Enclosed please find your most recent quarterly report. It is a pleasure to deliver some very positive news and review what has worked well for us in your portfolios.
Overall, the broad-based indices were all positive for the quarter. In fact, the MSCI-EAFE (European index) was up significantly. One of our value added services as wealth managers is to increase returns via manager selection and sector allocation. Our strategies in both these areas have been on target for the quarter. In comparing our returns with last year’s, we are above that benchmark by a significant margin. We were in a similar sideways market then, which started to break out about the same time last year.
August was a difficult month due to Hurricane Katrina. Chairman Greenspan used the term “extraordinary resilience to shocks” to describe the market prior to the storm. This certainly proved to be accurate. It seems the overall effect of this disaster has been relatively benign for the economy. It may, however, have an impact on the Fed Funds rate hikes going forward, which we expect to be at 4.5% by early next year. The bond market has already priced accordingly.
Market Overview
We still remain cautious about the attractiveness of domestic large cap growth stocks where prices have stagnated for the past five years. As a category, “Large Growth” has not been the best performing class since the mid nineties. However, more value managers are including growth stocks in their portfolios as valuations become more attractive. Currently, we are reviewing a new fund, Constellation Sands Capital Select, in this sector, since we felt that the large cap value sector offered a better opportunity. We are also reviewing a new fund in the emerging markets launched by PIMCO, one of our most successful managers in the fixed income class.
Our increasing exposure to commodities and European stocks has worked well. On the Eye on the Markets page of this letter, note the significant returns for Artisan International and PIMCO Commodity funds. Globalization and the increased worldwide demand for all commodities are trends we see continuing. Inflation is always a concern. Inflation drivers include: higher wage costs, fuller employment levels and higher oil/gas prices going into the winter season. As always, we will anticipate and adjust for these factors going forward.
Portfolio Update
We entered the third quarter with a balanced portfolio between growth and value exposure in our equity positions, having increased our value position during the previous quarter. Our international weighting was also increased to 30% with the purchase of Dodge and Cox’s International Fund. The international benchmark was up over 9% in the quarter. We believe the international markets offer more value and opportunity in terms of P/Es and yields than their US counterparts. Our international equity managers have not only been invested in the highest performing asset class, but have significantly outperformed their peers.
During the quarter, we upgraded some of the managers in our mid-cap sector. We have been reducing our holdings in the small-cap sector of the market, and investing more in the mid-cap sector. In the value category, we added the Artisan Mid-Cap Value Fund replacing the CRM Mid-Cap Value Fund. Within the growth sector, we reduced our holdings in the Calamos Growth Fund and added to our international exposure.
We sold out our REIT positions earlier in the year in anticipation of a real estate market correction. Although the real estate market is highly overvalued, we were still premature in this move. An interesting vehicle to reflect our negative stance may be the new inverse Real Estate Fund recently launched by Profound (SRPIX). This fund tracks the inverse of the Dow Jones U.S Real Estate Index (IYR).
News at Singer Xenos
Faith Xenos, Scott Wells and Michelle Grillone returned last week from Schwab’s annual investment conference in Seattle. It was an amazingly informative meeting with such great speakers as General Colin Powell and Jim Rogers, an early partner of George Soros, and author of Investment Biker: Around the World with Jim Rogers. We brought back some cutting-edge research and technology information to refine our processes.
Also, partners of the firm have been contacted by the media recently for their knowledge on current issues. Marc Singer and Jay Schechter gave interviews to the Miami Herald and Florida Medical Business regarding the new bankruptcy law that takes effect in October. Faith Xenos was interviewed by Glamour Magazine regarding investment ideas for women. She recently met with Carrie Schwab Pomerantz (daughter of Charles Schwab) to discuss enhancing Schwab’s services for women investors in 2006.
We are very proud that for the 5th year in a row we have been named to Robb Report - Worth Magazines list of “The Top 100 Wealth Advisors” in their October 2005 issues.
As always, we appreciate your continued confidence in us. Happy New Year to those who celebrate Rosh Hashanah. We look forward to an even better fourth quarter.
With best wishes,
Singer Xenos Wealth Management
|
