Animal Spirit's Podcast:

Some questions for an apathetic investor:
- What’s the right allocation for my risk profile and time horizon?
- What types of drawdowns would I be comfortable with?
- How to I balance risk and reward in my portfolio?

how-to-invest-in-a-bubble

Historical market data can’t help you predict the future but I still find it useful as a way to understand the potential risks and rewards you can see as an investor.

Looking through 93 years of returns for stocks, bonds and cash won’t help you predict future returns for these asset classes.
But it can give you a better sense of the risk involved in these asset classes since risk is much easier to predict than returns.

Stock, Bond & Cash Returns: 1928-2020
stock-bond-cash-returns-1928-2020/

Thanks for starting this thread, @stillers. SCV is definitely volatile as a glance at the charts of the three ETFs I reviewed: CSB, DES, and VRB. The first two pay dividends monthly while VRB pays quarterly. I bought CSB for its compact portfolio and apparent good recovery from the pandemic-induced lows. The Vanguard fund did much better in 2019 than the others, but it does not have the overall performance advantage. I currently do not have any SCV MFs, but I did have some success at Walthausen in the past.
For SCG, I own BCSIX (closed), DVSMX and DSMDX. Lots of tech and healthcare in these offerings. They go like H when the going is good. And we know how that can end...

Many good suggestions already posted. Even though it’s new, I think Matthews is a good shop and that MEGMX has a good chance of riding the EM updraft. For small and micro caps EM, GPEOX is worth a look. I have never owned DRESX, Driehaus EM SCG, but it is on a tear since 2019. I do own 2 domestic Driehaus funds. At Schwab, the $10K minimum is waived.

CEF ROC can be destructive, constructive, or other.
Here's M*'s writeup, via Fidelity, of pass-through and of and constructive ROC.
https://www.fidelity.com/learning-center/investment-products/closed-end-funds/return-of-capital-part-two
I agree with you that in general ROC is destructive. This is why I tend to suggest caution in focusing too much on current yield. Whether from a CEF, ETF, or OEF, including OEFs comprised of bonds.
If market rate on a one year bond is 1% and your bond has a 2% coupon, it will be priced at 101. A year from now (assuming one coupon per year for simplicity) you'll get that 2% in "interest" but you'll have lost 1% in principal. That 2% payment is really 1% in interest and 1% ROC. In fact, for individual bonds, that's how the IRS treats it. See boxes 11-13 on form 1099-INT.
https://wiki.1099pro.com/download/attachments/89456651/image2020-5-18_11-3-3.png

To all that responded, thank you for your insight and opinions! A lot of great thoughts and fodder to consider!!!
MikeW thank you for your suggestion regarding FSEAX, which my wife has in her 401(k) and we are very pleased as you would imagine.
That may be a better way to augment my foreign/EM allocation. This way I have greater control of that asset allocation.
I have to admit, I think the US is still the best place to invest, but a dash into foreign/EM could be very beneficial.
As I said previously, I’ve been previously burned by investing in this area on calls for a “rotation”.
Thx. Matt

From another thread...
newgirl
January 17 Flag
@Benwp and @MikeW ... I 'd love for you to start the thread on Small Cap and EM Asia .
I am very interested in thorough analysis!
Not either of those posters, and not sure I can provide thorough analysis, but...
First, for EM, see a good discussion at
https://www.mutualfundobserver.com/discuss/discussion/57597/some-questions-on-emerging-market-funds#latest
Small Caps: IMO, the rotation is REAL and has been happening now for several months. Getting frothy perhaps but appears there is still a LONG way to go and it's not too late to participate. To wit, SCs are set to Rock the Casbah again this AM.
First entry into the cat in a BIG way was on the value side, selected FCPVX (UP 7.3% YTD), then a smaller play with Foreign SCB/MCB FISMX (and its arguably unique splatter).
More recently bot MSSMX (UP 11.3% YTD, UP 150% in 2020), Morgan Stanley's gem of a SCG fund.
Others considered:
SCG: WMICX, ARTSX, FDSCX, PXSGX, QUASX
SCV: RYOFX
EM SC: VAESX, WAEMX
Foreign, EM and SC (all cats that generally require a bit of bravery/insanity for retirees at least) are providing some REAL energy to otherwise (temporarily?) lackluster, US LC-laden ports these days, and I expect that to continue this year and possibly beyond. Suggest DCA'ing at this point as an interim pullback seems likely. YMMV.

