Market Pulls Back to Open the YearAfter pulling back to begin 2014, it seems that the market has stabilized slightly and is in need of a catalyst to spur any movement in either direction. While our recovery seems to be ongoing, the improvements have been slow, especially in the labor markets. We have now had two months of weak jobs growth. And although the unemployment rate is decreasing, there are still a record number of long-term unemployed as well as underemployed workers. On a positive note, however, we will not be seeing a repeat of 2013’s gridlock on the debt ceiling. The Republican-controlled House passed a “clean” bill to increase the debt ceiling, meaning that the bill did not include any other demands. It is almost certain to pass the Democrat-controlled Senate. Additionally, new Federal Reserve Chair Janet Yellen spoke before Congress, highlighting the still-weak labor market. She will likely continue slowly tapering government bond-buying while keeping interest rates near zero.
AAII’s Model Portfolios were not able to escape the weakness of the overall stock market last month. During January, the Model Shadow Stock Portfolio lost 7.6%, underperforming both the Vanguard Small Cap Index fund (NAESX), which lost 2.1%, and the DFA US Micro Cap Index fund (DFSCX), which fell 4.4%. The Model Shadow Stock Portfolio has a compound annual return of 17.8% from its inception in 1993, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.1% annually over the same period.
The Model Fund Portfolio held up better, losing 2.0% in January, and the Conservative Portfolio (75% Model Fund Portfolio and 25% iShares Barclays 1-3 Year Treasury Bond ETF) was only down 1.5%. This compares to a 3.1% loss for the Vanguard Total Stock Market Index fund (VTSMX). The Model Fund Portfolio has a compound annual return of 9.3% from its inception in June of 2003, while the Vanguard Total Stock Market Index fund has gained 8.8% annually over the same time period.
NEW THIS MONTH
In the Model Fund Portfolio, Yacktman Focused fund (YAFFX) was removed and replaced by Fidelity OTC fund (FOCPX). The reasons were that Yacktman Focused fund was reaching the size where it would become a closet index fund and the 1.25% expense ratio was just too high. The Yacktman fund was one of three holdings in the Model Fund Portfolio closed to new investors. The other two are Aston/Fairpointe Mid Cap N fund (CHTTX), which closed last quarter, and FMI Common Stock fund (FMIMX), which closed at the end of 2009. For those using the Model Fund Portfolio as a guide for their investments, these two funds should continued to be held by those who currently own them. Anyone not owning them and now unable to buy them should simply use the remaining seven funds.