Monday, June 2, 2008

Sectors and Styles Strategy Report: June 2, 2008

excerpts from this week’s report:

Model Growth Portfolio (MGP)

“Last week’s results (albeit very modest) have, once again, extended one of the best relative performance weekly winning streaks for the MGP: 9 out of the last 10, 15 out of the last 17, and 17 out of 22 for the year. The MGP’s year to date alpha now sits at 295 basis points*.

Model Growth Portfolio (MGP) Re-balancing

“No portfolio adjustments are recommended at this time. However, it is likely that an increase will occur in the coming weeks...”

ETF Market Monitor

Econ. Sectors & Industries: Energy was pounded, particularly Oil & Gas exploration (IEO). Tech & Telecom was the big weekly winner with Software (IGV) and Networking (IGN) leading the way.
Size & Styles: The Smids along with Micro cap appear to be signaling a broader market upside potential than the large caps. Transports (IYT) were up huge.
Global: Europe (IEV, EWU) and Canada (EWC) were strong to the downside.
Other: Reversal of prior week with exceptional weakness across the commodity board.

Expected Return Valuation Model

“Keeping the BMR estimated fair value range unchanged was a close call this week due to the fact that operating earnings for the remainder of this year looks much improved versus earlier this year (see table below). Moreover, with the recent rise in the US Treasury 10 year (thereby narrowing credit spreads some) along with a more subdued VIX level*, the temptation to lower the risk adjustment range (to 100 – 120 basis points over the 10 year) is getting stronger.

The following table shows a modest upward adjustment to the BMR scenario forecast. The wild card in these forecasts is the US consumer (see Key US Economic Indicators commentary on page 9).”

Moving Averages Scorecard

“The most notable item is the improvement in the style grouping, specifically the Smids and Micro caps…”

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