Original posting on this thread, 5 years ago:
"....relatively conservative LC/All Cap dividend value fund..."
Are you still intent on a value emphasis, in 2021?
I'm doing just a quick look... Vanguard has been getting negative reviews here in terms of customer service. But VEIPX certainly looks good. Then there's PRDGX. But just lately, Index performance has beaten the fund's performance by a bit. .....Alternatively, what about investing in a single stock that strikes your fancy? For income, I use bond funds. These days, bonds are poison, I know. But I can't be pulling up roots and making changes all the time, depending on which way the wind blows. I've got the other bases covered to my satisfaction.

Hey @newgirl. The way I have invested in EM is to take positions in MIOPX, FSEAX, and CHIQ. By its nature EM tends to be more volatile so its difficult to try to invest in it without taking on a fair amount of risk. MIOPX diversifies that risk because EM is "only" about 37% of the portfolio whereas the balance is mainly in Europe, the U.S. and Canada. Kind of a barbell strategy which has worked very well over the long term. The fund is in the top 10% over the past 1, 3, 5, and 10 years for its category. however, its returns have been more muted over the past 1 and 3 months. FSEAX has had much higher returns over that short timeframe and if you pull up its long term performance on Morningstar its quite impressive. I really like the consistency in the performance of this fund. The other thing I like about FSEAX is that the manager has rotated more into financials so appears to be increasing his stakes on the value side more. I like to see a manager making those types of modifications to the portfolio based on valuations and their assessments of where the market is going. India and China are now the largest countries in the portfolio. I don't see any investments in Japan for FSEAX. here's the latest fact sheet.
https://www.fidelityinternational.com/legal/documents/SG-en/hffs.SG-en.SG.G-FEMU.pdf
You should also take a look at MATFX. I really like the manager of this fund very much and he's been running it with strong performance for about 15 years. This one is going to have a larger position in technology and communication services so that's something to consider. Those sectors are starting to lag here in the U.S. Will that be the case for EM too going forward? not sure.
For myself, I haven't added to EM in several months and have instead increased my stakes in U.S. financials and also in U.S. small cap because I see those as being a bit stronger in terms of opportunities and because my personal asset allocation has been low in those areas. But I will probably do so soon. I think EM Asia is very promising over the long term.

SIGIX (SFGIX) was a disappointment to me. Not a disaster, but I did get out of it. After Foster left Matthews, I went over to his new fund. He is a good communicator, but eventually, I tired of him admitting to mis-timed decisions or just bad investments in particular stocks. But the fund had quite a good 2020.
FSEAX had a partial change in management of the fund at the end of 2019 or maybe just into January, 2020. The fund really took off! I think under the current Covid regime, it looks like a "gooder" to me: governments everywhere are doing anything and everything to "juice" their economies. As long as the advanced, industrialized countries continue this way, the EM markets will follow nicely along on the coattails. Just my 2 cents. :)

1.99% car loan, just a year ago. But lately, bonds have been misbehaving. We make sure not to pay interest on anything except the car loan. 4 years to go with that. Paying interest is like paying a tax you aren't required to pay. Unless unavoidable, like on big-ticket items, like a car. Strategy: I could have plunked-down the full price in cash, and pay no interest on the car. But I'd then never be able to grow the portfolio back to where it was, beforehand. That would mean reduced monthly dividends and yearly cap gains forever, thus permanently hobbling ourselves. Meanwhile, the portfolio is growing well beyond 1.99%.

Except it is not the inflation most people care about or should care about: https://financialpost.com/investing/how-americas-1-came-to-dominate-stock-ownership

The richest 1 per cent of Americans now account for more than half the value of equities owned by U.S. households, according to Goldman Sachs....As of September 2019, the bottom 90 per cent owned US$4.6 trillion of equities, or 12 per cent of the total, the analysts noted.

Moreover, asset price inflation in bonds one could argue is good for the bottom 90% who more often have outstanding debt than own financial securities in any significant amount. Debt with low interest rates saves them money. The people low yielding high priced debt hurts the most are bankers, i.e., creditors.

