Market data:

First Quarter Letter 2013

Macro outlook

2013 was ushered in three months ago amidst clouds of fiscal uncertainty in the US,
economic slowdowns in Emerging Markets and misplaced austerity in most of Europe.
As a result, most investors kept looking for safety in the coziness of Uncle Sam debt and
other fixed income instruments. As it often happens, equities, especially in the United
States, bucked the expectations and delivered a strong first Quarter performance. The
upside surprise was a direct consequence of good absolute valuations, excellent relative
valuation (to bonds) and a series of domestic economic numbers that have mostly
surprised to the upside.

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Fourth Quarter 2012

As we are beginning to reach for the party hat and the unmistakable bottle of champagne to celebrate the arrival of the New Year, we should pose for a moment and reflect if our strategic positioning is still aligned with the most likely scenario for the next twelve months. 2012 produced positive returns in many asset classes but there is a distinct possibility that 2013 may bring higher volatility overall and more muted performances.

This is a clear possibility as economies around the world are showing marked slowdowns. However, the coming year is also ripe with political shifts and many policies are at important junctures in a number of relevant economies. This political climax has the power to fuel a significant rise in global volatility.

The valuation starting point for domestic equities is somewhat agnostic. The US equity market is still favorably priced in absolute terms and relatively to the bonds. Morningstar’s Fair Market Value indicates an equity discount of about 3%. However, this percentage is not too significant as the market has arbitraged most of the 20% discount to fair value reached at the October 2011 bottom. Relative to bonds, equities are still attractive but in this case also not as attractive as not only the 2011 bottom but the June 2012 through as well.

Commodities, with the exception of gold, were mostly subdued in 2012 as the global economy started sending signals of fatigue. For 2013, the commodities outlook remains tied to global activity and specifically China.

CLICK HERE to download Fourth Quarter 2012 file or view it in a new window.

Third Quarter 2012

2013 was ushered in three months ago amidst clouds of fiscal uncertainty in the US, economic slowdowns in Emerging Markets and misplaced austerity in most of Europe. As a result, most investors kept looking for safety in the coziness of Uncle Sam debt and other fixed income instruments. As it often happens, equities, especially in the United States, bucked the expectations and delivered a strong first Quarter performance. The upside surprise was a direct consequence of good absolute valuations, excellent relative valuation (to bonds) and a series of domestic economic numbers that have mostly surprised to the upside.

CLICK HERE to download Third Quarter 2012 file or view it in a new window.