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Did you feel it? The plate tectonics of the markets
shifted in January. Oil prices hit new lows, equities
sold off hard, and junk bonds took a hit. Following
soon after the Federal Reserve’s first interest-rate
hike, we’re seeing renewed signs of economic weak-
ness. Let’s take a look at what’s going on. Although
many asset classes have lost value, we really have
three distinct corrections in commodities emerging
markets and developed-markets equities.
Here are some details on where we stand at the
end of January
2016
:
•
The S
&
P
500
is down
5%
for the year to date but up
11%
annualized over the past three and five years.
•
Within the Morningstar
500
,
29
funds are down
double digits for the year.
•
Only
69
Morningstar
500
funds are in the black, and
they are all bond funds.
•
From May
17
,
2015
,
41
Morningstar
500
funds are down
more than
20%
, and
260
are down more than
10%
.
•
Treasuries have shown their safe-haven appeal with a
5%
gain for long maturities for the year to date.
The Commodity Meltdown and Your Portfolio
Economic cycles show it is quite common to see some-
thing steadily rising in price, only to fall back as
more production comes on line to meet greater demand.
So it is not at all surprising that this would happen
to oil, copper, or coal. But the extremes of both the
rally and decline are remarkable. Oil has fallen from
a peak of
$145
a barrel in
2008
to
$30
a barrel in Jan-
uary
2016
. Copper prices have fallen more than
50%
from their
2008
peak, and coal is down about
70%
.
This has caused pockets of severe pain in the fund
world, although diversified portfolios have not been
hurt too badly. For example,
PIMCO Commodity
Real Return Strategy
PCRDX
has lost
21%
annualized
in the past three years,
14%
in the past five years,
and
6%
in the past
10
years.
Vanguard Energy
VGENX
has lost
10%
annualized in the past three years,
6%
in the past five years, and is flat for the past
10
years.
The former fund has direct exposure to commodities,
while the latter owns energy stocks with a bias toward
the more stable oil majors.
Vanguard Precious
Metals and Mining
VGPMX
owns shares of metal pro-
ducers and miners of a variety of commodities and is
down a horrific
26%
annualized in the past three years,
21%
in the past five, and
8%
in the past
10
.
Of course, the biggest driver in this story is China.
China’s remarkable growth over the past two decades
sucked in an amazing amount of natural resources,
and that inspired unprecedented investments to bring
more commodity production on line. Today, China’s
rate of growth is slowing much faster than expected at
the same time that production of commodities has
ramped up. Hence, your plummeting commodity prices.
In addition, the shale oil revolution in the United
States has turned the
U.S.
into a net exporter of oil,
and Saudi Arabia’s conflict with Iran has led it to go
The Corrections
Fund Reports
4
FMI Large Cap
PIMCO Foreign Bond
Royce Special
Vanguard Wellesley Income
Morningstar Research
8
Who Is Really Focused on the
Long Term?
The Contrarian
10
Why High Quality Means Low Risk
Red Flags
11
Outflows Menace These Funds
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
6 Big Mistakes to Avoid in a
Retirement Portfolio
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
Digging Into World-Bond Funds
Changes to the 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel, Director of
ManagerResearch and Editor
FundInvestor
February 2016
Vol. 24 No. 6
Research and recommendatio s for the s riou fund investo
SM
Continued on Page 2