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.

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

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

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

Barclay's Offers an Indian Stock Market ETN (Not an ETF)

A couple months ago, I wrote a post about the iPATH MSCI India Index exchange traded security (symbol: INP) that tracks an India stock market index. I indicated that this was the first India stock market Exchange Traded Fund ("ETF"). However, I have since discovered that INP is an Exchange Traded Note ("ETN"), not an ETF.

The ETN is a derivative (perhaps similar to futures) that is designed to track the MSCI India Total Return Index. ETFs typically hold shares of stock of the underlying constituents of the various indices that they are designed to follow. An ETN, on the other hand, is an issued security that the issuer promises will track the index. Accordingly, because no shares of the underlying index securities are held within the ETN, the owner of an ETN puts his or her faith in the issuer to maintain the appropriate value to track the designated index. Accordingly, the credit-worthiness of the issuer is a concern for anyone purchasing an ETN.

The Motley Fool published a gloom-and-doom article about this a few months ago. As usual, the Motley Fool's article was very superficial and did not really explain how the ETN's value is derived. I will admit that I am no expert on ETN, but I have to believe that Barclay's (the issuer of INP) hedges its risk through a combination of futures and/or options tied to the benchmark MSCI India Total Return Index.

Another ETF Information Website

I have previously written about ETFconnect.com, one of the most informative websites pertaining to Exchange Traded Funds (ETFs). I discovered another good ETF-related website that was mentioned in this weekend's edition of the Wall Street Journal. The website is XTF.com and is operated by XTF Global Asset Management LLC. The website contains various ETF screeners, peer rankings, and ratings.

Emigrant Direct Has Onerous Money Transfer Rules

I have had an online savings account with Emigrant Direct since the end of 2005, primarily because it has one of the highest interest rates available, which is currently at 5.05%. Up until last week I had only electronically transferred money into the account from a checking account with my primary banking institution.

Last week, however, decided to electronically transfer funds from the Emigrant Direct account to both my Vanguard and Ameritrade brokerage accounts. I have done such transfers in the past with my old ING Direct account, and never had any problem doing so. Unfortunately, Emigrant Direct has very onerous rules regarding money transfers. Apparently they will only electronically transfer money into "checking" accounts, but not into "savings" accounts. I'm not really sure what the legal distinction is between the two types of accounts, but apparently brokerage accounts are considered to be savings accounts. Emigrant Direct blocked the transfer and I ended up being hit with margin fees in my brokerage account because I had purchased some stock when I thought that the money had successfully been transferred.

The really annoying thing is that Emigrant Direct didn't even bother to notify me that my electronic transfer request had been rejected. Anyone who uses Emigrant Direct should consider himself or herself forewarned. I now realize that to transfer money into a brokerage account, I will need to first transfer the money into my checking account with my primary banking institution, and subsequently transfer that money from that particular checking account over to my brokerage account. I'm not sure why Emigrant Direct has this silly restriction, but it is pretty burdensome to say the least.

Barclays Offers the Only Indian Stock Market ETF

I have previously written about India and how the best way to invest in the Indian stock market was through closed-end funds that invest directly in Indian stocks. India is one of the rapidly growing emerging markets and was dubbed a "BRIC" country in a widely-read 2003 Goldman Sachs report on emerging markets. In the Goldman Sachs report, Goldman projected the Indian ecomony to rapidly grow over the next 40 years at a rate far faster than the western world. The image below is from the Goldman Sach's report and illustrates the projected annual growth rates of the various BRIC countries. As one can see, India's growth rate over the next 40 years is prjected to be far stronger than that of the other BRIC countries.


Although there will undoubteld be hiccups in India's growth, the appreciation of stocks listed on its exchanges should generally correlate to the country's overall economic growth. India is an open democracy with a rapidly expanding population and is probably more politcally stable than the other BRIC countries, Russia, China, and Brazil.

I was pleased to recently discover that Barclays now offers the first Indian stock market ETF (Barclay's actually offers an ETN, not an ETF, as discussed here). Apparently this ETF went public in Deceomber 2006, but I only recently read about it. The name of the ETF is the iPATH MSCI India Index ETF (symbol: INP). It seeks to represent approximately 85% of the free-float-adjusted market capitalization of equity securities by industry group within India. As of March 31, 2007, the Index was comprised of 69 companies listed on the National Stock Exchange of India (the "NSE"). According to Barclays, the index had annual returns of 38.1% over the past five years (through April 30, 2007), 40.33% over the past three years, and 30.36% over the past year.

