Enclosed please find your year-end reports detailing the entire 2004 performance. For the first three quarters of last year we were protecting your 2003 gains. The fourth quarter resulted in extraordinarily strong returns in your portfolios. Your equity returns were almost double that of the S&P 500 for this year. This is the sixth year in a row that our portfolios have exceeded the S&P 500. Please note your highlighted annual return on page two of your statements.
It is the second anniversary of the Bull Market. Many of the negative factors we wrote about last quarter have been balanced with positive outcomes.
- The election was resolved quickly with a "known" outcome.
- Sentiment regarding terrorism has shifted to a more manageable level.
- Oil prices are significantly lower after being bid up by artificial speculation not related to supply and demand.
- Earnings and dividend growth have been strong in the equities market.
- Interest rates are still very favorable for business growth and expansion.
- Labor markets are showing a favorable recovery - unemployment claims are down; personal incomes are up.
- There is tremendous liquidity in corporate America that has yet to be tapped. Some estimate the amount to exceed $1 trillion. It is expected that corporate expansion and acquisitions will take place across all industries this year.
Portfolio Update
Throughout the year, we have been limiting our market exposure by selecting funds that derive most of their return from stock selection rather than sector momentum. This means our money managers, by investing in superior stocks, were able to consistently beat their sector benchmarks. By looking at the Eye On The Market page, it becomes clear just how great a difference a quality manager can make.
The start of the third quarter saw some negative economic numbers, mostly related to the string of hurricanes in the Southeast. This had detrimental effects on employment and manufacturing numbers for the month of October. Hurricanes coupled with pre-election jitters set the stage for a turbulent November. Armed with this information, we reduced our small-cap growth exposure (Baron Growth & Value Line Emerging Opportunities) and increased our mid-cap value exposure (Goldman Sachs Mid Value & CRM Mid Value). In mid-November, market sentiment had completely reversed, and we had a robust month. Third quarter GDP was revised upwards twice to 4.0%.
Bonds
On the fixed income side, we saw our investment strategy materialize positively. Since a depreciating US dollar was seen as an issue in 2004, we added Loomis Sayles Global Bond Fund at the beginning of the year. This fund is comprised of government issued bonds in foreign currencies. This had positive effects on the fixed income portfolio for the fourth quarter. Inflation has been contained through 'measured' rate hikes, but will potentially be on the forefront in 2005. Our floating rate product, ING Senior Income Fund, will perform well in an inflationary environment. Currently, the fund offers a 3.76% yield for a relatively stable investment.
Singer Xenos Update
We enjoyed spending time with all of you who attended our two wonderful Client Appreciation Galas this year. Our speaker, Liz Ann Sonders, is widely quoted by the media for her expertise as Charles Schwab’s Chief Investment Strategist.
Faith Xenos will be attending the JP Morgan due diligence conference on Alternative Investment Strategies this month. Our research efforts continue to find better options for your portfolios. She is also planning an upcoming social event with David Yurman on February 10th at the new Bal Harbor store.
In closing, we wanted to say that it has been a very successful year. At the end of 2004, our investment results were considerably above all the market indices, but with a margin of safety. We would like to thank you for your continued loyalty and support of our firm. Many of you have paid us the highest compliment by referring your family and friends as clients. For this we are extremely grateful.
Wishing you a very Happy New Year!
Singer Xenos Wealth Management
