Equity markets have struggled to a poor start to 2008 due to continued concerns in the credit markets and fears of a recession. Virtually all asset classes aside from commodities and Treasury securities have posted declines this year. However, Kanaly’s equity models have delivered strong outperformance in this difficult market environment. Our three individual stock portfolios (Core, Growth & Income, and Diversified) are outperforming the S&P 500 Index by over 200 basis points through the end of February. This margin has since expanded over the first two weeks of March.
Our relatively stronger performance is due to two primary factors:
- First, beginning near the end of last year, we moved the portfolios to a more defensive position, selling more volatile and economically sensitive holdings in industries such as banking, retailing and technology. We also eliminated our position in a China exchange-traded fund. The proceeds were invested in stocks with defensive growth characteristics in the energy, consumer staples, utilities and health care sectors.
- Second, we reduced our equity exposure by 5% across all models in early February, a move that has cushioned the portfolios during the downturn over the last six weeks.
We expect the market to find strong support near the lows reached intraday on January 23. In the days and weeks ahead, we will be watching for the classic signs of market bottoming action. Should those signs emerge, we will turn more bullish on the market’s prospects.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.
There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.
Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.