-cost BRIC-tracking portfolio. I personally would invest according to the following allocation:
- Brazil - 25% - iShares MSCI Brazil Index Fund (symbol: EWZ)
- Russia - 25% - Market Vectors TR Russia ETF (symbol: RSX)
- India - 25% - iPath MSCI India Index ETN (symbol: INP)
- China - 25% - iShares FTSE/Xinhua China 25 Index Fund (symbol: FXI)
Friday, August 10, 2007
How to Collect Pre-1982 Pennies and Nickels
I have previously mentioned that I am collecting nickel coins and pre-1982 pennies because their intrinsic melt values (i.e., the commodity value of the metals comprising the coins) exceed their respective face value. According to coinflation.com, as of the market close on August 10, 2007, a U.S. nickel coin has a melt value of 6.34 cents (i.e., 26.88% above face value) and a pre-1982 penny has a melt value of about 2.42 cents (i.e., 142% above face value).
I am saving nickels and pre-1982 for their commodity value and because I passively enjoy coin collecting. The odds are that I'll never make that much money off collecting coins for their commodity value. To be perfectly honest, if I didn't enjoy collecting coins, this would probably be a waste of time.
I have seen people attempting to sell pre-1982 pennies for prices well above face value (and even above the melt value). This seems like a total rip-off to me, given the fact that pre-1982 pennies (and nickels) are still widely abundant in circulation. I know that many people are hoarding these coins, but don't forget that the U.S. Mint produced many billions of these coins that are still being used in commerce.
I personally save all of the nickels and pre-1982 pennies I receive in change, except for the ones that have gum on them or are extremely dirty. I also occasionally purchase rolls of pennies and nickels from bank branch offices. There is a bank branch office right across the street from where I live, so these rolls are easy to get.
I have purchase rolls of coins at face value from different bank branches and have never been hassled or charged a fee for doing so. I stopped purchasing rolls of pennies a long time ago because it was too much of a hassle to search through 50-penny rolls for pre-1982 pennies. However, every once in awhile I still purchase a few rolls of nickels. Once of the reasons why I like purchasing rolls of nickels is because I rarely receive and of the 2004 and 2005 "Westward Journey" commemorative nickels in circulation anymore. Luckily, however, I can usually find a few of the Westward Journey nickels in $2 rolls of nickels available at bank branches.
I am saving nickels and pre-1982 for their commodity value and because I passively enjoy coin collecting. The odds are that I'll never make that much money off collecting coins for their commodity value. To be perfectly honest, if I didn't enjoy collecting coins, this would probably be a waste of time.I have seen people attempting to sell pre-1982 pennies for prices well above face value (and even above the melt value). This seems like a total rip-off to me, given the fact that pre-1982 pennies (and nickels) are still widely abundant in circulation. I know that many people are hoarding these coins, but don't forget that the U.S. Mint produced many billions of these coins that are still being used in commerce.
I personally save all of the nickels and pre-1982 pennies I receive in change, except for the ones that have gum on them or are extremely dirty. I also occasionally purchase rolls of pennies and nickels from bank branch offices. There is a bank branch office right across the street from where I live, so these rolls are easy to get.
I have purchase rolls of coins at face value from different bank branches and have never been hassled or charged a fee for doing so. I stopped purchasing rolls of pennies a long time ago because it was too much of a hassle to search through 50-penny rolls for pre-1982 pennies. However, every once in awhile I still purchase a few rolls of nickels. Once of the reasons why I like purchasing rolls of nickels is because I rarely receive and of the 2004 and 2005 "Westward Journey" commemorative nickels in circulation anymore. Luckily, however, I can usually find a few of the Westward Journey nickels in $2 rolls of nickels available at bank branches.
Monday, August 06, 2007
Vanguard Provides a New ETF That Tracks the MSCI EAFE Index
I have previously mentioned that the Morgan Stanley Capital International, Inc. Europe, Australasia Far East index (a.k.a., the MSCI EAFE index) is the "S&P 500" of foreign stocks. Until recently, the best ETF tracking the index was an iShares ETF (symbol: EFA). EFA is a core holding of my Hypothetical Model Long-Term Portfolio.
Accordingly to the iShares website, EFA currently has an expense ratio of about 0.35% and is the largest foreign stock ETF, with about $45 billion in net assets. Although 0.35% is a very low expense ratio, Vanguard has decided to undercut iShares with its own ETF tracking the same index. On July 26, 2007, the new Vanguard Europe Pacific ETF (symbol: VEA) began trading on the American stock exchange. VEA tracks the MSCI EAFE index and has an expense ratio capped at 0.15%.
Vanguard's new offering is welcome by investors and should sell quite well. I look favorably upon the ever-decreasing expense ratios of index-tracking ETFs.
