June,Q2,YTD S&P 500, Asset Class and Sector Performance

	June	Q2	YTD
S&P 500 Index	4.12%	-2.75%	9.49%
Asset Classes	June	Q2	YTD
Domestic Large Cap Value	4.27%	-3.60%	7.05%
Domestic Mid Cap Value	2.95%	-4.82%	6.79%
Domestic Small Cap Value	3.78%	-4.70%	6.64%
Foreign Large Cap Value	6.69%	-7.34%	2.33%
Foreign Small/Mid Cap Value	4.24%	-8.73%	5.23%
Domestic Large Cap Growth	2.60%	-5.60%	9.31%
Domestic Mid Cap Growth	2.16%	-6.08%	7.63%
Domestic Small Cap Growth	3.75%	-5.43%	7.77%
Foreign Large Cap Growth	4.13%	-7.31%	4.78%
Diversified Emerging Markets	3.83%	-8.16%	4.30%
Gold & Precious Metals	1.77%	-12.84%	-14.39%
Real Estate	5.09%	3.36%	14.27%
Broad Basket Commodities	2.78%	-8.08%	-4.27%
Regions	June	Q2	YTD
Europe Stock	6.09%	-7.16%	4.25%
China Region	2.29%	-6.55%	2.59%
Japan Stock	6.67%	-7.16%	4.25%
Latin America Stock	3.71%	-13.31%	-0.19%
Sectors	June	Q2	YTD
Technology	3.14%	-8.95%	10.02%
Consumer Discretionary	1.54%	-3.12%	13.43%
Financials	4.45%	-5.21%	11.80%
Telecom	5.69%	-2.78%	5.20%
Industrials	1.78%	-5.75%	7.32%
Utilities	4.11%	2.87%	4.64%
Natural Resources	3.37%	-10.28%	-4.51%
Real Estate	5.09%	3.36%	14.27
Health Care	5.75%	1.84%	15.40%
Energy	2.59%	-9.48%	-5.48%
Consumer Staples	3.68%	-0.89%	9.26%

Jon R. Orcutt
Asset Allocation Strategist
Author of Master The Markets With Mutual Funds: A Common Sense Guide To Investing Success
Founder of Allocation For Life
Manager of AFL Models
http://www.allocationforlife.com/

Week Ending 6/22/12 S&P 500, Sector, Asset Class and Region Performance

S&P 500 Index	-0.56%
Asset Classes		Sectors
Domestic Large Cap Value	-0.52%	Technology	0.51%
Domestic Mid Cap Value	-0.40%	Consumer Discretionary	-0.20%
Domestic Small Cap Value	0.14%	Financials	0.27%
Foreign Large Cap Value	0.25%	Telecom	0.12%
Foreign Small/Mid Value	0.45%	Industrials	-0.36%
Domestic Large Cap Growth	-0.24%	Utilities	-1.09%
Domestic Mid Cap Growth	-0.24%	Natural Resources	-2.62%
Domestic Small Cap Growth	0.27%	Real Estate	-0.57%
Foreign Large Cap Growth	-0.48%	Health Care	1.69%
Diversified Emerg Markets	-0.68%	Energy	-2.52%
Gold & Precious Metals	-4.97%	Consumer Staples	-0.95%
Real Estate	-0.57%
Broad-Basket Commodities	-1.64%
Regions
Europe Stock	-0.37%
China Region	-1.60%
Japan Stock	1.28%
Latin America Stock	-0.74%

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

July Historical Sector Analysis: Big Hits & Little Misses

http://seekingalpha.com/article/677721-july-historical-sector-analysis-big-hits-and-little-misses

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Week Ending 6/15/12 S&P 500, Asset Class, Sector & Region Performance

S&P 500 Index	1.34%
Asset Classes		Sectors
Domestic Large Cap Value	1.34%	Technology	0.22%
Domestic Mid Cap Value	0.21%	Consumer Discretionary	0.17%
Domestic Small Cap Value	-0.06%	Financials	1.30%
Foreign Large Cap Value	1.94%	Telecom	1.67%
Foreign Small/Mid Value	1.15%	Industrials	0.34%
Domestic Large Cap Growth	0.56%	Utilities	0.93%
Domestic Mid Cap Growth	0.17%	Natural Resources	1.05%
Domestic Small Cap Growth	0.17%	Real Estate	0.28%
Foreign Large Cap Growth	1.20%	Health Care	1.30%
Diversified Emerg Markets	1.34%	Energy	0.94%
Gold & Precious Metals	1.28%	Consumer Staples	1.16%
Real Estate	0.28%
Broad-Basket Commodities	-0.24%
Regions
Europe Stock	1.71%
China Region	2.42%
Japan Stock	2.11%
Latin America Stock	1.03%

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Gold and Gold Miners Are Not Created Equal

One of the questions I hear most often these days is, why are gold stocks not keeping up with the price of gold?  It’s easy to understand investors confusion because for much of gold’s historic bull run gold mining stocks performed in-line-with or even outperformed the hard asset gold.  However, that has not been the case for over a year now.

