4th Quarter 2009 Client Letter
The Markets Generally
Stocks did very well again this quarter. The S&P 500 Stock Index increased 6%*— below the 15+% returns of each of the last two quarters, but by historical standards quite a robust quarter. Commodities and real estate each increased by 9%. The BarCap U.S. Aggregate Bond Index was essentially flat.
The industry-standard simple blended benchmark returns (based on the bond and stock indexes) for the quarter ranged from 1.9% for conservative portfolios, to 3.1% for moderate, to 4.9% for aggressive.
For 2009 as a whole, the S&P 500 Stock Index finished the year up 26.5%, while the BarCap U.S. Aggregate Bond Index increased close to 6%.
Your Portfolio
Given this backdrop, your portfolio had another strong quarter.
For the year, your portfolio did very well in absolute terms. It also performed admirably relative to market benchmarks, considering that we have continued to add safeguards against another severe downturn in the markets. That is, the protection we built into your portfolio during the year (more on this below) did not create a significant drag on your performance.
Looking Forward
Our clients of long standing have generally experienced a history characterized by superior performance in below-average (and even average) markets, and roughly keeping pace in above-average markets. The year 2009 — an exceedingly-above-average year for the markets — continued that trend. A rare exception to this performance profile occurred in the fourth quarter of 2008, when there was literally no safe investment haven while virtually all asset classes declined sharply — and all at the same time — destroying, in many cases, several years’ worth of hard-earned wealth creation. We have learned quite a bit from that devastating and unprecedented experience and obviously do not wish you and your portfolio ever to repeat it. Accordingly, we are in the midst of an ambitious, long-term, multi-tiered approach to attempt to protect your portfolio from future “unexpected” events, whatever their cause.
The first tier is already substantially in place — that consists of the hedging vehicles we have added to your portfolio (e.g., managed futures, absolute return, and market neutral investments) that we alluded to above. We will be expanding the use of these vehicles in 2010, while continuing to try to contain their potential performance drag. The remaining tiers are still under active development, and we will be reporting about them in the weeks and months ahead.
In the meantime, please do not hesitate to call us with any questions you may have.
Please remember to contact Brinton Eaton Wealth Advisors if there are any changes in your financial situation or investment objectives, or if you wish to add to or modify our investment management services. A copy of our current written disclosure statement as set forth of Part II of Form ADV continues to remain available for your review upon request. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Brinton Eaton Wealth Advisors.