Last week, I wrapped-up the current series, does the Modern Portfolio Theory work? Today, we’ll start anew by analyzing the reader’s holdings performance when the markets tumbled in 2000. The goal is to see if funds went from equity funds into bond funds during a large pullback.
To see, let’s view the performance of five holdings from a follower during the 1999-2002 sell off. Here’s the name of the funds and type: AGTHX (equity fund), ANWPX (equity fund), CAIBX (blend: equity and bond fund), CWBFX (bond fund) and AIBAX (bond fund).
Two holdings (AGTHX and ANWPX), both equity funds, sold off dramatically. More importantly, three holdings (CAIBX, CWBFX and AIBAX) outperformed the market. Plus, the two bond funds, CWBFX and AIBAX had a positive return during this timeframe.
The following answers our question if money went from equity into bond funds during a large pullback. The answer is yes — at least with these funds.
So, here are action points to think about:
First, these results in no way represent all equity or bond fund results during selloffs.
Second, not all bond funds guarantee profitability during downturns.
Third, not all equity funds guarantee outperformance of the market during downturns
Fourth, are your holdings diversified?
Fifth, if not, why?
Wall Street makes its money with us being in the market. We make our money with what we own and when.
Next week, we will examine these holdings during the 2007-2009 downturn to see if these bond funds increased as much as these equity funds decreased, proving a reason to use the MPT.
Plan your work, work your plan, and share your harvest!