Don’s Outlook 1/30/09
After a tough week of earnings announcements, stocks held their ground and even advanced slightly; the S&P 500 Index closed 2.13 percent higher than last Thursday’s close. Earnings and news from Caterpillar caught the attention of investors earlier this week. The capital equipment producer announced it would layoff nearly 20 percent of its workforce and this morning the company announced further job cuts, putting the total at more than one-fifth of all employees. As an economically sensitive global company, the news disheartened investors who hoped that the emerging markets would fare better than the U.S.
One positive sign this week was the 4th quarter GDP number released this morning. It showed the economy contracted at a 3.8 percent annualized rate, well below expectations of 5.5 percent. Meanwhile, economic data from Europe and Japan show conditions worsening. Japan’s manufacturing production fell almost 10 percent and unemployment rose to 4.4 percent. The Japanese yen, along with the U.S. dollar, has appreciated in the past six months, but this hurt exporting Japan far more than the importing United States. In Europe, inflation decreased and unemployment increased, and this led the euro lower against the dollar. Europe’s central bank has maintained higher interest rates than the U.S. for a year-and-a-half in order to combat inflation, but it’s becoming clear that inflation is the least of their worries.
It is not surprising that investors are increasingly risk averse after the unprecedented economic and financial events of the past 12 months. Even those with longer time horizons have become acutely aware of the market risk that even diversified stock and bond funds contain. In devising the asset allocation for client portfolios, I begin with high-quality funds available on Fidelity’s and Schwab’s institutional platforms and tailor an asset allocation mix in line with its stated objectives.
This year I have been on the lookout for funds that have weathered the most recent volatility well, not merely with good performance, but by managing risk in a disciplined manner. ETF Market Opportunity fund (ETFOX) is one such mutual fund (formerly Navigator Fund, symbol NAVFX), and I am pleased to introduce this fund to certain client accounts beginning today.
I am always happy when I discover high-quality managers that allow their investors access and are receptive to a thorough review of their investment process and philosophy. ETFOX has distinguished itself as an innovator by using ETFs within a large-cap growth mutual fund, applying a systematic approach to security selection with less risk. This fund has earned a five-star rating from Morningstar, and it ranks in the top one percentile for one-year returns within its category. ETFOX also garnered distinction of Lipper Leader for Preservation of Assets from Lipper Fund Services.
Finally, Fidelity Investments has informed us that they applied and received approval for an IRS extension for 2008 Tax Forms. Their new deadline for providing tax information is March 2, 2009. This may not affect all account holders, but it is best to expect a possible delay.