I am glad to see that someone is finally offering an Indian ETF. ETFs generally have much lower expense ratios than similar mutual funds or closed-end funds and are becoming more and more popular with investors. I will probably purchase some shares of INP the nest time I invest in the stock market, as this new ETF appears to be the best way for small investors to profit from the Indian stock market.

April 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio performed very well during April, generating its largest returns since October 2006. As of the market close on April 30, 2007, the Hypothetical Model Portfolio* was up $5,131.37, or 3.47% during April. The Hypothetical Model Portfolio is now up $7375 in 2007, a gain of 5.07%, 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 fourth consecutive monthly drop in value due primarily to its ongoing premium compression, as I have discussed previously. Tech stocks, large caps, and financials led the way, with the Nasdaq 100 ETF (QQQQ) rising about 5.58%, the Vanguard Index 500 mutual fund (VFINX) rising about 4.42%, and the SPDR Financial components (XLF) rising about 3.87%. International equities were also strong, with the Vanguard Developed Markets index fund (VDMIX) rising about 3.81% and the Emerging Markets ETF (EEM) rising about 3.73%. Small caps lagged during April - the Vanguard Small Cap Index mutual fund (NAESX) rose about 2.67% and the Vanguard Small Cap Value Index (VISVX) rose a paltry 1.84%.

The Hypothetical Model Portfolio has risen the same amount as the S&P 500 (with dividends reinvested) - 5.07% so far during 2007. Considering that TRF is down over 19% so far this year, I'm pleased that the Hypothetical Model Portfolio has risen the same amount as the S&P 500. As of April 30, 2007, the premium on TRF is down to 2.91%. I 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.

The Melt Value of U.S. Nickel Coins Is Still Increasing

I have mentioned several times that I am collecting U.S. nickel coins and copper pre-1982 pennies because the value of the physical base metals from which they are formed (i.e., the "melt value") exceeds their respective face values. Back on December 14, 2006, I mentioned that the metal value of pre-1982 pennies was 2.0752 cents (207.52% of face value), post-1982 zinc pennies had a metal value of 1.1257 cents (112.57% of face value), and nickels had a metal value of 6.9879 cents (139.75% of face value).

The value of zinc (the primary component of post-1982 pennies) has decreased about 13% since then. However, the values of raw copper and nickel metal have risen substantially since mid-December, with copper increasing about 22% and nickel increasing almost 49%. These metals have been soaring during the U.S. commodities boom that has been going on during the past several years. The cause of this boom is most likely due to a continuing weak U.S. dollar and rising demand for raw materials from fast-growing emerging markets such as China and India.

As shown in the chart below (taken from Coinflation.com - click on the image for a larger view), the metal value of pre-1982 pennies is now 2.5237 cents (252.37% of face value), post-1982 zinc pennies have a metal value of 0.9953 cents (99.53% of face value), and nickels have a metal value of 9.7226 cents (194.45% of face value).

With the melt values of these metal substantially exceeding the face value for nickels and at about parity with face value for post-1982 pennies, the U.S. Mint is losing many millions of dollars each year by making these coins with their current compositions. As such, it is practically a guarantee that the U.S. Mint will change the base metals of these coins within the next couple years, at which point the current pennies and nickels in circulation will become collectors' items hoarded just like old silver coins were hoarded when the U.S. Mint abandoned the use of silver in its coins.

The First Russian Stock ETF Was Launched In April

I have written numerous posts about the Templeton Russia and Eastern Europe closed-end fund (symbol: TRF). I picked it for my Model Portfolio back in December 2005 because it was, at the time, by far the best investment vehicle for U.S. investors to invest in Russia stocks.

I posted back in March that TRF was performing poorly despite the solid performance of the Russian stock market. This underperformance was due to premium compression of TRF's share price relative to its underlying Net Asset Value ("NAV"), which plummeted from a premium of 38.07% at the start of 2007 to a mere 2.73% as of May 2, 2007.

