Traditional large cap value equity second quarter
The year-long upturn in the markets came to an abrupt end during the past quarter. Troubles in Europe, the massive oil spill in the Gulf of Mexico, mixed economic news from the U.S., and fears of new financial regulations coming out of Washington all contributed to a dour mood.
Money moved out of stocks around the world and back in to perceived safe havens like U.S. treasury securities. As a result, during the past quarter the AMBS Traditional Large Cap Value Equity strategy gave back some of the gains earned earlier in the year.
As of June 30, the AMBS Traditional Large Cap Value Equity strategy composite portfolio is down -9.51 percent (gross of fees) for the year-to-date. This result compares to the S&P 500 -6.65 percent and the Russell 1000 Value Index -5.12 percent.
Energy stocks had a particularly difficult quarter. While we were very fortunate to have sold Transocean before the oil spill disaster, many of our other energy sector holdings, including Anadarko, experienced significant declines in price. The news of proposed new financial regulations contributed to a pull back in bank stocks.
In addition, the Greek solvency crisis and resultant $1 trillion debt stabilization plan put together by the European Union and International Monetary Fund caused investors to flock to the dollar. The dollar strength had a negative impact on the performance of many large international companies, particularly in the technology and industrial sectors, as investors now believe that these companies will have a more difficult time exporting their products leading to slower earnings growth. It would appear that a lot of investors may have overreacted and sold positions in these large liquid names like Oracle and Hewlett Packard, without looking at their fundamental earnings growth potential.
We continue to find large capitalization, high-quality companies with international exposure and growing earnings attractive and are not making significant changes to our portfolio positioning.
At this point we remain cautious about the prospects for the markets for the months ahead. We all know that the return to prosperity and strong economic times is going to take years and will not occur in a tidy straight line. While there are many signs that the U.S. economy is gradually strengthening, fear remains, and any signs of trouble around the world create overreactions.
The recovery from a crisis as severe as the one we faced in 2008 will take time. We believe that we have begun the long climb back. Importantly, we believe that we have positioned the AMBS Traditional Large Cap Value Equity model portfolio in a manner that balances quality and opportunity for longer term growth.
Scott W. Wagasky is principal, director of business development, for AMBS Investment Counsel LLC.