MBT seeks to invest its WMG Group clients in domestic and international equities exhibiting consistent earnings growth, reasonable valuation, and above-average sector return. We seek to own securities of companies with strong balance sheets, a record of increasing earnings, and strong internal reporting safeguards. We adjust equity portfolios by overweighting S&P sectors poised for better performance relative to other market sectors, and we regularly reassess “buy” rated equities for relative valuation, earnings quality, and earnings expectations. Our individual equity and mutual fund models reflect this discipline, and we invest portfolios utilizing these securities as well as Exchange-Traded funds to create diversified equity portfolios. Our individual bond and bond fund selections reflect our discipline in creating fixed income portfolios that manage risk and enhance returns via diligent issue and sector research.
For the 1st Quarter we recommend overweighting of the Energy, Technology, and Health Care sectors, underweighting of the Consumer Discretionary, Financial, Telecom & Utilities sectors, and neutral weighting of Consumer Staples, Materials and Industrials. We continue reduced equity weightings below our neutral levels, though our negative bias has been reduced due to some improvement in the macroeconomic environment. Additionally, we have increased allocations to international equities and fixed income in recognition of the threat to dollar-denominated investments via currency inflation and domestic economic underperformance.
This environment requires increasingly keen discretion in equity and bond purchase decisions. We have allocated the majority of our equity position weighting to quality domestic large-cap stocks, and utilize alternative asset classes and strategies to mitigate and spread portfolio risk. We have reduced our cash position below neutral levels, and our fixed income holdings remain over-weighted to high quality short and intermediate-term holdings. We feel the easy bond returns that came from asset mispricing in the depths of the crisis are now priced out of most sectors of the bond market. We are very aware of the increased risk of coming “too far, too fast” in the recent market upswing and have set target prices and market index levels for strategic reviews.
2009 provided a rebound of confidence and relief for investors. However, economic conditions are by no means settled, nor are market indicators lining up for a certain recovery. This advance raises the risks that investors could again flee on disappointing economic progress. 2010 looks to be a year that can take many turns, and investors should remain vigilant and maintain disciplined rebalancing.
Our Core Growth and Income Portfolio, reflecting our neutral portfolio asset allocation biases for the 1st Quarter 2010, is weighted as follows:
