Weekly Commentary

Weekly Commentary

Welcome to our weekly commentary. As always, feel free to call our office with any questions or comments that you may have.

If you have family, friends, or colleagues that might enjoy receiving our weekly commentary, please reply to this email with their email address and we will ask for their permission to be added.
 

Contact Us

We are here for you!
2100 Lake Eustis Drive, Tavares, FL 32778
Office (352) 343-2700
Fax (352) 742-2607

www.ruggiewealth.com
 

Around the Water Cooler

Please join us in our support of the Haven of Lake & Sumter County Donation drop off during the months of January, February and March.

We will be accepting items for both women and children to include clothing, toiletries and baby items. Our office hours for the donation drop off are as follows: Monday through Thursday, 8:00 am until 5:00 pm and on Friday, 8:00 am until 4:00 pm. We appreciate your participation in this worthy cause.
 

Portfolio Changes

This week the changes to our Portfolio are affected by the sells and buys listed below.
 

Sells

Proctor and Gamble (PG) is being hit by fierce competition, lower than expected growth rates and higher raw materials cost. We are replacing it with a dividend-based exchange traded fund providing more diversity.
 

Buys

We are continuing to purchase two dividend-based ETFs (VIG and XLU), which we have highlighted in the recent past, to provide more diversity in our client’s accounts.
 

Fund Highlight

Oppenheimer International Bond Fund (OIBYX)

Oppenheimer International Bond has been a part of our fixed income portfolio since early 2009. We would consider it to be the most aggressive holding within our otherwise conservative fixed income allocation but we felt there was a unique opportunity coming off the terrible bond market of 2008 (yes, bonds that were not of the highest quality had a tough year as well). This holding has served us well and we will continue to maintain at this point as we like the international holdings in the bond portfolio but this is and will be considered an opportunistic hold.

OIBYX’s manager utilizes a combination of fundamental analysis and quantitative modeling to develop a portfolio of global fixed-income securities seeking total return with a secondary objective of income. The fund is invested primarily in sovereign debt and provides investors with exposure to developed and emerging markets.

This is one of our most resilient holdings, having met all kinds of challenges within its category over the years. During these years of trials it succeeded in exceeding its peers. In the previous five year performance period its return was 9.25% compared to 4.92% of the world bond category and in the 3 year category its return was 10.04% compared to 6.78%. Its stock turnover rate is also lower, 112% annually compared to the world bond average of 180.95% meaning it does not have to trade as extensively to obtain its returns.

The man behind all this success is Art Steinmetz. With only a brief respite in early 2003, he has managed this fund with great success since its inception in 1995. A key to his success is the flexibility he’s been afforded in implementing investment decisions that range across the board from developed versus emerging markets, currency exposure, country selection, credit allocation and interest rate risk.

This flexibility might give some investors pause. We feel it is just what the doctor (sic) ordered. Sovereign bond yields throughout Europe are all over the map. An ability to shift into or away from certain emerging markets, currencies or even European countries themselves is an invaluable trait when in the hands of such a successful and trusted manager. Oppenheimer has such faith in Mr. Steinmetz that they named him the manager over their entire fixed-income group after the rest of it faltered in 2008.
 

The Markets

So far, so good.

The S&P 500 index rose every day last week and finished with a 2.7% gain. This gain came despite a disappointing jobs report, which showed another 85,000 jobs were lost in December. A survey from Market Watch expected a gain of 15,000 jobs. On the bright side, temporary-help jobs rose by 46,500. This is often a precursor to growth in full-time jobs.

The Holiday shopping season turned out a little better than expected as same store retail sales in December rose 2.8% compared with a year ago, according to the ICSC sales index. Paradoxically, consumer debt fell by a record $17.5 billion in November and continued a streak of monthly declines that now stretches 10 months. Maybe consumers were paying cash for all their holiday goodies?

This week ushers in a new earnings season and experts project a whopper. Corporate profits are expected to rise 184% in the fourth quarter of 2009 compared to the year-earlier period, according to Thomson Reuters. Of course, numbers can be misleading as the year-ago period included massive write-offs by major banks. By comparison, these banks should show healthy profits in the quarter that just ended as they are enjoying a wide spread between their cost of money and the rate at which they can invest it. If you remove the financial stocks, profits are expected to rise a more benign 8%.

As with every new year, there will be challenges and opportunities. Through diligence and discernment, we will try to minimize the impact of the challenges and maximize the gain from the opportunities.
 

 Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

DO THE WILD SWINGS WE’VE SEEN IN THE MARKETS over the past couple years defy explanation? How is it that the S&P 500 index can drop 56% between October 9, 2007 and March 9, 2009 and then turn on a dime and rise 69% over the next 10 months, according to data from Yahoo! Finance? How can a company like Bank of America decline 94% and then rise 380% – all in less than the 30 months ending December 31, 2009? Or, how about Alcoa dropping 87% then more than tripling during the same period as Bank of America, according to The Wall Street Journal?

Aren’t the markets supposed to be “efficient” and “rational?”

These massive swings seem to happen with frightening frequency and investors who are unprepared for them will likely pay a heavy price. Benjamin Graham, arguably the “father” of security analysis and author of a classic book by the same name, said the price of a stock reflects two components. The first component, investment value, represents the discounted cash flow of all the company’s present and expected future earnings. The second component, speculative value, is driven by sentiment and emotions such as fear and greed.

IIt is not much of a stretch to suggest that an oscillation between investment value and speculative value may help explain the head-spinning volatility of the past few years. In other words, as markets rise or fall rapidly in short periods, speculative value may take prominence. Conversely, when markets are stable or moderately trending, investment value may take the lead.

Keeping this idea of investment value versus speculative value in mind can help us do a better job of maintaining a disciplined perspective on market volatility. It can help us better understand and potentially profit from the market’s periodic “inefficiency” and “irrationality.”
 

Weekly Focus – Think About It

“The individual investor should act consistently as an investor and not as a speculator.”
Benjamin Graham

Best regards,

Thomas H Ruggie, ChFC, CFP

* The Standard & Poor's 500 (S&P 500) is an unman-aged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.