The reason for this premium compression was perplexing and I could not determine a suitable explanation for it. Today, however, I finally found the cause of the compression - the first Russian stock market Exchange Traded Fund ("ETF") was announced earlier in the year. The Market Vectors Russia ETF (symbol: RSX) began trading on Monday, April 30, 2007, on the New York Stock Exchange. (A fact sheet is available at the Van Eck Global website.) TRF finally has a viable competitor in the form of RSX.

RSX tracks the performance of the DAXglobal Russia+ Index, a basket created by the Deutsche Bourse of the 30 most heavily traded Russian companies. Five of the stocks are listed in the U.S. as American depositary receipts (ADRs), 19 trade in London as global depositary Receipts (GDRs) and six trade on Russia's Micex Exchange.

Update on the 2007 Presidential Dollar Coins

Back in February I wrote about how the new Washington Presidential dollar coins were hard to find. Since I wrote that post, I returned to bank branches on several occasions and was finally able to obtain a $25 roll of these dollar coins. I am going to hold on to the roll and do not plan on opening the roll to see if there are and mis-strikes or error coins in the roll at this time.

I have yet to see any of the new dollar coins in circulation at any place other than at banks. It's pretty clear to me that people are hoarding these coins without any intention of using them as currency. I expect to eventually receive some of these coins in change at a postal stamp vending machine, but I would be very surprised to see them anywhere else other than at a coin shop.

A few months ago there were many articles being published about the new dollar coins and how they last far longer than paper dollars and that the maintenance cost of a dollar coin supply is therefore far less than that of a paper dollar coin supply. Many of these articles hinted at the possibility that these coins might eventually become widely used by shoppers. I honestly cannot see that ever happening. Paper dollars are far easier to carry in a wallet and take up less space and weigh far less. Dollar coins will probably never be viewed at anything other than a novelty unless or until the government abolishes paper dollars.

March 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio performed fairly well during March. As of the market close on March 30, 2006, the Hypothetical Model Portfolio was up $2159.30, or about 1.48% during March. The Hypothetical Model Portfolio is now up about $2243 in 2007, a gain of 1.54%, as shown on the table below (click for a larger image of the table).

Foreign holdings were the best performers, with the iShares Emerging Markets ETF (EEM) rising an impressive 6.15% and the Vanguard Developed Markets Index mutual fund (VDMIX) rising 2.58%. Several other holding rose more than 1% in March, including (a) iShares Dow Jones U.S. Select Dividend Index Fund (DVY), which rose 1.44%; (b) Vanguard Small Cap Index (NAESX), which rose 1.22%; and (c) Vanguard Index 500 mutual fund (VFINX), which rose 1.11%.

Unfortunately, however, negative performances were turned in by two holdings. The Templeton Russia closed-end fund (TRF) fell about 0.61% and the S&P 500 Financial components ETF (XLF) fell about 0.48%. TRF finished March down 19.35% so far during 2007. As I have previously discussed, TRF's performance is odd because its underlying net asset value ("NAV") has actually risen about 6.7% (from $63.23 to $67.48), but it share price has fallen because its premium has plummeted from 38.07% at the end of December 2006 to 4.34% at the end of March 2007.

Six of the holdings in my Hypothetical Model Portfolio paid dividends in March. 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.

VFINX paid a dividend of $0.55/share (a total of $134.36), which was reinvested on March 23rd to purchase an additional 1.016 shares at a price of $132.20/share. The Vanguard Mid Cap Index (VIMSX) paid a dividend of $0.005/share (a total of $5.75), which was reinvested on March 21st to purchase an additional 0.276 shares at a price of $20.86/share. The Vanguard Small Cap Value Index (VISVX) paid a dividend of $0.013/share (a total of $13.37), which was reinvested on March 21st to purchase an additional 0.762 shares at a price of $17.54/share. NAESX paid a dividend of $0.006/share (a total of $3.22), which was reinvested on March 21st to purchase an additional 0.095 shares at a price of $33.95/share. The iShares Dow Jones U.S. Select Dividend Index Fund (DVY) paid a dividend of $0.55956 on March 29th (a total of $55.96), which was moved to "CASH" on the table shown below. Finally, the S&P 500 Financial components ETF (XLF) paid a dividend of $0.148 on March 28th (a total of $14.50), which was moved to CASH.

*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.

February 2007 Returns

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.