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Portfolio > Economy & Markets > Stocks

As Spreads Widen, Opportunities Beckon

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The term “a rising tide lifts all boats” is especially true in the investment management industry. After years of smooth, steady returns in nearly every asset class, the markets are finally beginning to exhibit some volatility. Although this may be bad for an investor with a decades-long investment horizon, for those who try to add value through strategic asset allocation, investments have suddenly become a lot more interesting.

Indeed, the markets are rife with areas of opportunity. Corporate credit markets are reeling, as are real estate investment trusts. The time will come when these securities will once more offer significant value to investors, similar to when credit spreads bottomed in October 2002, and owners of high yield bonds were rewarded with huge gains.

Dislocations aren’t limited to the debt markets. The return differential between growth and value stocks is at a multi-year high. Similarly, large-cap stocks are finally showing some strength versus their smaller brethren.

For the last several years, the markets have rewarded risk takers of every stripe. Things may be getting a bit more selective, but for the savvy advisor now is the time to differentiate one’s firm.

The Monthly Index Report for August 2007

Index

Jul-07

QTD

YTD

Description
S&P 500 Index* -3.20%

-3.20%

2.61%

Large-cap stocks
DJIA*

-1.47%

-1.47%

6.00%

Large-cap stocks
Nasdaq Comp.*

-2.19%

-2.19%

5.42%

Large-cap tech stocks
Russell 1000 Growth

-1.55%

-1.55%

6.45%

Large-cap growth stocks
Russell 1000 Value

-4.62%

-4.62%

1.32%

Large-cap value stocks
Russell 2000 Growth

-5.19%

-5.19%

3.65%

Small-cap growth stocks
Russell 2000 Value

-8.51%

-8.51%

-5.04%

Small-cap value stocks
EAFE

-1.46%

-1.46%

9.47%

Europe, Australasia & Far East Index
Lehman Aggregate 0.83%

0.83%

1.82%

U.S. Government Bonds
Lehman High Yield

-3.54%

-3.54%

-0.77%

High Yield Corporate Bonds
Calyon Financial Barclay Index**

-2.70%

-2.70% 4.30% Managed Futures
3-mo. Treasury Bill*** 0.42% 0.42%

3.08%

All returns are estimates as of July 31, 2007. *Return numbers do not include dividends.

** Returns are estimates as of July 30, 2007.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management. He can be reached at [email protected].


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