For February trading volumes picked up slightly and a shade of volatility crept back into the market.  The market once again continued to grind higher, matching the May 2011 high (1367).  The last time the S&P 500 Index (SPX) was up significantly (8.59% YTD, annualized at over 50%) was 1991, when the SPX gained 11.2%.  As a whole, the SPX for the month ended up 4.32%.

The U.S. Low Volatility Strategy returned 1.29%* thus under-performing the index by -3.03% for February.  For the trailing 1 year the strategy is up 8.81%* as compared to the SPX at 2.89%, thus out-performing the index by 5.92%.  Since inception** the strategy is up 7.97%* as compared to the SPX at 4.96%, thus out-performing the index by 3.01%.

The investment objective of the SGI U.S. Low Volatility Equity Strategy is to out-perform the SPX with less downside risk over a full market cycle.  To achieve this investment objective, the portfolio invests in U.S. equities that historically demonstrate low volatility characteristics and meet our proprietary algorithms and criteria.  We know return paths vary over periods of time, which is why we take a long-term approach seeking equity type returns with much less volatile stocks.

Market Update – “It’s all Greek to me”

The markets have begun to focus on Europe again.  Europe’s impact on U.S. earnings is also beginning to be felt by multinational companies slowing sales throughout Europe.  This comes as Greece tries desperately to navigate through ‘default’.  Considering choices available to global investors the U.S. still seems better positioned and looks more appealing than Europe or other global markets.  We see this fact pushing more assets into the U.S. market and helping to create a ‘self-fulfilling’ bull market for the short-term.

Economic data in the U.S. was more mixed for February.  The ISM manufacturing index fell to 52.4 down from 54.1 in January and compared to expectations of 54.5 and is now consistent with slightly below average growth.   
The Prices Paid component also rose again (61.5 vs. 55.5 last month).  New Orders fell to 54.9 from 57.6 last month.  This is inconsistent with the regional PMIs, of which 7 of 7 had increased in February, and where Prices Paid has been more muted. 
Basically, there is now some indication that production growth may be slowing.  But with the breadth of PMIs still headed higher we would give slightly greater weight the regional PMIs than the main ISM data, at least at this point.

Consider for example the last five years since 1990 that had the best returns through February.  In two of the five years the market corrected after its early rally, falling back to break-even before making additional gains.

Notice 1995 when the market went relatively straight up.  Also notice how closely 2012 aligns with 1995.

Now, before you go putting all your eggs in one basket, we are in a completely different economic cycle and different business conditions than in 1995.  Job growth is much more important, interest rates are more susceptible to rise, our national debt is ever increasing, and we do not foresee the Fed continuing easing with QE3.  In fact, nominal GDP growth would suggest Treasury yields should rise and as such we see many investors, expecting safety through bonds, experiencing unexpected volatility.  For the market to continue to have legs one of the keys is job growth, especially given our structural headwinds.

Lastly, we continue to see little sign of inflation, even with gasoline rising, which continues to be a boost to U.S. consumers.  Natural gas has fallen significantly and seems to have somewhat offset inflation in gasoline prices.  While employment growth rates have been strong, most measures of wages have not been.  We continue to make our point that wages must increase with unemployment falling.

As stated last month, continue to watch Europe with caution as more vibrations may reach the U.S. market.  Also, watch the U.S. political campaigns and outcomes as political maneuverings may increase short-term fluctuations.  And keep an eye on U.S. economic data for indications of continued advance or a reversal in direction.

* GIPS aggregate performance

** Inception started 1/14/2011

Summit Global Investments does not render legal or tax advice, and the information contained in this communication should not be regarded as such.  Prospective investors will be given the opportunity to further discuss the model and such data.  Past performance is no guarantee of future results.

For January, trading volumes slowed dramatically.  The New York Stock Exchange volumes declined to the lowest level since 1999.  Volatility also disappeared, on average falling more than 20% as compared to the 2011 average volatility.   The S&P 500 index moved more than 1% only twice, increases both days.  This allowed stocks to motor through the month with slow but steady advances.  The S&P 500 index had the biggest gain in January since 1997.  As a whole, the S&P 500 index for the month ended up 4.48%, an annualized return of over 50%.

The U.S. Low Volatility Strategy returned -0.04% under-performing the index by -4.44%.  Though on average the strategy has captured 84% of an upside return we know the return path of the strategy does have times of under-performance and does vary from the S&P 500 index.

Market Update

As stated previously at year-end, leading economic indicators over-shadowed Europe.  Though the recent rise on low volume suggests little conviction and, pending more evidence, again, we are cautiously optimistic.

The economic data in the U.S. has continued to surprise on the upside with little political or global events.  Considering choices available to global investors, the U.S. is better positioned and looks more appealing than Europe or other global markets.

We continue to see little sign of inflation, a boost to U.S. consumers.  The problem arises when consumers spend more than they make, thus lowering their savings (selling equities).  Consumers cannot continue to dip into savings and spend.  Wages must increase with unemployment falling and so far that is not the case.  Quantity of jobs is important but quality, we believe, is more important and the quality of jobs has continued to fall.  In other words, the US Treasury collected less money (~$310M) now than in the same period during 2011.  And that is not because more of us are using Gov. Romney’s accountant.

We believe market volatility will not hide too long.  We continue to watch Europe with caution as more vibrations may reach the U.S. market.  Also, we will watch the U.S. political campaigns and outcomes as political maneuverings may increase short-term fluctuations.  Lastly, don’t forget about the underlying U.S. data.  The leading economic indicators have been robust and with more positive data the markets may begin to believe in self-healing and real quality jobs could be the outcome.

Summit Global Investments does not render legal or tax advice, and the information contained in this communication should not be regarded as such.  Prospective investors will be given the opportunity to further discuss the model and such data.  Past performance is no guarantee of future results.

2011 Year in Review

As we look back on 2011, we remember a few events or hinges that the rest of the year turned on: revolutionary governmental regime changes, the devastating earthquake and tsunami, the debt ceiling debacle and the Greece and now greater European debt crisis.  These events created a volatile backdrop for U.S. equities.  Economic data in the U.S. also contributed to volatility and pressured the markets as the data turned down in Q1 and continued a downward trend until the end of Q3.  In Q4, leading indicators reversed course ending the year on very solid footing, may I say ‘bullish’, going into 2012.

As we consider these events and ponder what may lie ahead we know with more clarity that world events certainly affect the U.S. markets.  We do not stand alone, isolated from the world.  U.S. companies are global companies.  Their revenue and sales, business plans and investment and ultimately success or failure is more correlated to global events than ever in history.  As such, we must keep an eye on such events throughout the coming years.

Another possible market driver includes political events.  Watch for political posturing to move markets, at least over the short term.

In addition to these drivers, companies are unique in how each prepares, responds and survives the impact of world events and economic cycles.  While some cycles may vary in length and events differ in impact, we feel, for U.S. equity exposure, SGI’s low volatility approach is merited.  Our low volatility strategy continues to provide consistent, reliable returns with smaller draw-downs and greater return per unit of risk.

Performance Update ending December 31, 2011

For December trading volumes continued to slow going into the holiday season though volatility continued. As a whole, the S&P 500 Index for the month ended up 0.85%.

The U.S. Low-Volatility Strategy returned 3.14%** thus outperforming the index by 2.29% while taking a lower risk approach.

*1/14/11 net of fees **simple appreciation net of fees

Market Update

As stated in the past two market updates, looking out four to six months we continue to see signs of easing pressure on inflation, which is a boost to U.S. consumers.  This, along with other indicators, has us more optimistic, though we will continue to keep a close eye on consumers.

We are watching for leading economic indicators to win the tug-of-war with Europe as the structural problems work through the system.  As the U.S. economic data improved, combined with unemployment falling, the markets have recently begin to take notice.  We believe market volatility will continue throughout this tug-of-war and increase with any global events.

As suggested last month the Fed took significant risk off the table by helping to rescue Europe.  We continue to watch Europe with caution and the proposals to salvage the Euro.  Also, as the U.S. political campaigns kick into high gear this next month, keep an eye out for the strategies, announcements and outcomes as political maneuverings may increase short-term fluctuations.  Lastly, don’t forget about the underlying U.S. data.  The leading economic indicators have been robust and with more positive data the markets may begin to focus less on Europe and more on the improving U.S. data.

Summit Global Investments does not render legal or tax advice, and the information contained in this communication should not be regarded as such.  Prospective investors will be given the opportunity to further discuss the model and such data.  Past performance is no guarantee of future results.

November confirmed our worries on the debt ceiling and Europe.  Volumes dried up and the S&P 500 Index experienced it worst Thanksgiving week since 1932.  Volatility continued as the index bounced back with a gain of 7.4% the following week, its best week since March 2009. As a whole, the S&P 500 Index for the month ended down -0.51%.

The Low-Volatility Strategy returned 0.43%** while taking a lower risk approach.  Specifically, the beta for the portfolio is 0.65, thus outperforming the index by 0.94%.

US economic data continues to improve.  LEIs have moved into an upward projection.  This data, combined with unemployment falling, has pushed the markets up.  Downward pressure stems from structural issues in Europe and political pressures in the US.  This tug-of-war between positive consumer data and negative sovereign debt continues to create churning in the market. We believe this will continue into the near future creating market volatility.

