4th Quarter 2009 Commentary

Posted on Tuesday, January 26th, 2010

by James W. Heard, CFP®, President, Windham Brannon Financial Group, Inc.


Maybe it’s because I’ve become accustomed to so much volatility, both up and down, but the 4th quarter was…well…a little boring.  No, I’m not complaining.  Boring can be good, and given the last 18 months, a single-digit positive return may mean that markets are getting back to normal.

For a change, the S&P 500 had one of the best returns for the quarter, outpacing international markets and U.S. small cap stocks.

4Q 2009 YTD
90-Day US Treasury (T-Bills) .02% .16%
BarCap Interm US Govt/Cr (Bonds) .31% 5.24%
S&P 500 (US Large Cap) 6.04% 26.46%
S&P 600 (US Small Cap) 5.12% 25.57%
MSCI EAFE (International) 2.18% 31.78%
US REITS (Real Estate) 9.18% 28.46%

As we had mentioned already in our year-end commentary, the equity allocation in our clients’ portfolios had a very good year, outpacing most of the standard benchmarks due to our exposure to value stocks.  Our all equity model portfolio returned almost 31% for the year, although it was up only 3.5% for Q4.

A couple of comments –

Despite all the press regarding the expected collapse of commercial real estate, our U.S. REIT allocation was up 28% for the year, and our international REIT allocation was up over 37%.  Yes, REITs lagged for most of the year, but a 48+% return for the last 6 months erased the tough start, and then some.

And to beat the dead horse one more time, we don’t do commodities.  Why?  Our emerging markets and international allocations help protect us against a weaker dollar and inflation, not with inert stuff (commodities), but with operating businesses.  Here’s how our international allocations did.

4Q 2009 YTD
DFA International Value -0.07% 39.45%
DFA Int’l Sm Cap Value -1.97% 39.51%
DFA Emerging Markets Value 9.00% 92.28%
DFA Int’l Real Estate 0.65% 37.01%

We continue to review different strategies to hedge the inflation risk, but for now, we’re very comfortable with our current approach.

What’s New

In addition to a new, slimmed-down statement you’ll receive from Schwab, you’ll see a new statement from us, too.  This is a change we intended to implement a year ago, but given the market turmoil, we felt it was best to wait.  A quarterly performance report with the current format will be sent to you first, and then the new report will be sent shortly thereafter so you can see the differences between the two.  You will receive only the new report beginning the 2nd quarter of 2010.

Most of the change in the new quarterly report is superficial (we think it’s prettier), but also there are some substantive changes, particularly around the benchmarks and how they’re constructed.  We’ll send more detail later, but the goal of the new report is the same as the old one – to give you information about your portfolio that is useful, is understandable, and gives you perspective.  With that goal in mind, we’re confident that the new report is an improvement.

Regarding investment strategy, we’ve decided against putting un-hedged foreign bonds in all portfolios after giving it much thought.  The lower volatility bond allocation we use has served us well, and we believe we have enough foreign currency exposure through our stock allocation.   However, we have decided to lower the credit quality of our bond allocation very minimally, which should have little impact on volatility, but should increase return slightly.


Challenges this year may include a persistently high unemployment rate, a still sluggish but improving economy, and the need to reduce government spending and debt levels without having interest rates skyrocket up.  This will be a tough balancing act for both politicians and the Fed.  With this being an election year, I think we can count on a lot of posturing and not much action.  And THAT may not be such a bad thing.

What Do You Think?

You should have received a “save the date” card for our Client Summit which is scheduled for 5:00 p.m., February 24th at the Grand Hyatt in Buckhead.  We look forward to having an opportunity to give you our current thoughts on the investment/planning environment and to leave some time for everyone to ask questions.  As we mentioned in our last quarterly commentary, a client survey will be sent to you in February shortly after the Client Summit.   When you receive it, we would appreciate your taking a few minutes to complete the survey so we can learn how we can improve our service to you.

It’s a new year and a fresh start.  New years are good that way.  Yes, there are still uncertainties.  There always are.  And we’re prepared to continue managing your portfolio despite them and with confidence that our process works for you.

As always, thank you, and all our best for a great year!

Best Regards –

Windham Brannon Financial Group

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