Q1 2010 Quarterly Investment Review
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Transcript of Q1 2010 Quarterly Investment Review
QUARTERLYINVESTMENTUPDATEFIRSTQUARTER2010
Crestline Capital, LLCCC
USLargeCompaniesStocks
USSmallCompanyStocks
USREITStocks
Interna?onalDevelopedStocks
USBondMarket
USTreasuryOneMonthTreasuryBills
+5.39% +8.85% +9.81% +0.87% +1.53% +0.01%
Marketsegment(Indexrepresenta?on)asfollows:USLargeCompanyStocks(S&P500Index);USSmallCompanyStocks(Russell2000Index),USValueStocks(Russell1000ValueIndex).USRealEstateMarket(DowJonesUSSelectREITIndex),Interna?onalDeveloped(MSCIEAFEIndex(netdiv.)),EmergingMarkets(MSCIEmergingMarketsIndex(grossdiv)),USBondMarket(BarclaysCapitalUSAggregateBondIndex),andTreasury(One‐MonthUSTreasuryBills).TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).
MarketsUpdate:AQuarterinReviewFirstQuarter2010
EmergingMarketsStocks
+2.45%
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BONDSSTOCKS
USValueStocks
+6.79%
MarketsUpdate:AQuarterinReviewFirstQuarter2010
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• TheUSequitymarketcon?nueditsstrongperformanceinthefirstquarterof2010,thefourthconsecu?vequarterwithabove‐averagereturns.ThebroadUSmarketgainedabout6%inthequarter,withallassetclassesdeliveringsolidgainsagain.Performanceinotherdevelopedmarketsaroundtheworldwasmixed.
• Europeanmarketsasawholehadnega?vereturnsforthequarter,withSpain,Greece,andPortugalallsufferingdouble‐digit losses.On the other hand, developedmarkets in theAsia Pacific region, led by Japan,which had an outstandingquarter,generallyfaredmuchbeler.TheUSdollargainedgroundagainstmostmajorcurrencies,especiallytheeuroandthepound,whichhurtthedollar‐denominatedreturnsofdevelopedmarketequi?es.
• Aner being the top‐performing asset class for the past four quarters, emergingmarkets cooled off in the first quarter,although returns were s?ll solidly posi?ve. As in the case of developed markets, there was much dispersion in theperformanceofdifferentemergingmarketsandassetclasses.Mostemergingmarketsexperiencedsolidlyposi?vereturnsinthefirstquarter,butsomeofthelargermarketssuchasBrazil,China,andTaiwanhadnega?vereturns.TheUSdollarlostgroundagainstthemainemergingmarketcurrenciesinthefirstquarter,whichcontributedtothedollar‐denominatedreturnsofemergingmarketequi?es.
• Valuestocksoutperformedgrowthstocksacrossallmarketcapitaliza?onsegmentsintheUS,whiletheoppositewastrueinotherdevelopedmarkets.Inemergingmarkets,largecapvaluestockstrailedlargecapgrowthstocks,whilesmallcapvaluestocksoutperformedsmallcapgrowthstocks.
• Alongthemarketcapitaliza?ondimension,smallcapsoutperformedlargecapsintheUS,inotherdevelopedmarkets,andinemergingmarkets.
• Realestatesecuri?eswereamongthe topperformers in thefirstquarter in theUS,but theyhadaflatperformance inotherdevelopedmarkets.
• Fixedincomesecuri?eshadposi?vereturnsinthefirstquarter.Longer‐termsecuri?estendedtohavebelerperformancethanshort‐termones.
