After continuing its upward momentum in April, the equity markets retreated for much of the second quarter on evidence of slower economic growth and ongoing debt crises around the globe. Then, as fears subsided, a rebound in the last two weeks of the quarter brought the large-cap U.S. indexes back to slightly positive territory, though the global and small cap indexes were still negative for the quarter.
Equities: Core and Speculative Funds and ETFs
Both the core and speculative components of our equity portfolios continue to be skewed toward mid-cap domestic funds and ETFs.
New purchases in our core holdings include Allianz NFJ Renaissance (PRNIX), a mid-cap value fund, and WisdomTree Dividend ex-Financials Fund (DTN) an ETF tracking an index of high dividend paying U.S. companies excluding the financial services industry.
There was some inching into foreign funds in the second quarter with the purchase of SPDR S&P International Dividend (DWX), iShares S&P Europe 350 (IEV) and Vanguard European (VGK), among others. By the end of June the FundX Upgrader Fund portfolio was approximately 82% in U.S. companies and 18% overseas.
Among our aggressive sector holdings (which are kept to smaller individual holdings in the portfolios) we moved out of basic materials with the sale of iShares Dow Jones U.S. Basic Materials (IYM) – which represents chemicals, mining, aluminum, etc. – and into biotech with the purchase of SPDR S&P Biotech (XBI). We continue to hold some energy funds, and our precious metals exposure shifted around somewhat. Although we sold U.S. Global Investors World Precious Metals (UNWPX) and Global Resources (PSPFX), we added to iShares Silver Trust (SLV) .
In a classic “flight to quality” investors bought up US Treasuries in the second quarter, pushing yields down to their lowest point of the year (2.93% in mid-June). Our Flexible Income portfolio participated only partially in this advance, due to our stronger weighting in lower grade corporate bonds. These funds pulled out a slight gain for the quarter, despite experiencing a pullback for several weeks that coincided with the stock market decline.
In the global arena, we moved out of the dollar-hedged Alliance Bernstein Global Bond (ANAYX) and into the non-hedged SPDR Barclays Capital International Treasury ETF (BWX) and Loomis Sayles Global Bond (LSGBX), which tends to hold foreign currencies. World bond funds make up about 15% of the portfolio, up from 10% last quarter.
Other changes during the quarter include the sale of BlackRock Strategic Income Opportunities (BSIIX) and Weitz Short-Intermediate Term Fixed (WEFIX), and the purchase of RidgeWorth High Income (STHTX).
The use of alternative “non-bond” funds increased from 24% to 29% of the portfolio. This includes continued use of Permanent Portfolio (PRPFX), Merger (MERFX) and Manning & Napier Pro-Blend Conservative (MNCIX).
Small- and medium-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies.
Investments in foreign securities involve greater volatility and political, economic and currency risks and differences in accounting methods.
Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities.
Non-Diversification Risk –The Underlying Funds may invest in a limited number of issuers and therefore may be considered non-diversified.
Short Sales Risk –The Underlying Funds may engage in short sales, which could result in such a fund’s investment performance suffering if it is required to close out a short position earlier than it had intended.
ETF Trading Risk – Because the funds invest in ETFs, they are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a discount to its net asset value ("NAV"), an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a Fund’s ability to sell its shares.
References to other mutual funds should not be interpreted as an offer of these securities.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security.