Accordingly to the iShares website, EFA currently has an expense ratio of about 0.35% and is the largest foreign stock ETF, with about $45 billion in net assets. Although 0.35% is a very low expense ratio, Vanguard has decided to undercut iShares with its own ETF tracking the same index. On July 26, 2007, the new Vanguard Europe Pacific ETF (symbol: VEA) began trading on the American stock exchange. VEA tracks the MSCI EAFE index and has an expense ratio capped at 0.15%.
Vanguard's new offering is welcome by investors and should sell quite well. I look favorably upon the ever-decreasing expense ratios of index-tracking ETFs.
Saturday, August 04, 2007
July 2007 Returns For My Model Long-Term Portfolio
My Hypothetical Model Portfolio performed very poorly during July as the overall market swooned. As of the market close on July 31, 2007, the Hypothetical Model Portfolio was down $5,560.57, or about 3.55% during July. July 2007 was the worst month for the Hypothetical Model Portfolio since last May, 2006 when the Hypothetical Model Portfolio dropped 4.92%. Despite the awful July results, the Hypothetical Model Portfolio is still up about $5432 in 2007, a gain of 3.73%, as shown on the table below (click for a larger image of the table). Morever, the Hypothetical Model Portfolio is still outperforming the 3.58% return of the benchmark Vanguard S&P 500 Index fund (VFINX).
Financials experienced their second consecutive awful month, with the SPDR Financial components ETF (XLF) plummeting 9.07% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) dropping 5.02%. Financials are still performing poorly due to the overhang from problems in the subprime lending market. Another poor performer with a large amount of financial exposure was the Vanguard Small Cap Value Index (VISVX), which dropped 7.21%. Other small cap issues also underperformed, resulting in the Vanguard Small Cap Index mutual fund (NAESX) dropping 5.76% during the month.
The only moderately impressive returns were registered by the iShares Emerging Markets ETF (EEM), which rose 0.70%, the Templeton Russia closed-end fund (TRF), which rose 0.46%, and the Nasdaq 100 ETF (QQQQ), which only fell by 0.07% in a weak market. This marks the second consective month during which TRF has registered a gain, following five months of declines from January - May 2007.
As of the end of July, two of the portfolio holdings are up in double digits so far in 2007 - EEM, which is up just over 16%, and QQQQ, which is up just over 10%. The performance of QQQQ has really surprised me, as I had not anticipated tech stocks to outperform this year.
Two of the holdings in my Hypothetical Model Portfolio paid dividends in July. 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 - instead, 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.
QQQQ paid a dividend of $0.037/share (a total of $7.76) on July 31st, which was moved to "CASH" on the table shown below. DVY paid a dividend of $0.58298 on July 5th (a total of $58.29), which was also moved to "CASH" on the table shown below.
The stock market's performance recently is somewhat disconcerting. However, I do not see any cause for alarm. The pullback during May and June 2006 was far worse than this one, and everything turned out well by the end of 2006. I think we are merely experiencing a correction right now. Corrections are absolutely necessary to maintain an orderly market with manageable levels of risk.
*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.
June 2007 Returns
Financials experienced their second consecutive awful month, with the SPDR Financial components ETF (XLF) plummeting 9.07% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) dropping 5.02%. Financials are still performing poorly due to the overhang from problems in the subprime lending market. Another poor performer with a large amount of financial exposure was the Vanguard Small Cap Value Index (VISVX), which dropped 7.21%. Other small cap issues also underperformed, resulting in the Vanguard Small Cap Index mutual fund (NAESX) dropping 5.76% during the month.
The only moderately impressive returns were registered by the iShares Emerging Markets ETF (EEM), which rose 0.70%, the Templeton Russia closed-end fund (TRF), which rose 0.46%, and the Nasdaq 100 ETF (QQQQ), which only fell by 0.07% in a weak market. This marks the second consective month during which TRF has registered a gain, following five months of declines from January - May 2007.
As of the end of July, two of the portfolio holdings are up in double digits so far in 2007 - EEM, which is up just over 16%, and QQQQ, which is up just over 10%. The performance of QQQQ has really surprised me, as I had not anticipated tech stocks to outperform this year.
Two of the holdings in my Hypothetical Model Portfolio paid dividends in July. 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 - instead, 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.
QQQQ paid a dividend of $0.037/share (a total of $7.76) on July 31st, which was moved to "CASH" on the table shown below. DVY paid a dividend of $0.58298 on July 5th (a total of $58.29), which was also moved to "CASH" on the table shown below.
The stock market's performance recently is somewhat disconcerting. However, I do not see any cause for alarm. The pullback during May and June 2006 was far worse than this one, and everything turned out well by the end of 2006. I think we are merely experiencing a correction right now. Corrections are absolutely necessary to maintain an orderly market with manageable levels of risk.
*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.June 2007 Returns
June 2007 Returns For My Model Long-Term Portfolio
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
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
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
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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