The gold rush began in the first quarter of 2002 and the move was so dramatic it caught all investor’s attention and thus their investment dollars.  How dramatic was that initial move?  In the first quarter of 2002 the average gold & precious metals equity mutual fund rose 35.52%.  From that point on the demand for anything gold became so high that the SPDR Gold Shares ETF (GLD) was launched in 2004.  The problem is, since the beginning of the gold rush many investors view gold and gold & precious metals mutual funds and etfs as one in the same.  Sadly, many investors are realizing that they are not created equal.

From 2002-2010 the average gold & precious metals equity mutual fund rose 795%.  However, since the beginning of 2011 thru the markets close on June 13^th the average performance is a loss of 28.46%.  Pain can also be felt in the Market Vectors Gold Miners ETF (GDX) which is down 23.64% for the same period of time.  Meanwhile, GLD has been able to achieve a gain of 14.18% since the beginning of 2011. 

The good news is that GLD has performed exactly how it should in the market environment we have been experiencing for the last twelve plus months.  The unsettling climate in the equity markets over the last year has pushed investors towards gold for safety, while at the same time reducing the demand for earnings sensitive gold equities.  While many mining companies have been increasing their dividends of late, the average dividend yield for the group is still a far cry from the 2% dividend yield the S&P 500 is offering.

Patience will be needed for those long GDX or any other gold mining investment.  History has shown that investors move from the metal to equities in a bull market.  The greater potential for a long-term return on investment lies with equities that have earnings power.  In the bull market (or rebound off of  depressed lows) which began in March of 2009 the average gold & precious metals mutual fund gained 118% between then and the end of 2010.  GDX gained 86.45% in the same period of time while GLD lagged the miners with a gain of 47.07%.  The problem for mining stocks is that there is much more competition from the overall market where at this point in time a case can be made for equal to or greater than earnings potential. 

A bull market could be right around the corner, a major gold find could be announced or an influential investor could announce an investment in the mining sector, but until then investors need to stop confusing the safety of gold with the gold miners.  Sadly many investors were either sold the miners as a safe haven or made that mistake on their own.  Every investment has downside risk and there has been a lesson to be learned in this environment.  While the gains have not been as robust as in the past, and you should not expect them to be, GLD has been the safe haven that many expect it to be.  Perhaps the mad gold rush of the past created unrealistic expectations for GLD, but since the beginning of 2011 GLD is up 14.18% while the S&P 500 index has a total return of 7.84%.

Thank you and good luck everyone!

Disclosure:  I am long GLD and own the Tocqueville Gold Fund (TGLDX)

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Big Government: The Boss Of Banking CEO's

Does anyone else find it ridiculous that Jamie Dimon has to testify on Capitol Hill about a trading loss?  This incident is a perfect example of why you cannot own stock in U.S. banks at this time.  Because of the mortgage crisis, which led to the markets downfall in 2008 and the first quarter of 2009, the large cap banking sector will never be able to achieve the levels of profit that were once known as common. 

Our government, quite frankly, is right up these banks butts.  I am not about to start feeling sorry for these banks, and if you do not believe me then please go back and read my post from earlier this year; http://allocationforlife.blogspot.com/2012/02/capitalism-big-bank-theory.html The banks shot themselves in the foot and brought this “Big Brother” atmosphere onto themselves.  In the case of JPMorgan (JPM) however, they did not want to take TARP money.  They were forced to take the money so that no single bank would appear weaker than another.  Not exactly a stellar picture of the free market.

I simply would caution those considering buying into the banking sector for potential growth.  After this display what CEO is going to be brave enough to begin assuming enough risk to provide a high enough return on capital to satisfy shareholders?  If our government wants to be this involved in the operations of JPMorgan or any other banking institution, then they should take control of the banks.  Though our governments track record in running financial firms, ie. Fannie Mae and Freddie Mac, suggests to me that they could not do it any better than Dimon.

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Week Ending 6/8/12 S&P 500, Asset Class & Sector Performance

S&P 500 Index	3.77%
Asset Classes		Sectors
Domestic Large Cap Value	3.57%	Technology	4.39%
Domestic Mid Cap Value	3.37%	Consumer Discretionary	3.75%
Domestic Small Cap Value	3.61%	Financials	3.69%
Foreign Large Cap Value	3.43%	Telecom	4.18%
Foreign Small/Mid Value	2.85%	Industrials	3.09%
Domestic Large Cap Growth	3.74%	Utilities	2.88%
Domestic Mid Cap Growth	3.73%	Natural Resources	3.42%
Domestic Small Cap Growth	4.13%	Real Estate	4.01%
Foreign Large Cap Growth	3.41%	Health Care	3.35%
Diversified Emerg Markets	2.70%	Energy	2.83%
Gold & Precious Metals	0.86%	Consumer Staples	3.04%
Real Estate	4.01%
Broad-Basket Commodities	1.26%

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Target Date 2015 Funds: Off Target With Risk & Reward

While doing my research for May’s Allocation For Life newsletter, which addressed the topic of “Risk vs. Reward”, I came across some very disturbing data pertaining to target date mutual funds.  The specific target date funds that disturbed me were the 2015 strategies.  The generally accepted definition of a target date 2015 fund is that it is designed for investors who are looking to retire between the years 2013 and 2017.  The front end of that range is just six months away, yet I found that the majority of target date 2015 funds are trading at equal to or greater than risk to the market.

