The content contained herein is purely for informational purposes and is neither an offer to sell nor a solicitation of an offer to purchase any securities. Such an offer will only be made to pre-qualified investors by means of a confidential private placement memorandum and related subscription documents.

Third Quarter 2012 Investment Perspective: Chart of the Quarter

This chart highlight’s the current “exuberant valuation.” In Fixed Income the orange line traces the price/earnings evolution of the Japan stock market from 1983 to 1988. The green line shows the price/earnings ratio of the Russell 1000 Technology sector from 1998-2002 — with the time scale shifted backwards to align the peak valuation of U.S. technology stocks (May 2000) with that of Japan. The blue line shows the recent valuation trend of the Barclays Capital Aggregate as measured by the inverse of the nominal yield. This ‘price to interest’ metric re-frames Fixed Income as if it were a stock. The U.S. investment grade bond market is priced to yield $1 in interest for a $60 investment. In our view, this trade-off is unjustified in view of both historical returns and the current increasing duration risk of bonds.

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Second Quarter 2012 Investment Perspective: Chart of the Quarter

Despite media attention, current events in the investment world typically have very little impact on long term values and returns. The value of an investment is equal to the present value of its cash flows. Today (current period highlighted above), the present value of dividends for the U.S. stock market over the next 10 years represents less than 20% of the total value of the market ($240 of a total $1,350). If dividends over the next 10 years were cut in half, the expected return for the market would only drop marginally from 8.2% to 7.9%. If dividends in perpetuity were reduced by 33%, the expected return would drop from 8.2% to 5.8%. This is material but still far surpasses the less than 2% return of nominal bonds today. While it is important to be aware of current events and to consider how they might influence the value of an investment, in most cases the near term focus and attention has more of an impact on short term volatility than it does on the long term fundamental value and return of an investment.

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First Quarter 2012 Investment Perspective: Chart of the Quarter

Apple Inc. continued to lead the U.S. Equity market higher during the quarter, led by improving sales and earnings. The stock appreciated nearly 50% and ended the quarter as the largest stock by market capitalization in the Russell 1000 Index with a weight of 3.3%. Apple contributed 1.35%, the largest single contributor, to the 12.9% rise in the Russell 1000 Index over the quarter.

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