The Nvest Market Blog, our current thoughts on the Street

Princeton Futures Strategy Fund - PFFAX

posted 07.27.2010 at 09:36 a.m. by steve

Recently, Nvest Wealth Strategies has been researching and performing due diligence on fund strategies that can further help reduce portfolio volatility. Historically managed futures provide an uncorrelated investment solution to the traditional asset classes of equity and fixed income. This low correlation serves as an excellent diversifier during periods of market volatility. When used in conjunction with a portfolio of traditional asset classes, the fund has the potential to reduce risk and enhance return. Additionally, unlike other alternative investments (such as hedge funds, real estate, private equity, etc.), managed futures as an asset class has maintained low correlation with other asset classes even during times of market stress in which asset correlations tend to rise (assets behave increasingly like one another).

Princeton Futures Strategy Fund (ticker: PFFAX / PFFNX) seeks to provide diversified exposure to the commodities, financial and foreign exchange markets while attempting to generate attractive, risk-adjusted returns through a fund-of-funds architecture with the daily liquidity and fee structure of a mutual fund. While the Princeton Managed Futures Strategy Fund is newly available in a mutual fund format under the Investment Company Act of 1940, the sub-advisor 6800 Capital, LLC has been running this hedge fund strategy as a limited partnership (LP) for the last 14 years with very attractive performance. Read more about Princeton Futures Strategy Fund.

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Dow Regains Positive Territory for 2010 - Week Ended 7/23/10

posted 07.26.2010 at 09:41 a.m. by steve

Despite a week full of disappointing data on the housing sector and almost no other economic news domestically, US stocks enjoyed positive performance in four of the five trading sessions. The S&P 500 rose +3.55% in the week while the Dow and NASDAQ managed to get back to their break-even levels for 2010. Better than expected earnings seemed to be the primary catalyst, as several key companies not only met or exceeded forecasts, but issued more optimistic guidance for upcoming quarters as well. In particular, shipping company UPS suggested that commerce may be picking up, while Ford noted strong sales and that it expects to be debt free by the end of 2011. In addition, European economies posted figures that surprised analysts to the upside. Among those items, we learned that the UK grew at its fastest pace in four years while Germany and Italy released data indicating that confidence and sentiment regarding their economic outlook is improving.

When reflecting on last week, it seems as though there was actually more news from Europe than here domestically. Also announced were the results from the European bank stress tests. Highly anticipated, the report showed that 7 of 91 banks failed and they would need to raise additional capital. Ultimately, the results were of little to no impact on the markets. Meanwhile, there was news from US companies, suggesting that pressure is growing for idle cash to be deployed to more productive uses. GE announced a special dividend, and there was speculation over a Genzyme takeover on Friday. Investors should be encouraged as it would show that companies may be feeling that it is time to open up the corporate wallet and think about improving/expanding their businesses rather than having a mountain of cash sitting idle and being uber-conservative. Said another way, if businesses begin to spend down the huge mountains of money acquired in the last 18 months for capital improvements, starting new ventures and marginally expanding workforces, jobs may begin to return at more rapid pace and the economic recovery could gain stability.

This week the economic calendar is busy. Most watched will be consumer confidence, durable goods orders, jobless claims and more housing-related data. Perhaps the most anticipated report of the week will be the initial estimate for 2Q GDP due on Friday. Economists are looking for +2.5% and would also like to see improvement in final sales (not just inventory re-stocking).

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Declining Consumer Confidence Hits Stocks - Week Ended 7/16/10

posted 07.19.2010 at 09:43 a.m. by steve

After extending their winning streak to 7 straight days, US equities proceeded to hit a wall of resistance late in the week and ended lower than where they began. The S&P finished the week down -1.21% following a massive decline on Friday of -2.88% onset by a consumer confidence number that plunged in the last month.

Ultimately, negative economic releases late-week overshadowed what was a great start to 2Q earnings season. Notable was great earnings from Alcoa (aluminum producer), CSX (railroad) and Intel (tech) which all showed better than expected gains in earnings and revenues and their outlook comments for the second half of 2010 remains bright and optimistic despite what has felt like a soft patch for the economy over the prior couple months. As has been the case for the past 2 years, the banking sector continues to show evidence of struggle. JPMorgan, arguably the healthiest big bank, reported better than expected earnings, but reduced the amount it sets aside for bad loans; Citicorp, by contrast one of the weakest big banking institutions, reported earnings that met analyst expectations but did so by setting aside a significantly smaller amount for bad loans than in previous quarters. The accounting profits cause one to question how strong the sector is recovering, and if banks are recognizing lower loan losses in order to juice earnings to meet expectations. Meanwhile Bank of America, the largest financial institution by deposits, missed revenue estimates adding to anxiety over the sector.

