INVESTMENT NEWSLETTER
January 2010

Sharp Reversal Led to Excellent Returns

Markets staged a remarkable recovery in 2009, coming back from the brink of disaster thanks to unprecedented rescue efforts by governments around the globe. After tumbling 25% to a 12-year low in March, the DJIA staged a blistering rebound to finish the year up 22.7%. The broad market S&P 500 index rose 26.5% in 2009, while the small-cap Russell 2000 was up 27.2%, and the tech-heavy Nasdaq Composite, 43.9%. The wild ride took the Dow down 53.8% from its all-time high in October 2007 to its March low, and then up 59.3% by year-end, the fastest climb since 1933. The Nasdaq Composite ended 2009 up 43.9%, which was 78.9% above its March low.

Global Gains
The Dow Jones World Stock Index, excluding the U.S., returned 39.7% last year in dollar terms. Emerging markets funds led with the largest gains. After weathering the financial crisis better than expected, thanks in part to a large stimulus program in China and a significant rebound in global commodity prices, emerging markets funds bounced back strongly. Latin American funds surged. Many Asian markets suffered greater losses during the sell-off only to see stronger rebounds. Large government reserves in China and relatively solvent banks, along with fast growing economies helped rocket Chinese, Indonesian and Indian markets to tremendous gains. European stocks, as measured by the DJ Stoxx index of Europe's 600 largest companies, rose 28.6%. The weakest performance of the major markets was Japan where the Nikkei finished up 19%. The weak U.S. dollar magnified gains in some areas more than others. For instance, Brazil gained 70% in local currency and 127% in U.S. dollars. Canada gained 33% in local currency and 57% in dollars. The U.S. dollar lost 2% against the euro, yet gained 2% against Japan's yen.

Fund Leadership
Funds and sectors that had taken the biggest beating in 2008 and early last year surged. Growth-oriented strategies and sectors generally led, and larger-cap funds were stronger than smaller-caps, but good performance appeared everywhere. Among sector funds, tech and basic materials were strongest. Technology funds posted the best one-year returns since at least 1998. Utilities, energy, consumer staples and financial services funds were the laggards.

A Lost Decade for Many Investors
As good as 2009 was, the Dow remains down 26.4% from its all time high in 2007. Other major indices also remain significantly underwater from their respective peaks: the S&P 500 and Russell 2000 and were off 24.9% and 24.2% through December 31, 2009. The Nasdaq Composite remained 55.1% below its high, made in March 2000. The 10 years ended December 31, 2009 was the worst on record for the broad market S&P 500.

Hold the Predictions
The ability to adapt to changing market conditions is powerful. Fund selection and the discipline to stick to the strategy are the most important components in your long term investment success. The portfolios will continue to lead us to the funds with the best relative performance, no matter where it appears. It's a quantitative process which keeps us objective. By following the discipline we have a built-in flexibility to respond to changing market conditions, no matter what the New Year brings.

Thank You for your trust and continued support!

Sincerely,

P. Michael Valley II
Estate Planning Professionals