PIMCO CEO and Orange County resident Mohamed El-Erian was recently interviewed by Leslie P. Norton for an article that appeared in the July 25, 2011 edition of Barron’s. El-Erian answered questions on many important issues that investors are facing including the US debt crisis, the European debt crisis and his views on emerging markets. For some valuable insight on how one of the brightest minds in finance views the world, I encourage you to read the entire article in Barron’s by clicking the photo of Mr. El-Erian to the above.
Archive for July, 2011
I recently read an interesting white paper written by Darrell Cronk, Regional Chief Investment Officer for Wells Fargo titled Understanding the Consequences of a U. S. Debt Downgrade. It does a great job laying out some important facts that are worthy of consideration as the conversation rages in Washington D. C. I encourage you to click the Debt Clock above to view the entire article.
David Walker served as Comptroller General of the United States and head of the Government Accountability Office (GAO) from 1998 to 2008 during both Democratic and Republican administrations. Since 2005 he has been a no-nonsense, non-partisan voice in the critically important discussion about our Nations soaring debt crisis. In 2007 he was featured on the CBS News program 60 Minutes at which time he was sounding alarms that only recently seem to have been heard in Washington DC. For a concise outline of our nations debt problem, I encourage you to watch this 60 Minutes segment by simply clicking on the photo to the above. For more detailed information on this subject, I encourage you to visit the Comeback America Initiative website at www.tcaii.org , an organization lead by Mr. Walker.
As we look back at the markets in the second quarter of 2011 we see conditions that support our tactical approach to portfolio management. After advancing approximately 5% in the first quarter of 2011 the Standard and Poor’s 500 Index retreated by 5% early in the second quarter, only to close the quarter back where it started, up approximately 5%, year to date. During this period of volatility we took steps to hedge many of our client’s portfolios by purchasing a security that is designed to appreciate when the Standard and Poor’s 500 declines. By holding this position while the markets were in retreat, and selling when they turned positive, we were able to minimize the volatility in many of our client’s accounts, while at the same time locking in returns achieved in the first quarter of 2011.
In the fixed income space, for many of our clients, we continue to hold a 25% +/- allocation to taxable fixed income investments via the PIMCO Total Return Fund, and the American Funds Bond Fund of America. These funds represent a core holding for many of our client’s portfolios, and provide added stability to our allocation. We have also experienced strong returns in the High Yield fixed income space, an area that we believe should continue to perform well as the economy grows and the high yield portfolio benefits from high current yields and the potential for capital appreciation from improving credit ratings.
Other areas of focus in our portfolio strategy include an allocation toward technology companies, real estate investment trusts that focus on commercial buildings and apartments, basic materials companies, and emerging markets via investment in an India fund—all areas that we believe offer good long term appreciation potential.
With regard to risk, we continue to monitor closely the conversation on our national debt. If you have not already explored our blog I encourage you to view several recent articles I have posted on this subject, including two in June and July of this year. In addition to the risk surrounding our own national debt we see the potential for significant risk from the European debt crisis. Although I believe the European Union participants will ultimately sort out a solution to this crisis, we continue to monitor the situation closely, and stand prepared to take action if we believe that the probability of a negative outcome increases significantly.
Outside of our portfolio management duties, we are happy to announce that we recently moved into a new office suite at MacArthur Court–the same office complex (different suite number) we have been occupying since September 2008. We encourage you to stop by when you are in the neighborhood and check out our new space.
Finally, with the first two quarters of the year in the rear view mirror, we encourage you to call and schedule a time to get together for a complimentary mid-year review. We are happy to meet you face to face, or if you prefer, we can meet remotely by phone and /or via a web conference. Be sure to take advantage of this very important complimentary service offered to each of our clients (and potential clients).
Until we see you again, we wish you and your family good health and prosperity in the quarter ahead.
Marshall G. Eichenauer, Jr., CIMA®
Owner and Managing Partner