TimelineofEvents:AQuarterinReviewFirstQuarter2010
EarthquakehitsHai?andinoneofthemostdevasta?ngnaturaldisastersofthepast20years
USquarterlyGDPgrowthisstrongestinsixyears
GoogleclosesitsChinasearchwebsiteinagrowingcontroversyovercensorship
AkioToyoda,ToyotaMotorCorpora?on’sCEO,tes?fiesbeforeCongressregardingrecentsafetyproblems
Jan12 Feb12 Feb27 Mar4 Mar23
2010WinterOlympicskickoffinVancouver,Canada
Oneofthestrongestearthquakeeverrecordedstrikessouth‐centralChile
Greece’sdebtcrisisescalatesleadingtoanIMF/EuropeanUnionbailoutpackage
Feb24
PresidentObamasignslandmarkhealthcarereformlegisla?on
Jan19
KranbuysCadburyinoneofthelargesttransna?onaltakeoverssincethecreditcrunch
Jan29
AppleintroducesnewiPadtablet
Annualized(%)
Index1YearEnding12/31/2009
3YearsEnding12/31/2009
5YearsEnding12/31/2009
10YearsEnding12/31/2009
20YearsEnding12/31/2009
SinceIncep?on(Incep?ondate)
USLargeCompanyStocksS&P500Index 49.77 ‐4.17 1.92 ‐0.65 8.66 9.85
(01/1926)
USSmallCapStocksRussell2000Index 62.76 ‐3.99 3.36 3.68 8.93 11.47
(01/1979)
USValueStocksRussell1000ValueIndex 53.56 ‐7.33 1.05 3.10 9.36 12.21
(01/1979)
USRealEstateInvestmentTrustStocksDowJonesUSSelectREITIndex 113.47 ‐11.99 3.38 11.38 9.51 12.31
(01/1978)
Interna?onalStocksMSCIEAFEForeignStockIndex 54.44 ‐7.02 3.75 1.27 5.25 9.45
(01/1970)
MSCIEmergingMarketsIndex 81.55 5.46 16.00 10.11 11.12 13.79(01/1988)
BondsSBBILong‐TermCorporateBonds 19.43 5.30 4.92 7.55 8.09 5.83
(01/1926)
SBBIOne‐MonthUSTreasuryBills 0.08 1.71 2.73 2.63 3.75 3.65(01/1926)
BeyondtheQuarter:SurveyofLongTermPerformanceAsofMarch31,2010
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TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirect investment. Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
Q1 2010
ChangeinValueof$10,000InvestedinVariousMarketsApril1,2009–March31,2010
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CHANGEINVALUEOF$1
AssetClass Index 1Year 5Years 10Years 20YearsUSLargeCompanyStocks S&P500 $1.50 $1.10 $0.94 $5.26USSmallCapStocks Russell2000 $1.63 $1.18 $1.44 $5.53USValueStocks Russell1000Value $1.54 $1.05 $1.36 $5.98USRealEstateInvestmentTrustStocks DowJonesUSSelectREIT $2.13 $1.18 $2.94 $6.15Interna?onalDevelopedStocks MSCIEAFE $1.54 $1.20 $1.13 $2.78EmergingMarketStocks MSCIEmergingMarkets $1.82 $2.10 $2.62 $8.24FixedIncomeCorporateBonds Long‐TermCorporateBonds $1.19 $1.27 $2.07 $4.74ShortTermGovernmentBonds One‐MonthUSTreasuryBills $1.00 $1.14 $1.30 $2.09
TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirect investment. Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
ValueofStockMarketsAroundtheWorldJanuary1990–March2010
• Globalmarketcapitaliza?onweightsarenotsta?c,theychangeacross?me.
Developedmarkets’securi?esandcommodi?esdataprovidedbyBloomberg.EmergingMarkets’dataprovidedbyInterna?onalFinanceCorpora?on.TheRussell3000IndexisusedastheproxyfortheUSmarket.Theproxiesforthenon‐USdevelopedandemergingmarketsaretherespec?vedevelopedcountryandemergingcountrypor?onsfromtheMSCIAllCountryWorldIMIexUSAIndex.TheproxiesfortheUK,Canada,andAustraliaaretherelevantsubsetsofthedevelopedmarketproxy.
Weights
NumberofCountries
NumberofStocks TotalValue March31,2009
ChangeFromPreviousQuarter
01/90‐3/10Average
UnitedStates 1 2,949 12.64Trillion 43.21% 0.93% 44.69%DevelopedMarkets 22 3,503 12.82Trillion 43.83% ‐0.86% 50.64%EmergingMarkets 22 2,551 3.79Trillion 12.96% ‐0.07% 4.67%Total 45 9,003 29.25Trillion 100.00%
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TheRandomnessofQuarterlyReturns
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
17.64 4.01 15.05 14.52 3.66 2.14 0.58 4.78 23.36 1.02 34.84 35.44 9.18 9.81 ?
Russell 2000 10.12 3.74 6.98 2.71 1.97 0.52 0.53 0.43 0.20 0.03 31.46 21.04 8.58 8.85 ?
8.90 2.35 6.28 2.56 0.93 ‐1.13 ‐0.80 ‐1.12 ‐21.15 ‐11.01 25.86 19.36 6.04 6.79 ?
div.) 8.85 1.95 4.93 2.03 ‐1.62 ‐8.69 ‐1.17 ‐6.11 ‐21.94 ‐12.43 20.68 19.28 4.22 5.39 ?
) 8.00 1.26 4.42 1.42 ‐3.33 ‐8.72 ‐2.49 ‐8.37 ‐22.18 ‐13.14 16.69 18.24 3.88 2.45 ?
REIT 6.70 1.24 1.26 1.14 ‐4.58 ‐9.45 ‐2.72 ‐8.54 ‐26.12 ‐14.95 15.93 15.61 2.44 1.53 ?
