Sub-Par Performance by Market in Pre-Election Year Drama
by James B. Cloonan
The year 2007 was a below-average year for the general market—and it was exceptionally low for a pre-election year.
The average return for the S&P 500 during the year before an election is 21.7%; for all years, the average is 10.4%. However, this past year the S&P 500 came in below both figures at 5.5% (coincidentally, the Vanguard Total Stock Market Index fund, our benchmark in Figure 1, also returned 5.5% in 2007). The Model Mutual Fund Portfolio did considerably better at 10.2%, but there was wide disparity within the portfolio.
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The superior performance of the Model Mutual Fund Portfolio was due to one fund—CGM Focus CGMFX—which was up an astounding 80% in 2007.
At the other extreme, the two small-cap value funds, Tamarack Microcap Value “S” TMVSX and Northern Small Cap Value NOSGX had negative returns for the year. In fact, contrary to long-term performance, the greater the value focus and the smaller the capitalization focus, the worse the 2007 performance.
This happens every so often for a year or sometimes two—and that is why we don’t put only small-cap and heavy value-focused funds in our portfolio, even though we expect their long-term performance to outperform the market and most funds. Our decisions about buying and selling funds are based on five- and 10-year performance unless there are three down years in a row.
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