Market Commentary: 2011 Q2

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 

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