1.35 0.64 ‐1.88 ‐0.24 ‐5.80 ‐9.90 ‐5.32 ‐20.67 ‐27.56 ‐16.77 8.24 11.09 0.01 1.35 ?
1.24 ‐0.02 ‐9.36 ‐3.09 ‐13.54 ‐10.92 ‐5.39 ‐26.86 ‐39.95 ‐33.92 0.02 0.03 ‐2.17 0.01 ?
TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
Highest Return
Lowest Return
Thistableshowsfromtoptobolomthe highest returning asset classeseachyearover the last14quarters.Each asset class is color codedbasedonthelegendbelow.
Thelackofapalernindicatesthatpickingwhichassetclasseswillbethebestorworstperformersisvirtuallyimpossible.
InQ42008,forexample,theMSCIEmergingMarketsIndexwasthesecondtoworstperformingassetclass.Aquarterlateritwasrightupatthetop.
Porsolioscombiningthesevariousinvestmentswillavoidextremereturns.
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S&P500
Russell2000
Russell1000Value
MSCIWorldexUSA
MSCIEmergingMarkets(grossdiv.)
DowJonesUSSelectREIT
One‐MonthUSTreasuryBills
Long‐TermCorporateBonds
ReturnsofGloballyDiversifiedPorsoliosAsofMarch31,2010
GlobalStocksrepresentedbyMSCIAllCountryWorldIndex(grossdiv.)andTreasuryBillsrepresentedbyUSOne‐MonthTreasuryBills.DatacopyrightMSCI2010,allrightsreserved.©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
AnnualizedReturns(%)
Percent Q12010 OneYear ThreeYears FiveYears TenYears TwentyYears
100%GlobalStocks 3.24 56.31 ‐3.84 4.48 1.09 7.1575/25 2.48 40.35 ‐1.97 4.40 1.77 6.5450/50 1.69 25.71 ‐0.41 4.07 2.25 5.7725/75 0.87 12.31 0.81 3.51 2.53 4.83100%TreasuryBills 0.01 0.08 1.71 2.73 2.63 3.75
Posi?vevs.Nega?veMonths:January1988–March2010,Total267months
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USStockReturnsAsofMarch31,2010
Russelldatacopyright©Russell InvestmentGroup1995‐2010,allrightsreserved.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
Returns(%)
AssetClass Index Q12010 OneYearThreeYearsAnnualized
Marketwide Russell3000 5.95 52.44 ‐3.99LargeCap S&P500 5.39 49.77 ‐4.17LargeCap Russell1000 5.70 51.57 ‐3.98LargeCapValue Russell1000Value 6.79 53.56 ‐7.33LargeCapGrowth Russell1000Growth 4.65 49.75 ‐0.78SmallCap Russell2000 8.85 62.76 ‐3.99SmallCapValue Russell2000Value 10.03 65.06 ‐5.71SmallCapGrowth Russell2000Growth 7.61 60.31 ‐2.42
• Alookatthedeterminantsofequityperformance—rela?vepriceandmarketcapitaliza?on—providessomeinsightintothesourcesofreturns.
• Historically,valuestocks,asmeasuredbythera?oofbook‐to‐marketequity(BtM),haveoutperformedgrowthstocks,andthatwasindeedthecaseinthefirstquarter.
• Historically,smallstockshaveexperiencedhigherreturnsthanlargestocks,andthatwasindeedthecaseinthefirstquarter.
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Interna?onalStockReturnsAsofMarch31,2010 Returns(%)
AssetClass Index Q12010 OneYearThreeYearsAnnualized
Marketwide MSCIAllCountryWorldexUSA 1.58 60.93 ‐4.17DevelopedLargeCap MSCIEAFE 0.87 54.44 ‐7.02DevelopedSmallCap MSCIEAFESmall 4.76 70.02 ‐8.27DevelopedValue MSCIEAFEValue ‐0.24 58.52 ‐8.40DevelopedGrowth MSCIEAFEGrowth 1.96 50.61 ‐5.70EmergingMarketsLargeCap MSCIEmergingMarkets 2.40 81.08 5.16EmergingMarketsSmallCap MSCIEmergingMarketsSmall 5.07 118.10 7.44EmergingMarketsValue MSCIEmergingMarketsValue 2.35 83.89 8.00EmergingMarketsGrowth MSCIEmergingMarketsGrowth 2.45 78.32 2.32
MSCIdatacopyrightMSCI2010,allrightsreserved.Interna?onaldevelopedrepresentedbyMSCIEAFEindexandEmergingMarketsbyMSCIEmergingMarketsIndex.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
IMPACTOFCURRENCYFLUCTUATIONSONRETURNSFORINVESTORSINUSDOLLARSOneYearReturnsinUSDollarsandLocalCurrency ThreeYearAnnualizedReturnsinUSDollarsandLocalCurrency
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MSCICountryReturnsinUSDollarsandLocalCurrencyAsofMarch31,2010
12MSCIdatacopyrightMSCI2010,allrightsreserved.
