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.

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2100 Lake Eustis Drive, Tavares, FL 32778
Office (352) 343-2700
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www.ruggiewealth.com
 

Around the Water Cooler

We are still accepting donations for the Haven of Lake & Sumter County. Donations of clothing, toiletries and baby items will benefit local women and children. Please help if you can!
 

Portfolio Changes

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

Sells

MONSANTO CO (MON): Both its potential and short term growth seems to be slowing down considerably. We feel it is significantly overvalued given its recent low revenue and earnings per share growth.

NATIONAL GRID PLC, ADR (NGG): NGG’s poor growth record over both the short and long term evidence a troubled and uncertain business model. Although it is one of the top ten electricity companies in the US, we prefer to invest in a diversified ETF of utilities taking some of the risk off the table

MCKESSON COPRORATION (MCK): Although there are several factors increasing the potential for growth (aging population, demand for specialty drugs, strong flu season), this medical supply distribution company faces tough competition and loss of two major customers in fiscal 2009. We feel this will continue to impact the company’s business through 2010.

CARNIVAL CORP/PLC, USA (CCL): This industry in general has taken a hit thanks to the slowing US economy. Although CCL has been managing to beat quarterly Wall Street estimates, we feel it is significantly overvalued. Furthermore, there are no fundamental drivers to positively impact the stock price in the near future due to the company's meager revenue and earnings per share growth.

CVS CAREMARK COPORATION (CVS) With the loss of $4.8 billion of contracts (state employees in New Jersey, state of Ohio) for 2010 and an investigation by the FTC relating to its merger with Caremark, we feel this will have a negative impact on the stock this year. Major competitors (Walgreens, Target and Wal-Mart) are expanding their pharmacy businesses where the competition is especially stiff. Add to that the potential government efforts to curb rising health care costs, and you may see a negative impact on the industry in general
 

Buys

There were no significant buys outside of our portfolios this past week.
 

Fund Highlight

HARBOR BOND FUND (HABDX)

The primary objective of this intermediate-term bond fund is to maximize total return with preservation of capital; doing so by investing at least 80% of total assets in a diversified portfolio of bonds. We started buying HABDX in the third quarter of 2008 and have been accumulating it ever since in our income portfolio.

TRealizing that interest rates are low, one might wonder why we continue to recommend a bond fund. Our philosophy of a diversified portfolio includes flexible, being the key word, bond fund.

HABDX is primarily invested in bonds of corporate and governmental issuers located both in the U.S. and foreign countries. As of 12/31/09 its top 10 holding were all US bonds - treasuries, agencies or corporate. Mr. Gross and his team of analysts have been wary of corporate bond valuations in recent years, part of the reason this fund held up better than most in its category in 2008. They did buy up some of the corporate bargains in 2009, but not as aggressively as its peer, which could attribute to the slightly lower, although respectable 13.8%, return last year.

The fund sometimes makes fairly aggressive interest rate and sector bets against its benchmark, the Barclays Capital Aggregate Index. Mr. Gross and his team move in and out of various types of bonds running the gamut from mortgage backed, emerging markets, and corporate to foreign bonds. They utilize macroeconomic analysis to determine interest-rate sensitivity (usually kept between 20%, plus or minus, of the benchmark) and sector weightings.

The fund is managed by Bill Gross, who has been amazingly consistent in producing excellent returns since the inception of the fund in 1987 (that’s 23 years!). He and his team of analysts are considered some of the best in the business and have earned Manager of the Year status from Morningstar three times. This year Morningstar has named him the top fixed income manager for the past decade. In addition, Mr. Gross was recognized in a 1993 survey by his peers as the most influential authority on the bond market in the United States.

He is also responsible for managing PTTRX another of our core holdings. Is one fund better than the other? Although it may sometimes appear so, both are subject to slight name-specific differences in their portfolios. Add to this the idiosyncratic decisions of shareholders and their timing of inflows or redemptions, and you get a slight difference between the two. Both funds benefit greatly from his expertise. With a gross expense ration of 0.60% and no 12b1 fees, we continue to be a buyer.

Not all investments are suitable for all investors and past performance is not indicative of future performance. Please contact your Financial Advisor to discuss further.
 

The Markets

Let’s recap some of the good news last week:

1. The Commerce Department said the economy grew in the fourth quarter at its fastest pace in more than six years;

2. The Institute for Supply Management-Chicago said its index of Midwest business activity rose more than expected in January;

3. Consumer sentiment in January as measured by The Reuters/University of Michigan Surveys of Consumers hit its highest level in two years; and

4. Of the 220 companies in the S&P 500 index that have reported fourth quarter earnings, 78% of them exceeded analysts' expectations, according to Thomson Reuters. In a typical quarter, only 61% of companies beat Wall Street targets.

Sounds pretty good, don’t it? So, how does the stock market respond? It goes down.

Once you delve into it a little further, this “good news for the economy is bad news for the stock market” may not be as illogical as it seems. Do you remember how bad things were back in early March 2009? Just as the economy seemed on the brink of destruction, the stock market turned around and started soaring. Back then, investors detected the early signs of a turnaround in the economy. They were proven right as evidenced by last quarter’s GDP growth and the positive fourth quarter earnings that are now coming out.

Effectively, the stock market anticipated the recent positive news and that is partly why the market rallied so much in 2009. Now, it appears that much of this good news is already “priced” into the market. So, rather than propelling the market higher, the good news is causing some investors to take profits while waiting for the next catalyst.

Whether this recent downturn is just a bump along the bull market path or the beginning of a new leg down is unknown. Either way, we continue to monitor the situation on your behalf.
 

 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.

WHAT DO A MICROSCOPE AND A TELESCOPE have in common as it relates to investing? Both of them represent ways to look at the markets that may help us be better investors.

Structurally, we like to view the markets through a microscopic and a telescopic lens. Through reports like the one you are reading now, we keep tabs on what is happening at a microscopic level. We know that what happens in the short-term at the granular level could be early warning signs of longer-term changes. These microscopic changes could include things such as: changes in market internals and technical analysis, insider buying or selling, unexpected changes in economic numbers, and sentiment changes.

Our telescopic lens captures the big picture view of trends and opportunities that unfold over longer periods. These take longer to come to fruition, but usually end up generating the greatest rewards. Telescopic changes could include things such as: regulatory changes, technological changes, monetary and fiscal policy changes, and demographic changes.

Utilizing a microscopic and telescopic point of view helps us pay attention to the short-term so we don’t get blindsided, while allowing us to scan the horizon for bigger trends that may ultimately have the largest positive impact on your portfolio. You could also call it being “bifocal.”
 

Weekly Focus – Think About It

“It is impossible to produce a superior performance unless you do something different from the majority.”
John Templeton

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.