Where are we, at the end of October?
First, let me apologize for being late with this newsletter. I had a bout with the flu for a few days.
Here are the big takeaways from October:
- The bull market in stocks remains intact and it could go on for a long time
- The various sectors cycle up and down and leadership changes from month to month. This means that at some level, diversification is working.
- The NYSE (New York Stock Exchange) index just doesn’t keep up with the other sectors, which is interesting because the NYSE is our broadest representation of what the OVERALL stock market is really doing. The consistent strength in this bull market today is the large companies, especially technology, and foreign emerging market stocks. The fact that the majority of the market lags a bit is a little concerning, but not any reason to back off.
The Russell 2000 (small companies) and NYSE index were up 0.80% and 1.08% respectively, while the other indexes were up greatly. Our biotech fund, FBIOX, was down 5.9%, but in August and September it was up 5.34% and 1.98%, respectively. In June it was up 10.93%. (All returns courtesy morningstar.com). We try to stay in the sectors that are working. Not surprisingly, we have benefited most from our technology holdings, represented by ONEQ and FTEC.
Our greatest problem right now is that we use bond funds as a diversifier and safety hedge, but they have not performed that well. The U.S. aggregate bond index was up only 0.06%. Our RiverNorth bond fund was down 0.33%. My best weapon for fighting a lagging bond market has been to mix things up, using the Stoneridge fund (which is not bonds) and using floating rate funds (which are designed to defend against rising interest rates). So, I’m using diversification to offset potential under-performance among our fixed funds. Here are the returns of the various indexes and our funds in October, courtesy morningstar.com:
|Morningstar Diversified Emerging Mkts||2.22%|
|Russell 2000 (small co)||0.80%|
|US Aggregate Bond Index||0.06%|
|IEMG||3.26%||iShares Emerging Markets||Fidelity commission free stock ETF|
|FQAL||1.77%||Fidelity Quality Factor||Fidelity commission free stock ETF|
|ONEQ||3.69%||Fidelity Nasdaq||Fidelity commission free stock ETF|
|FTEC||7.43%||Fidelity Info Tech||Fidelity commission free stock ETF|
|FHLC||-0.84%||Fidelity MSCI Healthcare||Fidelity commission free stock ETF|
|FMAT||3.64%||Fidelity Materials||Fidelity commission free stock ETF|
|FIDU||0.82%||Fidelity Industrials||Fidelity commission free stock ETF|
|FBIOX||-5.90%||Fidelity Biotech||stock mutual fund|
|FSMEX||1.64%||Fidelity Medical Equipment||stock mutual fund|
|CFRAX||0.70%||Catalyst floating rate||bond mutual fund|
|FFRAX||0.61%||Fidelity floating rate|
|RNDLX||-0.33%||RiverNorth Strategic||bond mutual fund|
|FNMIX||0.16%||Fidelity New Market||bond mutual fund|
|LENDX||0.49%||Stone Ridge Alternative||peer to peer fixed return mutual fund|
|Prime Meridian Small Bus LP||0.66%||1 month lag||private peer to peer fixed return|
|Prime Meridian Real Estate LP||0.64%||1 month lag||private peer to peer fixed return|
|KIP, Kay Income Partners LP||0.56%||private mortgage fund|
Run ups and Corrections?
I have talked a lot in these newsletters about corrections. We have been on a straight shot up in the stock market since the end of August (approximately 5%), not to speak of the last 12 months. A correction (i.e. pullback potentially in the 10% range) ought to happen sometime, but as stated in the past, it is very hard to time your way in and out of corrections. For now, there is no sign of this.
Your investment return(s) for the month of August 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.