“The market may be bad, but I slept like a baby last night. I woke up every hour and cried” …. old stock market joke…….
Where are we, at the end of January?
If you’ve been reading this newsletter for the last year, I’ve been wishing for a healthy drop in the stock market. What’s healthy? The stock market is accustomed to experiencing a drop of 5 – 10% about once annually. Until this month, this had not happened since January 2016. The too quiet, too steady, too high, too predictable market runup in 2017 (by historical averages) was a setup for the steep declines this month. People wonder what caused the drop and my answer is – not necessarily anything and it doesn’t necessarily matter. The most important job you have as an investor (or advisor) in the stock market (along with investment selection) is to avoid the eventual bear market, by which I mean a collapse of 30 – 40%. This happened last in 2008. So, looking at market statistics, we don’t see evidence YET of an imminent bear market. Among other things, it’s important to understand that generally bear markets take months to set up. I’ve pointed out in these newsletters that in the case of the bear market crash in Sep – Oct 2008, the markets actually peaked before the end of 2007. All those months, the market was showing signs of deterioration that we just don’t see now.
Regardless, the stock market may not be finished dropping just yet. There are typically signs that the bull market is ready to resume – very high volume up days and statistically valid evidence of renewed high demand. I will be watching.
How Did the Markets and our Funds Do in January?
All index and fund returns are courtesy Morningstar.com.
Our funds did extremely well in January. Some of the funds were so well positioned that they are actually UP year to date, regardless of the steep drops here so far in February. For example, our Fidelity Contrafund was up over 9% in January and remains up nearly 3% for the year as of last night. Other funds of ours up year to date DESPITE the Feb drop are IEMG, FHLC, FSMEX, FBGRX, CFRAX, FBIOX, FTEC and ONEQ.
Much has been made of the rising interest rate environment, which potentially bodes ill for bonds. I have talked about that a lot and it certainly has put a scare into many investors. The US Aggregate Bond Index was down 1.15% in January. However, we have been anticipating that with our fixed return vehicles. Our floating rate funds were up (CFRAX +1.77% in Jan) and our peer to peer funds were up for the month as well.
Here are the index returns and our fund returns for the month of January:
|Morningstar Diversified Emerging Mkts||5.57%|
|Russell 2000 (small co)||2.57%|
|US Aggregate Bond Index||-1.15%|
|IEMG||7.98%||iShares Emerging Markets||Fidelity commission free stock ETF|
|FQAL||4.86%||Fidelity Quality Factor||Fidelity commission free stock ETF|
|ONEQ||7.33%||Fidelity Nasdaq||Fidelity commission free stock ETF|
|FTEC||7.54%||Fidelity Info Tech||Fidelity commission free stock ETF|
|FHLC||6.80%||Fidelity MSCI Healthcare||Fidelity commission free stock ETF|
|FMAT||3.71%||Fidelity Materials||Fidelity commission free stock ETF|
|FIDU||4.99%||Fidelity Industrials||Fidelity commission free stock ETF|
|FBIOX||9.56%||Fidelity Biotech||stock mutual fund|
|FSMEX||9.30%||Fidelity Medical Equipment||stock mutual fund|
|FCNTX||9.31%||Fidelity Contra Fund||stock mutual fund|
|FBGRX||8.57%||Fidelity Blue Chip Growth||stock mutual fund|
|CFRAX||1.77%||Catalyst floating rate||bond mutual fund|
|FFRAX||1.03%||Fidelity floating rate||bond mutual fund|
|RNDLX||-0.41%||RiverNorth Strategic||bond mutual fund|
|FNMIX||0.75%||Fidelity New Market||bond mutual fund|
|FAGIX||1.85%||Fidelity Capital & Income||bond mutual fund|
|LENDX||0.49%||Stone Ridge Alternative||peer to peer fixed return mutual fund|
|Prime Meridian Small Bus LP||0.50%||1 month lag||private peer to peer fixed return|
|Prime Meridian Real Estate LP||0.60%||1 month lag||private peer to peer fixed return|
|KIP, Kay Income Partners LP||0.56%||private mortgage fund|
Your investment return(s) for the month of January was/were as follows:
We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.