Last Friday saw an encouraging end to what had been an extremely disappointing quarter, with stocks surging globally amidst at least temporary optimism over the outlook for Europe. But the one day rally was not nearly enough to make up for all the ground lost across equity markets in the second quarter of 2012. Debt drama in Europe along with a sour patch of economic data released on the home front seemed to dominate headlines over the past few months, firmly reminding investors that the global recovery remains sluggish at best.
Amidst the turbulence on Wall Street, our lineup of 40+ All-ETF model portfolios also saw a fair share of volatility. As such, below we highlight some of the portfolio strategies that held their ground quite well, and some that didn't, during a quarter characterized by uncertainty on all fronts (13 week returns as of 6/30/2012):
Low Volatility ETFdb Portfolio: Up 0.9%
This was the clear winner from our "plain vanilla" Retirement ETFdb Portfolios. The low volatility strategy was up nearly 1% in a quarter when most portfolios in this family showed slight losses. The relatively strong performance from this model portfolio highlights the major differences between high volatility and low volatility stocks in the current environment; low volatility has been the clear winner as of late.
Portfolio Overview: The gain of nearly 1% is even more impressive considering the hefty allocation to equities in this portfolio. There is a 60% weighting afforded to stocks, including meaningful allocations to emerging markets and EAFE economies (total of 40%).
BRIC-Or-Bust ETFdb Portfolio: Down 10.2%
This was by far the worst performer from our group of Regional ETFdb Portfolios. With over one-third of the entire equity component going to Brazil, it shouldn't be much of a surprise to see this portfolio turn in such a sour return given the absolutely dismal performance of this Latin American powerhouse over the past few months. Furthermore, an incredibly strong start to the year for India ETFs was eventually overshadowed by a multi-week sell-off stemming from deteriorating growth expectations across developed and emerging markets alike.
Portfolio Overview: This ETFdb portfolio endured tumultuous headwinds as investors broadly scaled back on risk exposure; its 70/30 split between emerging markets equities and currency ETFs proved to be a volatile combination, dragging down overall returns into double-digit losses. This recent downturn presents an appealing opportunity to tap into a strategy that is well positioned over the long-haul as favorable demographic trends overseas persist and global growth expectations improve.
Ex-Europe ETFdb Portfolio: Down 2.2%
Compared with many other regional strategies, the Ex-Europe approach did very well. Considering that broad European markets, as represented by Vanguard's European ETF (NYSEARCA:VGK), were down upwards of 7% in the second quarter, it's worth noting how big of an impact excluding exposure to a particular region can have on bottom line returns. This strategy remains an appealing alternative for those who wish to remain invested, but are worried about the looming uncertainties still plaguing the European currency bloc.
Portfolio Overview: This ETFdb portfolio was able to keep its head above water thanks to its heavy allocation to U.S. equities, which have fared considerably better relative to the European counterparts. Also, with over one-third of total assets allocated to domestic, investment grade fixed income securities, this portfolio was able to absorb a fair amount of volatility spilling over from overseas.
GLD-Free Gold Bug Portfolio: Down 9.9%
The precious yellow metal failed to take on safe haven appeal during the latest wave of risk aversion, leading to dismal losses for this gold-centric ETFdb portfolio. Aside from slumping gold prices, this portfolio's allocation to gold miners further added to the losses, seeing as how stocks of producers have a tendency to exhibit higher volatility than spot prices themselves.
Portfolio Overview: Profit taking pressures in both the equity and commodity markets took their toll on this portfolio; the GLD-Free Gold Bug portfolio is split 50/50 between physically-backed gold ETFs and miners. Despite this correction in gold prices, the yellow metal remains attractive for long-term investors looking to diversify their holdings in an effort to tame volatility and hedge against rising prices.
Monthly Dividend ETFdb Portfolio: Up 0.5%
This equity-heavy portfolio fared quite well during an otherwise dismal quarter for stock markets; investors opted for dividend-paying securities in lieu of chasing after capital gains as looming threats from Europe encouraged the hunt for current income. Not only was this portfolio able to clinch a small, but respectable gain in the second quarter of 2012, it also generated a healthy distribution each and every month thanks to its unique strategy.
Portfolio Overview: The investment thesis behind this portfolio is quite appealing in the current economic environment; this ETFdb portfolio is split 60/40 between stocks and bonds respectively, with the distinguishing factor being that each of the holdings pay out a dividend on a monthly basis.
Disclosure: No positions at time of writing.
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