My mutual fund and stock trading practice is not generally affected by short-term changes in the Dow, NASDAQ, or S&P 500. I do, however, watch these markets daily. By watching the markets I feel I have a better view of the environment when I do buy or sell at a particular time. This last week was relatively bumpy and this coincided with a recent sale and purchase of two mutual funds.

On Tuesday, May 7 I sold a large percentage of my stake in the mutual fund FBR Small Cap. (FBRVX). This sale was initiated by the weak performance of FBRVX. It has been lagging its index, the S&P 500, when compared to 1-month and 3-month benchmarks. This has been a strong fund for me, however. I bought my initial stake on January 9, 2004 at $33.31. Since then I have balanced my portfolio a couple of times. The first rebalancing required a sale of a portion of my FBRVX holding at $40.94 on March 21, 2005. Since then I have increased my stake twice purchasing more shares at $44.54 on August 2, 2005 and on February 17, 2006 I purchased additional shares at $45.32

Value increase from the dates of purchases of FBRVX:
January 9, 2004 to present: 69.6%
August 2, 2005 to present: 26.9%
February 17, 2006 to present: 24.7%

Compared to the increase in the S&P 500:
January 9, 2004 to present: 33.0%
August 2, 2005 to present: 21.8%
February 17, 2006 to present: 16.8%

FBRVX is a no-load, no commission purchase for me through Charles Schwab. My net returns are not as high as the increase in the Net Asset Value, but the relatively high expense ratio of 1.38% still allowed me to beat the index. This performance is not as strong as the performance of Alpine International Real Estate (EGLRX). This no-load, no-commission mutual fund has done much better than FBRVX and the S&P 500 this year-to-date. EGLRX’s return for the year is up10.24% while FBRVX is up 3.83% the S&P is up 5.14%. I couldn’t pass up this performance by EGLRX that has a total expense ratio of 1.17%. I moved a large portion of my stake in FBRVX into the smaller stake I had in EGLRX.

This wasn’t done because of rebalancing. It was done because I want my savings to grow faster. It was primarily done without utilizing my trading principles, though the year-to-date returns support my move. This was a risky decision. I feel protected from the current bumps in the major indices because of the size of the mutual funds. I will be watching the change closely so as to determine if this practice comes back to haunt me.