Listen to Nana

Happy July 4th Eve! Tomorrow America will celebrate 237 years of independence. Happy Nana’s birthday, too. Today my grandmother, Margaret DuFief Reed, turns 105 years old. She was born in 1908. Tonight her three children, son-in-law, four grandchildren, eleven great grandchildren, nieces, nephews and friends will gather in Rehoboth Beach, Delaware for drinks, dinner, and birthday cake. Nana is psyched. She is frail but has the majority of her marbles. She cautions me not to work too hard, eat well and exercise. Nana also congratulates me for being successful but warns me not to forget who I am and what I value.

Nana’s advice seems pretty good for America too: congratulations on your success, but don’t forget who you are and what you value. America is the land of the free and the brave, but it is also the land of possibility and potential. The limits for a child’s future are defined more by the capacity of the child than by the restrictions of the nation. In fact, America is the best place in the world for the determined and talented to soar.

The Battle of Gettysburg was fought 150 years ago this week. America is built on principles and values. Freedom is the fodder of our genesis: freedom for all. Isn’t that great? Aren’t you proud? Our path is not always pretty, but America continues to set the standard of human rights, respect for our fellow man whether we look like him, act like him, or agree with him.

Before I comment on markets this week, I suggest that we need to listen to Nana. America is built on hard-work, talent, tenacity, self-sacrifice, self-reliance, and dreams. Our economy is built on the very same foundation. We are not entitled to luxury, but rather we are entitled to have possibility and the firm American foundation on which to build and grow and achieve. Keep your faith in this marvelous country; miraculous things are happening even as you read this.

Now on to some market commentary. For many months now, we have been ending our Market Commentaries with the same conclusion: High-quality and defensive “blue chip” stocks appear attractive relative to the investment alternatives. We repeated some variation of this sentence so many times that I was called Bill Murray from the movie Groundhog Day! Well today we take a look at how various asset classes performed for the first half of 2013, and we show the results of that analysis in the chart below. We used exchange-traded funds (ETFs) to approximate the performance of the various asset classes. We indexed the ETFs by assigning a value of 100 to each on January 2 (the first day of trading in the new year). The analysis does not incorporate dividends or other distributions paid over the holding period.


Can anyone guess what which asset class performed best? The S&P 500 (which represents a pretty good proxy for the blue-chip universe) was the top performer among the eight categories we examined. Included in the analysis were Emerging Market Equities, Junk Bonds, Long-term Treasury Bonds, Gold, Non-US Developed Market Equities, Real Estate Investment Trusts, Commodities (a representative basket), and Municipal Bonds. With a first-half increase of about 10%, the S&P 500 handily exceeded all the other asset classes. In fact, only one of the other asset classes we tracked (REITs) was higher at mid-year compared to the beginning of the year.

What will the rest of the year hold?  While we have no crystal ball, we continue to believe that quality remains king in the equity universe.  Our political and economic challenges are far from resolved, and investors are likely to continue to place a premium on those companies and management teams that are able to deliver highly-visible earnings growth in an uncertain world.

* Data obtained from Bloomberg Financial.  We used the following ETF’s in our analysis: Vanguard FTSE Emerging Markets ETF (VWO); iShares High-Yield Corporate Bond ETF(HYG); iShares Barclay’s 20+ Year Treasury Bond ETF (TLT); SPDR Gold Shares ETF (GLD); iShares MSCI EAFE Index (EFA); Vanguard REIT Index ETF (VNQ); PowerShares DB Commodity Index (DBC); and iShares S&P National AMT-Free Muni Bond ETF (MUB). We used the actual performance of the S&P 500.  The returns above do not include dividends or other distributions.