Friday, December 14, 2012

Year-End Mutual Fund Distributions--Fear Not the Price Drop!




Good morning.  Most of my clients are in some mutual funds that appear to have dropped in value suddenly, but fear not.  The share prices have been reduced in exchange for cash (or more shares in the case of the cash being reinvested).  The value of our investments did not drop from this--it's all just fine.

This is a normal activity for many mutual funds at this time of year.  The cash is a distribution of "long-term capital gains", "short-term capital gains", and/or "dividends"--not the usual monthly or quarterly kind, but special annual distributions.  Such are made per regulations that require mutual funds to make some distributions directly to clients instead of incorporating them into the Net Asset Value (share price) of the mutual fund.  Yes, it is a little tricky to explain, but I am happy to provide more detail if you want.  But it is normal, expected, and does not represent an unusual reduction in value of our investments.

Example:  In one account I reveiwed, the First Eagle Overseas Fund dropped NAV from 22.83 at market close on 12/12 to 21.66 at close on 12/13.  That's a 5.1% drop in share price, BUT the value of the fund's investments did not drop by 5.1%.  How?  Well, on 12/12 the account received three chunks of cash (long-term cap gains, short-term cap gains, and some dividends) totalling $747, and that was reinvested into 32.7 shares at $22.83 (closing price on 12/12).  So, prior to the special distribution, there was $14,616 in that position and after the distribution/reinvestment it was $14,576…  the $40 decline (about 0.2% of the value) is attributable to the slight market decline that particular day.

Please contact me with any questions, of course.  Thank you, and make it a great Friday!

--Gary

NOTE:  I offer a special "Thank You" to a certain client for reminding me that this should be explained to everyone!

Tuesday, December 11, 2012

Flex Portfolio Performance Through November 2012

With the creation of the new Flex IV portfolios, most clients will be moved out of Flex II and Flex III portfolios.  The Flex portfolios are designed to provide nimble tactical management even while my clients and I aim to keep the strategic allocation in place during various market conditions.

Strategic:  diversified portfolios consistent with Nobel Prize-winning methodology to optimize the balance between risk and reward; best to maintain the portfolio in targeted strategy, so we remain invested fully in the mutual funds comprising the Flex portfolios.

Tactical:  what, if anything, should be done within the portfolios under various market conditions; we leave this up to the managers of each fund in the Flex portfolios.

The Flex portfolios continue to demonstrate excellent risk-management while participating very well in the markets in the near-term; they show significant out-performance in the intermediate- and long-term periods.

Below are the through-November performance numbers for the key Flex portfolios and their index fund-comprised low-cost alternatives:


US and Foreign Indexes 1 mo 3 mo YTD 1 yr 2 yr 3 yr 5 yr 10 yr
Stock Markets (50-40-10) 1.4% 3.7% 13.9% 13.9% 7.0% 6.8% -1.7% 7.4%
S&P 500 0.6% 1.3% 15.0% 16.1% 11.9% 11.3% 1.3% 6.4%
MSCI EAFE 2.4% 6.3% 13.6% 12.5% 3.8% 2.9% -4.8% 7.4%
Barclays Agg Bond--US 0.2% 0.5% 4.4% 5.5% 5.5% 5.7% 6.0% 5.4%
Barclays Agg Bond--Global 0.0% 1.1% 4.7% 5.4% 5.8% 4.0% 5.5% 6.4%









Moderately Aggressive 1.2% 3.1% 11.8% 12.1% 7.1% 6.2% -0.7% 6.4%
80 Flex IV 0.9% 2.6% 9.9% 8.7% 6.6% 7.9% 6.1% 10.0%
80 Flex III 1.0% 2.0% 9.2% 7.7% 5.3% 6.6%

80 Fidelity 1.3% 3.2% 11.9% 11.5% 6.7% 6.4% -0.7% 6.4%









Moderate 1.0% 2.5% 9.6% 10.0% 6.5% 5.6% 0.6% 6.1%
60 Flex IV 1.0% 3.1% 11.3% 10.2% 6.9% 8.2% 6.6% 10.1%
60 Flex III 1.0% 2.3% 9.7% 8.8% 5.5% 6.7%

60 Fidelity 1.0% 2.4% 9.5% 9.5% 5.8% 5.7% 0.3% 5.8%









Moderately Conservative 0.8% 1.8% 7.4% 8.0% 6.1% 5.1% 2.0% 5.9%
40 Flex IV 1.0% 3.3% 12.0% 11.6% 7.3% 8.6% 7.4% 9.7%
40 Fidelity 0.7% 1.7% 7.5% 7.8% 5.4% 5.3% 1.8% 5.3%









Asset Allocation Cash Stock Bond Other



80 Flex IV 25% 44% 21% 10%



60 Flex IV 22% 39% 30% 9%



40 Flex IV 24% 26% 43% 7%