During the second quarter, the stock markets declined approximately 3%. Our stocks again did somewhat better. Headline news focused on debt problems in Europe and the specter of a break-up of the Euro currency alliance. Fortunately in June, it became clear that Germany would cooperate (with conditions) and the weaker southern European nations and their banks will receive assistance and support.
European issues put a crimp in U.S. industrial spending and recent data shows at least a “soft patch” in our own economic recovery. The quarterly earnings reports are expected to be “mixed” but we foresee a pick-up in the latter months of the year and valuations are attractive.
We have told our clients about our emphasis on investment themes as well as “bottom up” stock picking. In the current environment, we have a lower weighting to companies with European exposure. We have gradually built domestic positions with broad real estate exposure. Currently commercial, industrial, and residential real estate “investment plays” comprise about 25% of our equity portfolio. We have a high degree of conviction that residential real estate has “bottomed” and commercial real estate, etc., began improving several months ago. Our broadly diversified holdings include REITS, mortgage companies, developers, building suppliers, and home builders.