Also reported last week was an improvement in new unemployment claims, which fell to their lowest reported level in two years. But, one week does not make a trend, and investors will be watching the series in this and upcoming weeks to see if better numbers can be sustained. But, while employment numbers improved, manufacturing related data that had been the brightest spot of the recovery, deteriorated. This week, earnings season continues against a backdrop of just a few new economic data points, many of which are likely to be soft given that they are generally housing-related. Following expiration of the homebuyer tax credit in April, data from the housing sector is likely to be weak for several months as demand was pulled forward.

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Markets Fully Recover From Prior Week Damage - Week Ended 7/9/10

posted 07.12.2010 at 09:51 a.m. by steve

What a difference a week makes! Friday the 2nd felt like the world (financial) was coming to an end after five consecutive days of stock market declines. Seven days and four positive trading sessions later, things felt much better. Last week, the stock market roared ahead, recapturing much of what was lost in the week prior. Some mutual funds gained more than 7%! Overall, the S&P 500 gained +5.4% making the last two weeks of down and up of virtually no consequence. It truly has been a bumpy journey since late April, with the stock market having forfeited what would have been attractive gains for a years time and sliding into negative territory for the year-to-date. Still, last week was nothing short of encouraging as the news cycle turned more favorable after weeks of disappointment.

Most notably last week, although still not signaling strength, was that the latest unemployment-related data posted marginal improvement. Additionally, there was attempt made by the Obama administration to repair recent strife with the business community, talk of middle-east peace, Google/China mending fences, better than expected numbers from financial firms, progress being made on the capping of the Gulf of Mexico oil spill, better weekly retail sales and several other items. However, while there were signs of improvement on many fronts, not all news was good. Not entirely unexpected was that consumer confidence fell and mortgage applications for home purchase also declined. In the face of so much conflicted news (one report good, another bad), it appears as though the most probable scenario for the economy, and stock market for that matter is bumpy (volatile), slow, positive growth; not a double-dip.

This week, 2Q earnings season begins. Investors are likely to be focused on results as it was early (May) in the 2Q period that the stock market began having its fits and the data/news cycle turned for the worse. Not only will the bottom and top line earnings numbers be critical, but also watched closely will be the executive outlooks for business in the back half of this year. Will their tune remain optimistic, or will the recent struggles and uncertainty send them into a more defensive demeanor?

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Stocks Continue Selloff As Fear Seemingly Trumps Reality - Week Ended 7/2/10

posted 07.06.2010 at 09:53 a.m. by steve

Stocks sank for a third consecutive week, and in sharp fashion. The S&P 500 plummeted -5.03% and is now off -8.30% in 2010 while the Dow has suffered a similar fate. The second quarter was the first negative performance quarter for investors in five and as we have noted before, it has entered official correction territory which is defined as a decline in value of more than -10% (bear markets are defined as a drop of -20% or more). With the Dow having again fallen below the psychologically significant level of 10,000, the economic soft patch seems to be intensifying as the negative tone of the stock market since April now appears to be weighing upon business and consumer behavior. This notion is supported by the notably weaker than anticipated economic data released over the last six weeks. The weakness has been especially concentrated in the housing sector and employment, and is spreading to the consumer through what appears to be deterioration in sentiment and retail sales.

Given the recent attack on investor confidence, we acknowledge that the bearish case for the economy seems increasingly legitimate; it feels very contrarian to be an optimist at this juncture. Investment markets seem to have become once again, detached from the fundamentals of the economy and corporate profits. By almost an metric, valuations on stocks look historically cheap, while bonds (treasuries in particular) are expensive. Fear and emotion once again seem to be the rule of the day. This holiday-shortened week, there appears little in the way of news that can change the bearish tone more positive, but with stocks deeply oversold, we may see an improvement in the markets. Be on the lookout for more commentary in Nvest Nsights, our quarterly newsletter due out later this week.

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