TENYEARPERFORMANCERANKINGOFMARKETSAROUNDTHEWORLDINUSDOLLARSASOFDECEMBER31,2009
RealEstateInvestmentTrusts(REIT)StocksAsofMarch31,2010
NumberofREITstocksandtotalvaluebasedonthetwoindices.DowJonesUSSelectREITIndexdataprovidedbyDowJones©.S&PGlobalexUSREITIndexdataprovidedbyStandardandPoor’s©.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
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Returns(%)
Index Q12010 OneYearThreeYearsAnnualized
DowJonesUSSelectREITIndex 9.81 113.47 ‐11.99S&PGlobalexUSREITIndex(grossdiv.) ‐0.04 67.42 ‐15.91
NumberofREITStocks TotalValueofREITStocks
BondReturnsAsofMarch31,2010
BarclaysCapitaldata,formerlyLehmanBrothers,providedbyBarclaysBankPLC.USlong‐termbonds,bills,infla?on,andfixedincomefactordata“Stocks,Bonds,Bills,andInfla?onYearbook”,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).Ci?groupbondindexescopyright2010byCi?group.TheMerrillLynchIndicesareusedwithpermission;copyright2010MerrillLynch,Pierce,Fenner&Smith Incorporated;all rightsreserved. Indexesarenotavailable fordirect investment. Indexperformancedoesnotreflect theexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.
Returns(%)
Index Q12010OneYear
ThreeYearsAnnualized
SBBIOne‐MonthUSTreasuryBills 0.01 0.08 1.71BankofAmericaMerrillLynchThree‐MonthT‐Bills 0.01 0.17 1.99BankofAmericaMerrillLynchOne‐YearUSTreasuryNote 0.25 1.06 3.45Ci?groupWorldGovernmentBond1‐5Years(hedged) 0.76 2.29 4.85SBBIUSLongTermGovernmentBonds 1.12 ‐8.38 5.67BarclaysCapitalCorporateHighYield 4.62 56.18 6.65BarclaysCapitalMunicipalBonds 1.25 9.69 4.56BarclaysCapitalUSTIPSIndex 0.56 6.18 6.01
USTreasuryYieldCurve
Yields on short‐term Treasurybills rose in the first quarterrela?vetotheendof2009,while yields on long‐termTreasurysecuri?esfellinthefirstquarter.
As a result, the yield curveflalened slightly over thequarter. The difference in yieldbetween ten‐year Treasurybonds and one‐month USTreasury bills was 369 basispoints at the end of the firstquarter, compared to 381 basispointsattheendof2009.
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TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Diversifica?onneitherguaranteesaprofitnorpreventsaloss.Indexisnotavailablefordirectinvestment.Pastperformanceisnoguaranteeoffutureresults.
QuarterlyTopic:TheLostDecade,ForSome.Many in the popular financial media claim that 2000‐2009 was a dismal period for US investors. Some commentators aredescribing the tumult as the “Lost Decade” in stocks. From a narrow market perspec?ve, they are right. Investors whoconcentratedinUSlargecapstocksdidnotbreakeven:onedollarinvestedintheS&P500inJanuary2000turnedintoninety‐one cents over the next ten years. The results were even worse for investors who made concentrated bets on individualcompaniesthatul?matelyfailed.AmongthesearefamiliarnamessuchasAIG,Enron,MCI,CircuitCityandBearStearns.
However,fordisciplinedandgloballydiversifiedinvestors,thelasttenyearswerenotalostdecade. Assuggestedinthegraphbelow, investorswhodeployedtheircapitalacrossabroadmixofdomes?c,developed,andemergingmarketsweregenerallyrewardedwithposi?vereturns.Furthermore,investorswithgreaterneedforstabilitycouldhavebalancedtheriskofstockswiththelowervola?lityofbonds,andpoten?allyavoidedthelargefluctua?onsofthestockmarket.
So,whileitwasa“LostDecade”forsome,thosewhowalkedadisciplinedandbroadlydiversifiedpathwereshelteredfromtheworstofthestorm,reinforcingthemeritsofthisapproachtoinves?ng.
MichaelMoore
1120CrestlineCourt•LakeOswego•OR97034
Telephone:503‐635‐4457
www.crestlinecapital.net
Crestline Capital, LLCCC