I rely on the statistical measure referred to as “beta” to tell me how correlated a particular mutual fund or portfolio as a whole is to the overall market.  Understanding beta is quite simple.  If a particular investment has a beta equal to 1, then that investment is trading at the exact same volatility as the S&P 500.  In other words, that particular investment is highly correlated to the market.  A beta greater than 1 means that investment or portfolio is trading with a higher level of volatility, some say risk, than the market.  For example, if an investment or portfolio has a beta of 1.20, then that is telling me that the investment trades with 20% more volatility than the S&P 500. If the beta is less than 1, for example a beta of .80, then I know that investment is 20% less volatile than the market.

Now let’s examine the current beta for many of the target date 2015 strategies available and sold to individual investors:

Fund	Symbol	1 Yr. Beta
AllianceBernstein 2015	LTEAX	1.11
Columbia Retirement Plus 2015	CLRAX	0.95
Franklin Templeton 2015	FTRAX	0.92
Goldman Sachs Retirement 2015	GRDAX	1.15
Oppenheimer Transition 2015	OTFAX	1.07
JHancock2 Retirement 2015	JLBAX	1.1
MassMutual RetireSMART 2015	MMJAX	1.15
Principal LifeTime 2015 R1	LTSGX	1.08
TIAA-CREF Lifecycle 2015	TCLIX	1.02
Vanguard Target Retirement 2015	VTXVX	0.91

After reviewing this data it left me asking two questions.  The first question I had was, “Why are these funds assuming nearly equal to or greater than risk to the market with shareholders on the verge of retirement?”  There are some very dark clouds on the horizon and the current level of risk and volatility these funds are exposing shareholders to could derail shareholders retirement plans.  It’s another classic example of individual investors being set up to be stuck behind the eight ball again.  I have no problem with the concept of assuming risk, but that risk should come with some type of reward.  Sure the sun may shine and the clouds may not produce a storm, but you are still left with funds that have not been able to provide much return for the risk being assumed.

This led me to my second question which was, “Ok, you have assumed the risk, but where is the reward?”  I have shown you that these funds are currently assuming volatility right in line with the market (some are assuming less and some are assuming up to 15% more), now let’s examine the trailing five year returns for those funds listed above that have been around that long.  The returns are as follows and as of the close on 6-5-12:

Trailing Returns as of 6-5-12	LTEAX	OTFAX	JLBAX
YTD	-0.52%	1.01%	2.41%
1yr.	-6.12%	-4.64%	-1.95%
3yr. Average Annual	9.16%	8.52%	10.58%
5yr. Average Annual	-2.06%	-4.65%	0.06%
	TCLIX	VTXVX	S&P 500
YTD	2.36%	1.87%	3.17%
1yr.	-0.50%	0.38%	2.16%
3yr. Average Annual	9.78%	10.22%	13.30%
5yr. Average Annual	1.03%	1.72%	-1.13%

The risk that has been assumed for shareholders of these mutual funds that are about to enter retirement has not been worth it.  So why assume the risk?  For comparison purposes, I have two models (one of which was outlined in my book) that are available to members of Allocation For Life to own directly at Folio Investing.  They are the AFL 50/50 Defensive Growth Models and are available in mutual fund and etf form.  Both of these models over the last five years have traded with a beta in the range of .44 to .50.  These models are assuming 50% or more less volatility than these target date 2015 funds, and would be my choice for investors on the verge of retiring or in retirement.  Let’s compare these models returns to the above target date returns.  The returns are as follows:

Trailing Returns as of 6-5-12	AFL Defensive Growth MF	AFL Defensive Growth ETF
YTD	2.22%	3.84%
1yr.	0.25%	2.97%
3yr. Average Annual	11.08%	11.47%
5yr. Average Annual	5.90%	4.35%
10yr. Average Annual	8.34%	NA
Return Since Inception 1-1-2000	8.97%	NA

Are these returns better across the board than the returns of the target date 2015 funds I shared with you?  Yes, and this would make me very angry if I were a shareholder of these funds.  Sadly most investors do not realize what they own and many of these funds are tucked away in 401k’s as a responsible option for participants.  The target date funds I shared with you simply have not provided enough reward for the risk they have assumed.  Based on the trailing returns there is no reason to believe that they ever will.  Investors cannot begin to understand how they are going to get where they want to go until they begin the process of understanding risk vs. reward.  In this case, I believe many shareholders assume they are taking on less risk than the market, but that simply isn’t the case.

Thank you and good luck everyone!

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/