Archive for the ‘FUNdamental Facts’ Category

1.  The Russell 3000 Index represents 98% of the invest able U.S. equity market.  In 2009 the market capitalization of the index increased 26.4% to $13.4 trillion from $10.6 trillion.

2.  This year Russell implemented an enhanced rule to determine country assignment for companies in their in dices that relies on three key indicators; incorporation, headquarters and trading.  Companies that are incorporated, headquartered and traded in a single country become a member of that country.

3.  If a company’s three key indicators do not align, the primary location of assets or revenue is used to determine eligibility.  When location of assets or revenue is not reported, country assignment defaults to headquarter location.

4.  As a result of the enhanced country assignment rule there were 42 companies removed from the Russell 3000 Index.  70% of the deletions shifted to the Russell China Index.

5.  The financial services sector experienced the largest weight increase in the Russell 3000 Index (18.1% compared to 15.3% in 2009).  The most notable addition to the sector was Berkshire Hathaway.  The energy sector decreased by the widest margin (10% compared to 12% in 2009).

6.  The Russell Global Index market capitalization increased to $40.8 trillion in 2010 compared to $34.9 trillion in 2009. The index has over 10,000 members and covers 61 countries.

7.  This year excluding the U.S. a total of 956 companies were added to the Russell Global Ind ices, with Canada (110), Hong Kong (90) and India (89) experiencing the most new additions.

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1. The U.S. economy expanded at a brisk rate of 5.6% in the 4Q09, the second consecutive quarter of growth.  Factoring out government fiscal stimulus programs, artificially low interest rates, holiday spending and seasonal employment, the actual number would be less than one-half this.
2. Expectations are for U.S. economic growth to slow throughout 2010 and 2011 as the impact of the temporary stimulus programs fade.  The International Monetary Fund (IMF) projects growth of 2.7% this year followed by 2.4% in 2011.
3. Emerging Market economies are expected to continue their fast-paced growth this year and in 2011 with IMF estimates of 6% and 6.3% respectively.  They will continue to be the catalyst behind solid estimated global economic growth of 3.9% for this year and 4.3% in 2011.
4. In a positive sign for Venture Capital funds the IPO market appears to be picking up steam with 112 IPOs from the beginning of the current bull market last March through the end of 1Q10.  There were 157 IPOs in the first year of the 2003-2007 bull market.
5. Both Moody’s and S&P credit rating agencies indicated that the U.S. Government’s uncontrolled spending and record debt level (now equal to one year’s economic output) have given them pause to re-think the country’s AAA credit rating.
6. Investors in credit default swaps (CDS), those convenient little insurance policies designed to protect your bond investment against loss in the event the issuer defaults, have increased their insurance against the U.S. Treasury’s default by 60%.

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1. In the last 75 years of index history, the annual return of the S&P 500 exceeded 2009’s return of 26.5%, 20 different times, or 27% of the time.
2. Even though the average annual return of the S&P 500 was – 1% for the past 10 years, the latter suggests that on average, the S&P 500 return will equal or exceed 26.5% every four years.
3. In the past 10 years, this happened twice: 2003 and 2009. In spite of a strong year, the S&P 500 still remains 28 percent below its October 2007 peak.
4. The stock bull market of the 1980’s is largely credited to the historic rise and decline in interest rates, not significant growth in corporate earnings. Falling interest rates translated into surging P/E ratios with only a little increase in earnings.
5. In the 1980’s, the S&P 500 rose 227% while earnings rose only 54%. Last year, lifetime interest lows were seen across the globe.
6. True, earnings did improve last year, due mainly to one-time events (employment reductions and not replenishing inventories), but interest rates don’t have room to go substantially lower and corporate managers used up their ‘one-time opportunity’ to prop up ‘earnings’ in the recession.

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• Banks want to pay off their TARP (Troubled Assets Relief Program) IOUs to escape federal pay restrictions, but still profit from taxpayer-funded guarantees on their debts.
• None of the players are talking about the Federal Deposit Insurance Corporation bond-guarantee program which benefits them more than TARP.
• They don’t want federal interference but want the benefits of government liquidity programs.
• These institutions probably save about 2% in annual interest costs by issuing debt under the FDIC-sponsored TLGP (Temporary Liquidity Guarantee Program).  For all of the players, this could be $7 billion per year.
• Following are the names of the key players, their TARP IOU and the amount of bonds guaranteed by the FDIC (all in billions) : Citigroup ($50,$27), Bank of America ($45,$44), JP Morgan ($25,$38), Wells Fargo ($25,n/a), Goldman ($10,$29), Morgan Stanley ($10,$24), GE Capital ($0,$37).

Asset Strategies Portfolio Services, Auburn Hills, Michigan provides quarterly market facts.  See all services offered at www.assetstrategie.com

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1. In the first half of 2009, every style of the U.S. stock market made gains, in stark contrast to the devastation in the second half of 2008.
2.  Alarmingly, the U.S. national debt stands at 370% of GDP, far higher than its previous high of 299% at the height of the Great Depression.  More troubling is that the statistic of U.S. national debt as a % of GDP has been steadily increasing since the 1980s.
3.  While it is technically possible for the U.S. government to inflate us out of our debt predicament by printing money, creditors and the poor will be adversely affected.  Furthermore, those on fixed income, particularly retirees, will be the hardest hit, with the economic pain being compounded by recent market losses.
4. This is one of the reasons that the DOL and SEC held their first joint hearings ever, to review the situation with target date funds, a popular choice in defined contribution retirement plans.  The hearing produced a few substantive agreements on target date funds.  A) Plan sponsors are responsible for selecting and monitoring target date funds – no one else.  B)  The distinction between “To” and “Through” funds needs to be more clearly recognized.  “To” funds are designed to end at the target date and may be referred to as “Accumulation-only” funds.  “Through” funds are designed to continue beyond target date, potentially to death, and may be referred to as “Lifetime” funds
5. However, there remains a need for standards, so that plan sponsors and their advisors can make informed decisions.  The definition of quality is “meets or exceeds standards,” so we need standards that describe the way target date funds should be structured.

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