Marketing Commentary- Q1 2004

What’s Been Happening?

The recovery in the US stock market continues, although the pace has slowed. Earnings have been stronger than expected, and prices follow profits. Real Estate funds continued to outperform other asset classes, but as of March 31, REIT prices exceed underlying property values by over 30%, so the REIT correction of early April is no great surprise.

Small Company stocks have dramatically outperformed Large Company stocks in recent periods. Historically, small company stocks lead recoveries, while Large Company stocks complete them. International funds have awakened from a long, deep slumber.

Trends to be Aware of

Emerging markets have been soaring. After a decade of underperformance from this risky asset class, the 80%+ returns of the past twelve months are commanding respect. Although emerging markets include most of the world’s population, the corresponding stock markets are quite small. Prices move according to supply and demand, so even modest flows into emerging markets will move prices up substantially.

As India, China and other parts of the world make progress in their legal and democratic structures, it is logical to think their capital markets will grow proportionally.

What To Expect From Here

Even after a 35% rebound in the past twelve months, the S&P 500 still has a negative return (-1.20% per year) over the past five years. Recoveries do not occur in even steps. There will be setbacks along the way as investors fret about global unrest, politics and deficits, but as profits recover, prices will rise.

Some Numbers for Comparison:

The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 03/31/04.