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Cupid Rallies to the Cause

March AAII Model Portfolio Update is now available online.

Despite a loveless January, romance and stocks bloomed in February. The S&P 500 index’s total return was 5.8% for the month. The market love was fairly egalitarian in February, as most of the performance of indexes and portfolios was around the 6.0% level.

The Model Fund Portfolio gained 5.2% in February, while the Model Shadow Stock Portfolio, which invests in micro-cap value stocks, gained 5.6% last month.

The Model Shadow Stock Portfolio’s 5.6% increase for the month slightly trailed both of its comparison benchmarks: The Vanguard Small Cap Index (NAESX) gained 5.8% and the DFA US Micro Cap Index fund (DFSCX) gained 6.0% in February. Year to date, the Shadow Stock Portfolio has returned 1.0% while the NAESX has returned 3.5% and the DFSCX has returned 0.8%. Since its inception in 1993, the Model Shadow Stock Portfolio has a compound annual return of 16.8%, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.5% annually over the same period.

The Model Fund Portfolio’s 5.2% increase in February compared to a 5.8% increase for the Vanguard Total Stock Market Index fund. Since its inception in June of 2003, the Model Fund Portfolio has a compound annual return of 9.4%, slightly underperforming the Vanguard Total Stock Market Index fund over the same time period, which returned 9.6%.

March Updates
There were two changes to the Model Shadow Stock Portfolio. Standard Motor Products (SMP) was sold and Universal Stainless & Alloy Products Inc. (USAP) was purchased. Omega Protein Corporation (OME) was also purchased, but this was done in error due to using old data, and the stock has already been sold. OME does not pass the screen using end-of-February data. The error will be discussed in greater detail in the Model Portfolio column in the April AAII Journal. There were 11 stocks that passed the screen at the end of February.

Two stocks in the Model Shadow Stock Portfolio, Olympic Steel (ZEUS) and Willis Lease Finance Corp. (WLFC), qualified for purchase at the start of March. Qualified stocks are companies held within the Model Shadow Stock Portfolio that currently meet the purchase rules. (They are designated as “qualified” in the notes column of the Model Shadow Stock Portfolio table.)

Kimball International, Inc. (KBAL) is above the Model Shadow Stock Portfolio’s valuation limit. Stocks are deleted if their price-to-book ratio exceeds 2.4. Kimball International ended February with a price-to-book ratio of 2.55. However, as with OME, outdated figures that showed KBAL’s price-to-book below the limit were erroneously used for our review, and the stock was not sold.

Changes to the Model Shadow Stock Portfolio, when made, are announced quarterly. The next quarterly review will occur in June. The size and value rules of the Model Shadow Stock Portfolio are subject to revision depending on prevailing market conditions. Click here to see the current purchase and sell rules.

There were no changes to the Model Fund Portfolio this month.