1st Quarter Commentary 2010
1st Quarter Commentary 2010
In the first quarter, the US markets began well on the back of the very solid 2009 performance. During the quarter, we saw a market lull followed by an 8% correction in late January and early February. The market also had to deal with a some negative news, including several disappointing economic reports, a Fed hike in the discount rate (overnight lending rate), and growing fears about Greece’s and other countries ability to pay sovereign debt. Despite this news, the correction had resolved itself with a strong close at the end of March resulting in another positive quarter (up about 4%). We continue to believe the markets will face challenges including higher interest rates and the threat of inflation. However, typically as companies emerge from a recession they tend to be lean and mean as a result of shedding surplus inventory, staff and trimming other expenses. Thus, we are optimistic that productivity and earnings will grow for several more quarters, but believe corporate earnings must continue to show some upward movement to maintain the recent markets gains.
As for SignalPoint portfolios, the strong markets advances from April of 2009 though the end of 2009 allowed most SignalPoint portfolios to buildup meaningful cash reserves. As such, we were afforded a brief opportunity with the correction in late January and early February to redeploy a small amount of these reserves. Specifically, we saw the Pacific Rim and the Latin American funds fall enough to justify making repurchases in our portfolios that offer that exposure. (It should be noted that the international markets recovered nicely in March 2010, but finished flat for the quarter.)
At the center of the SignalPoint investment process is constant focus on the level of market risk. We manage this risk by reducing the portfolio market exposure during market advances which in turn causes portfolio cash reserves to build. Since March of 2009, when most portfolios were fully invested, market advances have resulted in reduction of market exposure and a steady build up of cash reserves. The balance between a portfolio’s market exposure and cash reserves is struck, in part, by keeping the selling moderate during these advances while maintaining adequate purchasing potential should there be a correction. Looking back, our Risk Assessment Model remained in the bottom 10% of our data base through December 2009, but now has slowly risen back to near the middle of its historical range during the first quarter of 2010. We believe we are in a fine position to take advantage of any meaningful correction, while still being in the game should the market continue to climb higher.
As always, if anyone has questions regarding their account or the SignalPoint™ portfolios, please feel free to contact us or visit us at http://www.signalpointinvest.com/contact/ .
Thomas Veale
Chief Investment Officer
SignalPoint Asset Management, LLC
