Peter Hermann
Managing Director
Following a difficult first quarter of 2008, equity markets experienced a degree of stabilization in April and May. In June, many of the same issues that were present earlier in the year again began to weigh on investor sentiment and roil the U.S. securities markets: concerns about the ongoing crisis in housing, the shut down of the credit/debt markets, the overall health of the consumer, higher commodity prices, a potential U.S. economic recession, and fears of a bear market in stocks. As we begin the third quarter, it is not at all clear that any of these current issues have been fully resolved, although it seems likely that the financial markets have discounted much of the impact. We are hopeful that the stock market is attempting to put in a bottom from which a more sustainable advance in stock prices can begin. Although it currently is too early to suggest that an ultimate low has been made in stock prices, there are several indicators which suggest that this bottoming process is underway.
Large Cap Growth underperformed the Russell 1000 Growth Index for the second quarter. The portfolio had a net of fee return of -0.6% as compared to the benchmark return of 1.2%. Although the portfolio made up ground during June, the first two months of the quarter for the portfolio were weaker on a relative basis than the Index. In spite of this, the portfolio has essentially performed in line with the Russell 1000 Growth Index since the end of January, a rather tumultuous first month of the year.
As the second quarter came to a conclusion, the portfolio was mostly market weighted in many of the sectors across the investment universe with the exception of over weighted positions in the healthcare, basic materials, and consumer discretionary sectors. Under weighted sectors included the utilities and industrials. During the preceding three months, additional commitments were made to the information technology positions which were funded by trimming the portfolio's weights in the industrials and consumer staples sectors. We continue to look actively for new positions in all sectors as well as to increase our exposure to current holdings on price pull backs.
Until the equity markets begin to move higher off a sustainable low, we feel the stock market will be characterized by ongoing volatility and rotation among sectors. With fairly neutral sector exposures, we hope to reduce the portfolio's volatility. This is very similar to our view from three months ago. In expectation of a rebound in U.S. GDP late in the second half of 2008, it is anticipated that we will work to increase the portfolio's exposure to the consumer discretionary, technology, and transport-related stocks. As the equities' markets begin to bottom, we remain comfortable about the prospect for investing in large cap growth stocks. The Large Cap Growth team remains diligent and true to its investing process as we move through these turbulent times in the economy and the securities markets.
Disclosure Statement
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