OFF TO THE RACES
This is undoubtedly the best news that I have been able to offer in these quarterly reports for four years. After three years of a bare market from March, 2000 to February, 2003 we have now emerged into what surely seems to be a solid recovery. In the past three months (November, December and January) the average of all mutual funds rose 8.0%. However, this spectacular increase was not shared evenly. As typical in a recovery, small capitalization companies including technology companies led the recovery with 8.7% growth for the quarter. Real estate funds continued to do well with a 10.4% growth, largely due to continued low interest rates and high cap rates on real estate properties. On the other hand fixed income funds grow 2.4%. This is still respectable, but if your portfolio contains a greater portion of fixed income funds, this will pull down your overall performance. For many investors it is still very prudent to have a substantial portion of the portfolio in fixed yield investments, reducing their risk. In a recovery market such as this their return will be lower but will easily be made up for cushioning in the down markets.
I believe that there are number of old lessons to be exercised at this time. The first is that you need to be invested to reap the rewards from this bull market. As the old expression said – “you need to be at the station when the train leaves”. Second we need to consider moving their portfolio toward equities and lightening the percentage in fixed yield investments. Third we should be moving toward the funds which are showing a better record at this time. There are still a surprising number of funds which under perform their peers consistently.
The ultimate question is how long can this last. As an election year I anticipate that we will see a strong market for the first half or three quarters of the year. After that I believe we need to become more cautious.
In the coming few weeks I will be making adjustments to many portfolios. In the meantime if you have any questions, comments, suggestions or merely applause please call me. I wish you a very prosperous 2004!