Fund Makeover

6/16/2014


Through June 10, the Growth Portfolio has gained 3.9% in 2014, versus 5.5% for its passive benchmark portfolio. The Conservative Portfolio is up 4.0%, compared to a 4.8% gain for its benchmark. The S&P 500 Index has returned 6.5%, and the Barclays Aggregate Bond Index has gained 3.2%.

Despite the mixed results, the Forecasts' fund portfolios did well in fund selection, as most holdings outpaced category averages. But a retreat in small and midcap stocks, both in the U.S. and foreign markets, hobbled a handful of picks and limited portfolio returns. Outsized exposure to growth stocks also weighed on performance.

Our portfolios can be better. To that end, we are making changes:

➤ We are dropping Wells Fargo Advantage Discovery ($32; STDIX) from both portfolios and from coverage. A laggard in the midcap growth category, Wells Fargo has seen its fund score slump to 44. In addition, it recently closed to new investors.

➤ Fidelity High Income, ($10; SPHIX), with a fund rating of 47, is being dropped from coverage. Vanguard High-Yield Corporate ($6; VWEHX), which invests in junk bonds and yields 3.9%, is taking its place.

➤ We are trimming exposure to growth stocks, partly because investors have soured on expensive, speculative growth names. As classified by Morningstar, growth stocks account for 37% of the equity portion of the retooled Growth Portfolio, down from 42%. The Conservative Portfolio is 38% invested in growth, down from 44%.

➤ To boost exposure to value stocks, we're adding to our positions in T. Rowe Price Value ($37; TRVLX) and Vanguard Selected Value ($30; VASVX), standout funds in the large-cap and midcap categories, respectively.

➤ Last month, iShares MSCI EAFE Small-Cap ETF ($53; SCZ) replaced Wasatch International Growth ($29; WAIGX) in our portfolios. The ETF, which holds more than 1,300 small and midcap stocks, earns a fund rank of 93.

OUR RECOMMENDED MUTUAL FUNDS
Through June 10, our Growth Portfolio has climbed 3.9% for the year, versus 5.5% for its benchmark portfolio. The Conservative Portfolio is up 4.0%, versus a gain of 4.8% for its benchmark.
Year-To-Date *
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating †
Artisan International ($31; ARTIX)
2.0
D
9
9
75
Dreyfus Midcap Index ($39; PESPX)
5.6
C
0
0
46
Dreyfus Small Cap Stock Index
($30; DISSX)
1.7
D
0
0
93
Homestead Small Company
($38; HSCSX)
2.5
C
5
8
79
iShares MSCI EAFE Small-Cap ETF
($53; SCZ)
4.5
D
7
8
93
PIMCO Total Return ETF
($109; BOND)
3.9
A
6
0
NA
T. Rowe Price Divers. Small-Cap Growth
($25; PRDSX)
0.5
B
9
9
96
T. Rowe Price Value
($37; TRVLX)
8.8
A
10
11
85
Thompson Bond ($12; THOPX)
3.1
A
6
0
95
Vanguard 500 Index ($181; VFINX)
6.4
B
7
8
80
Vanguard Dividend Growth
($22; VDIGX)
4.7
E
10
10
95
Vanguard GNMA ($11; VFIIX)
3.6
A
0
0
95
Vanguard Growth Index
($51; VIGRX)
5.9
A
11
11
93
Vanguard High-Yield Corp. ($6; VWEHX)
4.7
C
5
6
92
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
4.2
B
0
0
92
Vanguard Selected Value
($30; VASVX)
6.6
C
7
10
93
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
1.5
B
0
0
98
Vanguard Total Bond Mkt. Index
($11; VBMFX)
3.1
D
0
0
51
Vanguard Wellesley Income
($26; VWINX)
5.2
B
0
0
98
Vanguard Wellington ($40; VWELX)
5.8
A
8
10
99

* Year-to-date ranks through June 10 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%;
E = bottom 20%.
† Fund ratings are percentile ranks based on our fund-rating system.


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