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Love Is in the Air, But No Valentine for Stocks

We may be approaching the season of love, but all is not a bed of roses in the stock market. The S&P 500 index’s total return was -3.0% in January. However, large-cap stocks were not alone in struggling through January: Cupid’s arrow also failed to strike small-cap stocks, as the S&P SmallCap 600 index’s total return was -3.5% in January.

The Model Fund Portfolio saw a decline in January, losing 2.4%, while the Model Shadow Stock Portfolio, which invests in micro-cap value stocks, lost 4.4% last month.

The Model Shadow Stock Portfolio’s 4.4% decline for the month trailed one of its comparison benchmarks and beat the other: The Vanguard Small Cap Index (NAESX) lost 2.2% and the DFA US Micro Cap Index fund (DFSCX) lost 4.9% in January. As we have just completed the first month of 2015, year-to-date returns are the same as one-month returns. Since its inception in 1993, the Model Shadow Stock Portfolio has a compound annual return of 16.5%, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.4% annually over the same period.

The Model Fund Portfolio’s 2.4% decline in January compared to no change for the Vanguard Total Stock Market Index fund between December and January. Since its inception in June of 2003, the Model Fund Portfolio has a compound annual return of 9.0%, slightly underperforming the Vanguard Total Stock Market Index fund over the same time period, which returned 9.5%.

February Updates
No transactions were made in either the Model Shadow Stock Portfolio or the Model Fund Portfolio this month.

Two stocks in the Model Shadow Stock Portfolio, Olympic Steel (ZEUS) and Rocky Brands (RCKY), qualified for purchase at the start of February. 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 eligible for deletion if their price-to-book ratio exceeds 2.4. Kimball International ended January with a price-to-book ratio of 2.47. Standard Motor Products’ (SMP) valuation also exceeded the limit, with a price-to-book of 2.49. In addition, Standard Motor Products’ market capitalization of $911 million is above the maximum size requirement of $900 million.

Changes to the Model Shadow Stock Portfolio, when made, are announced quarterly. The next quarterly review will occur in March.

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.