Past MARKETLETTERs
January 2, 2007
Even though the large cap stocks led the fourth quarter performance leagues, our strategy of diversification and significant fixed income allocation beat the S&P for the year. Most of the trends remain the same except for real estate and commodities going into 2007.
As we discussed in September, we will continue to shift more assets into fixed income vehicles. These investments will include a wide variety of income sources including preferred stock and high dividend stocks available in mutual income funds.
The principal risks to watch will include sudden changes to the current investment assumptions, as happened in May 2006. Although interest rates are relatively low now with most of the bond market assuming lower US interest rates in 2007, the economic growth of many foreign economies may cause rates to go up instead of down. The US dollar lost about 11% as measured against the foreign currency benchmark and will probably lose some more this year.
Complacency will be a big risk as more funds come into the market from the sidelines. The first 2-3 months of 2007 will probably be positive, although the big price increases in stocks in late 2006 will probably encounter some resistance early in 2007, ie, prices will go down some by way of profit taking, probably during February.
The improvement in investment accounts in 2006 is confirmation of the importance of diversification and constant attention to market trends. We will continue to use this philosophy in 2007.
| Broadview Model | 7.21% |
| Hedge Fund Weighted Composite Index | 3.23% |
| Russell Broad US Market Index | 3.38% |
| Dow 30 Industrials | 4.04% |
| Wilshire 5000 | 3.38% |
| S&P 500 | 1.76% |
Future MarketLetters will describe how the Broadview Model is being adjusted in the search for the optimum investor allocation given the domestic and international risks.