595 / 772
A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 25, NO. 2
Opening Scenes
LIKE THE ACADEMY AWARD-WINNING 2007 FILM
Juno
, Winter Storm Juno was preg-
nant with possibilities, including initial concerns that Wall Street might operate with a
skeleton crew if transportation was shut down by two feet or more of the wintry white
stuff. But like the movie, which won the award for Best Original Screenplay, not Best
Picture, the storm had a negligible impact on NewYork. Rather than a storm-related
drama on January 27, markets went into spasms over a host of lousy earnings reports and
uncertainty surrounding Greece’s turn to a newly elected leftist government.
So, after a down-again, up-again month, January saw the Dow Jones index decline
3.7%, off 4.9% from the high reached at the end of December. This isn’t even close to a
meaningful pullback, let alone a correction of 10% or more. One trend that has persisted
into 2015 is falling interest rates, as the 30-year Treasury bond yield hit a historical low
of 2.22% at month-end. Falling yields mean higher bond prices, and strong returns for
Extended-Duration Treasury ETF
, up 14.2%, and
Long-Term Treasury
, up 9.0%
in January. Falling rates also continue to benefit interest-rate sensitive stocks like those
found in
Utilities Index
(up 2.2%) and
REIT Index
(up 6.7%).
Health Care
’s 2.1%
gain had it picking up right where it left off in 2014, as did
Energy Index
’s 4.8% loss as
oil continued its slide.
However, not all of 2014’s storylines carried over into the new year. In a reversal,
foreign stocks outperformed U.S. stocks, with
Total International Stock Index
gaining
0.1% while
Total Stock Market Index
lost 2.8%. This change in fortunes comes at
The Independent Adviser for Vanguard Investors
and FFSA are completely independent of The Vanguard Group, Inc.
MOMENTUM
From Sizzle to Fizzle
WHEN
HOT HANDS
ARE HOT,
they sizzle; when they’re not, they fizzle. And that’s what
happened with the annual
Hot Hands
strategy in 2014. After a blistering 2013, when
Hot
Hands
fund
Capital Value
posted a 43.9% return in a year when
Total Stock Market
Index
gained 33.3% and
500 Index
returned 32.2%, our 2014 fund,
Explorer
, died on
the vine. With a top-notch 44.4% gain in 2013, marking it the fund to own in the com-
ing year, Explorer entered 2014 on a high note and promptly fell off a cliff, gaining just
3.9% by year’s end. Though small stocks took the lead early in 2014, by late March
they’d fallen behind and never caught back up to the returns being generated by their
larger-cap brethren.
To be clear, I did express quite a few reservations about Explorer one year ago, and
everything I said then, I still believe today.
(See excerpt on page 13.)
DOW JONES INDUSTRIALS
January Close:
17164.95
STANDARD & POOR’S 500
January Close:
1994.99
3900
4150
4400
4650
4900
JD NOS AJ JMAM F
NASDAQ COMPOSITE
January Close:
4635.24
0.00%
0.01%
0.02%
0.03%
0.04%
0.05%
JD NOS AJ JMAM F
3-MO.TREASURY BILLYIELD
January Close:
0.00%
1.6%
2.0%
2.4%
2.8%
3.2%
JD NOS AJ JMAM F
10-YR.TREASURY NOTE YIELD
January Close:
1.67%
15600
16275
16950
17625
18300
JD NOS AJ JMAM F
1750
1850
1950
2050
2150
JD NOS AJ JMAM F
AVERAGEVANGUARD INVESTOR*
January:
-0.7%
YTD:
-0.7%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
JDNOSAJ JMAMF
*See the footnotes on page 2.
Model Portfolios................................................................ 2
Model Numbers................................................................ 4
What Price Glory?............................................................. 5
Investing at a (Potential) Top............................................. 6
Performance Review.................................................... 8-11
Another Stab at a Muni Index ETF.................................. 12
Watch Those Vanguard Calculations................................ 12
Dan’s Do-It-Now Action Recommendations.................... 16
F EBRUARY 2015
SEE
OPENING
PAGE 3
>
S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E
>
SEE
FIZZLE
PAGE 13