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Island Light Investment Notes (January 2013)

All systems go.

With the lifting of the debt ceiling, the political class in Washington announced that all systems are go to flood the US economy with supercharged fuel.  The turbos are charged and the engine is revving.  Add a liberal dose of monetary easing along with a dash of conservative reluctance to raise taxes and you have a recipe for short term economic growth.  Forget the risk of lagging revenues, huge debts, bloated balance sheets, unfunded future liabilities and global employment uncertainty.   All systems go.  Release the animal spirits.  If this is a fool’s game, we will play it in the short run.

Global equity markets responded in January with the best monthly return since January 2011 as the S&P 500 swelled by 5.2% and MSCI EAFE (international developed) grew 5.3%.   Emerging Markets grew at a slower pace of 1.4%. Fixed income markets responded negatively to stimulus and fears of a rise in interest rates, particularly in longer duration instruments, as the BarCap Aggregate Bond Index lost 0.7% for the month and long Treasuries lost 3.9%.

Equity markets are now ignoring the danger signs present in financial markets, such as levels of sovereign debt, the possibility of renewed inflation, the now increasing risk of deleveraging the Fed balance sheet and persistent softness in employment markets.  Fears of rising interest rates continue to drive down fixed income returns with investment strategists increasing allocations to fixed income alternatives and lower risk equities as they are able.

As we have written previously, we remain upbeat about equity markets in 2013, but remain positioned to the defensive with allocations toward diversifying and fixed income assets.  By investment design, we manage to control portfolio risk and monitor long term investment benefit.  This approach is designed to reduce volatility in order to win over the long run.

Portfolio Performance

The information below reflects our composite portfolio performance for the month ended January 31, 2013. Returns are net of investment management fees and transaction costs.

The Island Light Global ETF Conservative Portfolio was up 0.5% in January with a beta since inception of 0.24 relative to the Russell 1000 and a current yield of 2.2%.  Its index grew 0.3% for the month.

The Island Light Global ETF Income Portfolio was up 1.2% in January with a beta of 0.42 relative to the Russell 1000 and a current yield of 2.2%.  Its index grew 1.2% % for the month.

The Island Light Global ETF Balanced Portfolio grew 2.3% in January with a beta since inception of 0.71 relative to the Russell 1000 and a current yield of 2.2%.  Its index grew 2.5% for the month.

The Island Light Global ETF Growth Portfolio was up 2.7% in with a beta since inception of 0.92 relative to the Russell 1000 and a current yield of 2.2%.  Its index grew 3.4% for the month.

We measure our portfolios against an index of US fixed income investments (the BarCap Govt/Credit Index) and an equal-weighted index of Large US Stocks (Russell 1000 value) and non-US stocks (MSCI ACWI ex US).

At this writing, we are comfortable with our investment allocations.  While the turbos are supercharged and the prospect for equity markets remains positive, our portfolios are allocated to both participate in up markets while remaining diversified in assets designed to reduce the likelihood of investment loss.

Island Light’s investment process is designed on a process called Enlightened Investing.  Enlightened Investing is a stable approach to portfolio management, emphasizing quantitative principles and proven investment practices, while accentuating asset allocation as the most important determinant of long term success in investment planning.  This approach is designed for the long term investor.

For more information about Island Light’s Enlightened Investing methodology and portfolios, please contact us at 508-687-0061 or email us at info@islandlightcapital.com.

Matthew V. Pierce, President

February 5, 2012

 

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