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In: Investing

Comments Off on US Market Segment Analysis 2011-12-31

NOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. No rational person would make investment decisions based on a blog post. Please consult with your financial advisor before taking any action. If you wish to have specific advice for your situation please contact Polaris Financial Planning.

Every quarter I take a look at how different segments of the investing world are doing. Below is the historical performance 6 US market segments. I divide the US market this evaluate performance and future opportunities.

Over long periods of time (10+ years) all segments tend to perform about the same so, unlike most advisors, I generally think of a hot sector as a contrarian indicator. That is to say, the better one of the segments has done and the longer it has exceeded the long term mean of the other sectors, the less desirous it is.

Data as of 12/31/11

12-Month Return 3-Year Average 5-Year Average 10-Year Average
Large Growth Average -2.01 15.90 1.13 2.67
Large Value Average 0.01 12.49 -1.53 3.70
Mid-Cap Growth Average -3.52 18.46 2.25 4.94
Mid-Cap Value Average -3.32 16.96 0.13 6.20
Small Growth Average -4.10 17.18 0.32 6.32
Small Value Average -3.51 18.65 1.55 4.83

2011 was a rough year for the market as a whole but, the last 3 years have been great. 3-year average returns range from 12.49% to 18.65% per year. Keep in mind, these numbers compound year after year. The Small value has an average of 18.65% per year but a total return is 67.05% for the 3 years and not just 3 x 18.65% (55.95%) as one might expect.

Over the 10 year time frame the differences between large cap and small / mid cap has grown. Very roughly, the 10 year average for large caps is just over 3% and the small / mid caps are around 5.5% per year. The difference is only 1.5% per year but when compounding is taken into account the 10 year total returns are around 35% for the large caps and 71% for the small / mid caps.

Now is the time for a subtle change in the allocation matrix for the portion of your funds invested in the US stock market. Over the past several years I have given a positive bias to the small and mid cap indexes and this allocation has proved to be very rewarding. I am now moving toward a more neutral market cap balance.

If you don’t know how your assets are allocated, I would be happy to help you find the right balance. If you would like more information or specific advice on your portfolio please contact me.

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In: Investing

Comments Off on Islamic Banking

via The Atlantic.

Amid Turkey’s turn away from strict secularism, Islamic banking practices in the country are gaining currency. But they still face significant obstacles as they strive to enter the financial mainstream.

Turkey at present has four Islamic banks — three that are partially owned by companies based in the Persian Gulf — which accounted for 5 percent of Turkey’s 1-trillion-lira ($559 billion) banking sector in late 2010, according to data from the Participation Banks’ Association of Turkey, a lobbyist group for Islamic banks.

The banks are known as “participation banks,” since, in keeping with Islamic tenets, depositors and borrowers share the risk of financial transactions with the banks themselves. Interest is not charged.

Kinda like a credit union? Maybe a good idea but, if the bank goes broke you could lose all of your money.

Until sharia-compliant banking was introduced to Turkey in the 1980s, many such individuals kept their money “under the mattress,” both because of mistrust of traditional banking…

I don’t have a problem with banking. I have a problem with banks that are “too big to fail”.

…their desire to avoid breaking religious tenets regarding the payment of interest, said Osman Akyuz, secretary-general of the Participation Banks’ Association of Turkey.

Not for me. I don’t make my investing decisions on a 1,000 year old book.

As some financial experts see it, the growth rate in Islamic banks hasn’t matched expectations, taking into account the AKP’s prolonged tenure in power. One Islamic finance expert cautions that the sector’s growth, in fact, has been “very sluggish.”

Investors reportedly are concerned that Turkey’s slowing pace of economic growth will hurt the banks’ ability to turn a profit on its lending. That becomes even more critical for Islamic banks since they do not charge interest, and share the profit and loss risks of their customers.

I kinda like the the idea of some insurance on my bank account.

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In: Investing

Comments Off on US Market Segment Analysis 2011-09-30

NOTE:  This post is part of an ongoing education series.  This information is for educational purposes only.  This information does not constitute investment advice.  No rational person would make investment decisions based on a blog post.  Please consult with your financial advisor before taking any action.  If you wish to have specific advice for your situation please contact Polaris Financial Planning.

Every quarter I take a long look at how different segments of the investing world are doing.  Below is the historical performance 6 US market segments.  I divide the US market this way to try and decide where to invest money.

Data as of 9/30/11

12-Month Return 3-Year Average 5-Year Average 10-Year Average
Large Growth Average -0.06 2.75 0.45 3.22
Large Value Average -1.85 -0.13 -2.48 3.43
Mid-Cap Growth Average -0.95 3.65 1.54 5.69
Mid-Cap Value Average -3.8 2.37 -0.82 6.51
Small Growth Average -0.93 2.72 0.50 5.54
Small Value Average -4.85 2.31 -0.72 7.52

This is only one source of information I generally think of it as a contrarian indicator.  That is to say, the better one of the segments has done and the longer it has exceeded the long term mean the less desirous it is.  As can be seen above all six US segments are DOWN over the past 12 months (ending 9/30/11).  However, since 10/3/11 the US market has climbed sharply.  The S&P 500 had gone from 1,070 (10/3/11) to 1,238  (10/21/11).  This is a welcome increase of almost 16% in just 3 weeks.

Over the 10 year time frame you can see some differences in the segments.  Small and Mid Cap averages have done better and value has slightly out performed growth.  Over 3 and 5 year time frames the performance of each segment is about the same. (within a few percent of each other).  This would indicate that the variance occurred in the period from 5 to 10 years ago.  So there is no current trend to indicate which segments are doing well and which ones are falling behind (As always, past performance is no guarantee of future results).

This would indicate that no changes are needed at this time for US Index Portfolios based on my US Market Matrix recommendation.  If you would like more information or specific advice on your portfolio please contact Polaris Financial Planning.