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2013: Readers Share Greatest Hits, Biggest Misses

Biotech rules and bonds disappoint for many Morningstar.com readers.

By almost any measure, the year 2013 is going to go down in the books as a very good one for most investors. As December winds down, the S&P 500 is flirting with a gain of nearly 30%. Bonds have been much less distinguished, but not dreadful, with most core bond-fund types posting small losses for the year to date.

In a recent Morningstar.com Discuss forum thread, I asked readers to take stock of their biggest hits and misses for the year, and to share their reflections on their winners and losers. Not surprisingly, stocks and stock funds, many of which relate to the high-flying biotechnology sector, rated as many investors' biggest victories for the year. Bonds? Not so much.

To read the complete thread or share your own winner or loser for 2013, click here.

'As Exciting as Watching Grass Grow'
A handful of posters said that they don't manage their portfolios for excitement, so explosive winners and losers tend to be few and far between. 

Galeno wrote, "Our retirement portfolio is as exciting as watching grass grow. We rebalanced at the beginning of the year. No hits or misses whatsoever."

Meanwhile, Darwinian says that given his long holding period for noncash assets, one year is simply too short a period to judge. "The only investment I hold where a single year's performance means anything is cash. So, yes, the tax-sheltered cash in my 401(k) stable value fund, earning 2.4%, was an excellent choice. The Capital One online account, paying 0.66%, was a decent choice for my unsheltered cash. We won't know about the rest of my investment choices for two to 10 years."

Win1177 concurred. "I really don't pay a lot of attention to one-year returns. I'm much more interested in the next three-, five-, and 10-year returns."

'My Overall Allocation Was My Biggest Strength'
Among investors who did share a "hit" or "miss" for the year, several said that the decision to enlarge their equity stakes and downplay rate-sensitive bonds proved well-timed.

Wrote Dabignip: "The best decision I made in 2013 was transitioning from a 35/65 equity/bond portfolio to a 90/10 equity/bond portfolio as bonds began to break down."

In a similar vein, Retiredgary believes that he dodged a bullet by downplaying interest-rate-sensitive bonds. "We are pleased with our decision to get out of bond funds with long durations [a measure of interest-rate sensitivity]. That saved us some money this year."

CBiker was also pleased with the decision to hold an equity-heavy portfolio tilted toward strong-performing small caps. "My overall allocation was my biggest strength--70/30 equities versus fixed income, and my equities favor U.S. and mid/small cap, the sweet spots this year."

Also crediting an equity-heavy posture as a major success is duanej, who wrote, "My best hit of the year was to just stick with the stocks I already own. Investment return on my stock account year to date is 31%. I guess my biggest miss would be not selling the last of my bond holdings and putting it into stocks."

'I Am Just Glad to Be in a Solid Performer'
While 2013's market lifted all boats, some rose more than others. Readers credited their growth-leaning equity holdings for supplying some of their biggest gains. Health-care and biotechnology investments, both individual stocks and stocks held within mutual funds, received repeat mentions.

Wrote Rossinator: "Perhaps my greatest hit for 2013 was health care, in general. I have been in and out of that sector for probably five years, so it was nice to see it finally pay off.

Meanwhile, "biotech was huge" for Bbddll1212. Retiredgary echoed that sentiment, noting, "Our biggest fund hit was a biotech fund which did very well."

Mooremi was happy to have gotten in the door at a newly reopened Vanguard fund whose managers have long favored the biotech sector. "My biggest hit was exchanging into  Vanguard Capital Opportunity (VHCOX) when it first re-opened," this poster wrote. "I haven't gotten the full year of appreciation but I am just glad to be in a solid performer."

Several biotech holders said that the strong runup had prompted them to take profits, however.

Wrote Ctyankee: "My biggest winner is  Fidelity Select Biotechnology (FBIOX), where I already had a position and significantly increased that position based on conviction and momentum (off of last fall). I will be taking some profits, though."

BMWLover has also scaled back on his biotech, writing, "My biggest hit was  Gilead Sciences (GILD). I've taken about 50% off the table in the fourth quarter."

'They Were Very Flat-Footed on the Rate Move'
Readers also cited disappointments, with many citing their bond holdings as a pocket of weakness.

Leveraged closed-end municipal-bond funds received repeat mentions, as their longer durations, concerns about municipal finances, and leverage proved a combustible mix.

Wrote CBiker, "I began buying leveraged muni closed-end funds this year, and saw them decline steadily and significantly. I turned some of that into tax losses."

Treasury Inflation-Protected Securities posted a notably weak year, too, and Willt65 regrets holding a position there. "My biggest mistake was staying with a TIPS fund, which doesn't seem warranted at my age (48). I bailed out of  Vanguard Inflation-Protected Securities (VIPSX) and purchased a multisector fund Eaton Vance Bond instead."

Mooremi's "biggest miss was moving one big of chunk of money into  T. Rowe Price New Income (PRCIX). Had I scaled in the interest-rate swoon would not have been so dramatic."

Ennius was disappointed that  PIMCO Investment-Grade Corporate Bond (PIGIX) didn't hold its ground better as rates ticked up in 2013. "After several years of good performance they were very flat footed on the rate move."

Counterpoint also experienced weakness in bond holdings and sold some TIPS, but this user urges investors not to abandon the fixed-income asset class altogether: "Don't give up on fixed income . . . pick your spots!"

'I Don't Tweak Unless There Are Changes'
But rate-sensitive U.S. bonds weren't the only pocket of regret. Posters also noted that precious-metals holdings were disappointing. 

And emerging markets--both bonds and equities--also appeared high on many readers' lists of 2013's biggest misses.

"My biggest miss was emerging markets," wrote BMWLover, "where I have added about 25% to my position."

But several emerging-markets investors said they're not inclined to sell now. "I'm in emerging markets for the long haul so I expect periods like this," wrote SeanDWB. "Some of them are down from when I purchased them so it's a perfect time to buy!"

Rossinator cites Centrais Eletricas Brasileiras (EBR) as a big loser for 2013, but thinks it's cheap at current multiples. "This Brazilian utility has gotten swamped by the emerging markets malaise, so the longer I am in it the more long-term of an investor I become. But I am going to hold on to it for now as I believe it is quite undervalued."

Indeed, SeanDWB wisely pointed out that it's not a great idea to obsess over short-term performance; it's the investment fundamentals that really matter. "My main focus is not individual performance of funds (although I do keep tabs!) but how they fit into my portfolio and how well they're run. I don't tweak unless there are changes to the fund that shift it away from the role it plays in my overall portfolio. And I don't see any immediate issues with the funds themselves." 

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