@Derf You try'in to overload an oldtimers brain cells....??? :)
I recall reading a few articles in Barron's or WSJ about the Beardstown Ladies investment club.
About the coworker investment club: the life span was a portion of 1985 through a portion of 1991. As most funds required $2,500 to invest (exception was FCNTX); we had to get to that point for a purchase of a fund. The goal was met in short fashion. The initial monies went into a MM Cash Reserves fund that had a 1988, 7 day yield of 7.2%.
Additionally for the funds of this time period, is that many had a 3% (one time) front load and some had redemption fees up 1.5% within the first 12 months of purchase. This was still better than many of the prominent big houses at the time.....a Merrill Lynch, etc. The E.R. range was from .83 through 2%. The Select funds might also have a $75 trading fee. Select funds at the time could be bought and sold on the hour throughout the business day. Transactions were performed through F.A.S.T. (Fidelity Automated Service Telephone) using a touch-tone phone.
All investments were through a Fidelity account and only used their mutual funds.
I can offer a few trinkets about this period (1985-1991) and investing. As noted previous, Fidelity had already established numerous "select" funds; the front runners of sector funds or what are named thematic today.
To the best of my recall, we used the following funds during this period:
---Cash Reserves, MM
---Select American Gold (later merged in Precious Metals)
---Select Computers
---Select Health Care
---Contra... FCNTX
---Captial & Income, (junk bonds and related) FAGIX
We didn't trade often, mostly due to the fees. We also escaped, without harm, during the Oct., 1987 market melt, as we did not sell anything, and our position in American Gold provided a +40 in 1987 to provide a balance.
My recall for the time frame of the club is 10-12% annualized. As members of the club placed different amounts each month, each member had a percentage of ownership when the club was dissolved; and the total profits were dispatched to each member, along with their tax form for the year.
I'm sure I've missed something I thought about previously, but a fun flashback.
Take care,
Catch

I am trying to make a choice on a new Emerging market position . I need some clarifications?
1.FSEAX -looks amazing, The Martin Ratio/ MaxDD and recovery - and the performance SCHWAB SUMMARY STATES EX JAPAN - But in the country allocation detail it shows an 85 position in Japan
2. Is SIGIX and PRIJX recent performance lackluster solely due to the Value proposition, and is that a great reason to invest there at this time ?
3. per David's recent comments and Theresa Kongs comments about EM Bonds ( I don't have any ) would a position in FTEMX/FTDEX - (20 % BONDS ) be a timely move.
4, I haves dry powder in both taxable and un taxable accounts ready to invest - currently very heavy large Caps US- so looking to diversify into Foreign Small caps and EM . I have already started ne position in MFAIX - Looking at lower risk way to add the higher risk EM to my portfolio.
Many thanks !

Following is a letter to the editor of The Economist, in the January 16, 2021 weekly edition. It presents an interesting perspective on current asset pricing.

You continue to view inflation as a pricing phenomenon of products and services (“Will inflation return?”, December 12th). But this misses where inflation is hiding in plain sight: asset prices, notably in the increase in prices of investment assets such as property and speculative equity. The way we measure inflation and where we look for it needs a long-overdue change.
NAEEM HUKKAWALA
New York

@BT2020:But go ahead and keep pushing highly leveraged and/or non-liquid funds...
So what's next?
Are you going to start pushing 2x and 3x leveraged funds like Profunds & Direxion too?

I already posted several warnings and what I have done with my own portfolio.

Warnings?
You didn’t post any warnings in your original post!
You never mentioned the fund was highly leveraged.
But whatever....

Thanks, davfor. Interesting how SVARX brought exposure down from highly leveraged at 12-2019 206% all the way down to 28% in 1Q 2020. Sometimes market timing works.

For anyone with an interest, here are a couple more links:
1. Spectrum Investment Advisors - archive of links to quarterly Newsletters:
https://client.spectruminvestor.com/189/quarterly-newsletters/2020-newsletters
2. Spectrum Financial Inc. - Archive of links to the quarter Full Spectrum newsletter. Scroll down the page to get to the archived links:
https://investspectrum.com/newsletter.cshtml

I re-balance twice yearly. Also I prefer to reapportion monthly dividends/gains to positions of my own choice based on the economy, my current financial and tax situation or cash needs. Typically I would do about 40 buys/sells a year. At Wellstrade that would have been $1,600/yr. At Fidelity about $800-1000/yr. Same at Vanguard. A free cash management account with checks/ATM card is available with 25K or more in the account, which I have. With the greater availability of cheaper institutional/advisor class funds and all no load funds (over 12,000) being NTF this was a no brainer for me. As always ,each to his/her own. I realized great cost savings and I wanted to share this ,with those who might be interested.

I used to buy one ticket when the jackpot got big just for the fun of it. I quit after my husband started buying them for me. He just couldn't buy just one but would purchase 5 or 10. Somehow it wasn't fun anymore for me.