July 2012 Wingate Strategic Investment Review

We have recently completed our Mid-Year Strategic Investment Review.  Twice a year we conduct a comprehensive review of the economic and investment outlook, update our investment strategy, and adjust the model portfolios we use to manage client portfolios.  Our objective is to identify and assess the major economic and investment trends that we believe will impact investment returns over the next three to five years, and incorporate these insights into our investment strategies.  We have summarized below our current economic and investment outlook and key portfolio strategies.  We have also attached a summary of our strategic investment review process at the end of this report.

Key points from our review:

• The U.S. economy decelerated during the second quarter, renewing fears that the economic recovery could be stalling. Speculation is rising that the Federal Reserve may again intervene with a “quantitative easing” stimulus program if the economy weakens further.

• Much of Europe has slipped into recession amid the intensifying financial crisis which has now overtaken Italy and Spain; Europe’s 3^rd and 4^th largest economies. Europe’s woes continue to be a dark shadow overhanging the global economy.  The seemingly endless rounds of summit meetings held by European government leaders and monetary authorities have so far not led to the decisive actions necessary to address Europe’s fundamental problems.  It is still unclear as to whether the European Union will survive intact or whether we will see a few of the weaker countries such as Greece leave, or whether the Union itself will come undone.  A disorderly outcome would send shockwaves throughout the global financial system.

• China has one of the largest economies in the world and its health has a major influence on the global economy.  China’s economic growth rate has been slowing markedly during the first half of the year.  The consensus view is that China will avoid a hard landing and continue its economic growth, but at a much slower pace.

• The U.S. and global stock markets saw volatility spike up once again during the second quarter after a relatively calm first quarter.  The consensus outlook is for a continuation of market gyrations for the rest of 2012 as investors react to developments in Europe and any disappointing economic news on the homefront.

• Our overall portfolio performances for the quarter and year-to-date have generally trailed the blended benchmark index due to our emphasis on capital preservation in the portfolios’ growth fund allocation.  We have continued to include several more defensive growth fund strategies, which have not kept up with the stock market benchmark during this year’s rallies, but should help protect capital during market declines.  However our bond fund strategies have done very well and our income fund allocation has outperformed its bond market index benchmark.

• We believe that the current defensive posture in our portfolios continues to make sense in view of the substantial potential stock market downside risk that exists, should any of the worse case economic scenarios materialize.  We also believe that our strategies will perform well over the long term, and our flexible allocation growth fund managers are poised to take advantage of buying opportunities at more attractive price levels.

 Download this complete strategic investment review as a PDF