As stated previously, looking out four to six months we continue to see signs of easing pressure on inflation, which is a boost to consumers.  This, along with other indicators, has us moderately optimistic.  We are watching for leading economic indicators to win the tug-of-war as the structural problems work through the system.  Keep an eye on the talks of rescuing Europe via the Fed and others.  We would not recommend fighting the FED, ECB, BOJ, BOE, SNB, PBOC, etc.  Stimulus can significantly help sentiment.  However, be mindful as printing too much money short-term may create long-term problems.

**simple appreciation

Summit Global Investments does not render legal or tax advice, and the information contained in this communication should not be regarded as such.  Prospective investors will be given the opportunity to further discuss the model and such data.  Past performance is no guarantee of future results.

October changed direction to make a historic rally.  To put things in perceptive, with two days left in the month the S&P 500 Index was up 13.5 percent, its best monthly gain since 1974.  The last two days saw the market correct back to end the month up 10.77%.  As a result, it was still the best monthly gain since December 1991.  This is an annual return of over 120%!

The Low-Volatility Strategy returned 3.39%** while taking a lower risk approach.  Specifically, the beta for the portfolio is 0.65, thus underperforming the index by 7.38%.  Beta adjusted the market was up 7.0%, thus the strategy underperformed the beta adjusted index by 3.61%.

US economic data has show signs of life.  Several leading indicators have been positive.  This data, combined with positive news from Europe, propelled the markets straight up.  The economy doesn’t look to rebound as quickly as the markets, but it surely isn’t going straight into a recession either.  We believe in cycles, though some may be longer than others.  We continue to look for future market volatility and firmly believe the most recent bounce is not a start of a long-term rally.

As stated in our last few reports, looking out four to six months we see further signs of easing pressure on inflation, which is a boost to consumers, and as inflation moderates we are increasingly positive.

Continue to keep an eye on the debt ceiling committee and events in Europe, though we do not view Europe as positively as the markets have indicated.  Lastly, don’t overlook the underlying US data.  It continues to show positive signs, as it may prove to yet win out over the course of the next few months.

**simple appreciation

Summit Global Investments does not render legal or tax advice, and the information contained in this communication should not be regarded as such.  Prospective investors will be given the opportunity to further discuss the model and such data.  Past performance is no guarantee of future results.

The market spent most of September continuing its downward spiral as the focus on Europe continued.  September was a rough month and it capped off an even rougher quarter. The S&P 500 Index logged its fifth consecutive monthly decline.  The volatility continued as we saw six alternating swings all exceeding 5% (i.e. +5.6%, -5.5%, +7.4%, -8.7%, +7.3%, -5.4%). The S&P 500 Index ended the month down -7.18%**.

US economic data has continued to show signs of weakness, but a few leading indicators held their ground.  The deterioration seemed to easy off a bit, though the market mainly focused on Europe.  The economy doesn’t seem in any hurry to rebound even with the Federal Reserve in its corner.  We will continue to keep our eyes wide open, as we do not believe markets will fall forever.  We believe in cycles, though some may be longer than others.  We continue to look for future market volatility.

As stated in our August report, looking out six to nine months we see further signs of easing pressure on inflation.  If inflation moderates we are increasingly positive for Q1/Q2 of 2012.

Continue to keep an eye on the direction of the Fed and events in Europe.  But don’t forget about the debt ceiling committee and the future debt ceiling debate.  This may be ‘déja vu’ but let’s hope it gets worked out quickly as we don’t believe the market will be as patience this time around.

**simple appreciation

Summit Global Investments does not render legal or tax advice, and the information contained in this communication should not be regarded as such.  Prospective investors will be given the opportunity to further discuss the model and such data.  Past performance is no guarantee of future results.

The market spent most of August stumbling from the US debt debate, Greece and contagion throughout Europe.  Typically a return of 8-12% in a year (or .5% to 1% per month) would be considered an average return.  In August we experienced swings of over +/-.5% virtually daily.  The S&P 500 Index ended the month down -5.68%.

The Low-Volatility Strategy returned +0.34% while taking a lower risk approach.  Specifically, the beta for the portfolio is ~.65, thus outperforming the index by 6.02% with significantly lower volatility.

Weaker demand has come to fruition as production and employment-related stats have continued to show signs of weakness ahead.  The deterioration has been expansive, particularly in August.

The economy has continued to slow and economists and firms across the street have finally lower projections for economic growth.  With plenty of head winds ahead (3-6 months out) we continue to look for further market volatility.

Looking out six to nine months we see signs of easing pressure on inflation.  This may provide some room for another round of QE as Jackson Hole proved mute.  If so, inflation pressures may resume and create further long-term (12-18 months out) head winds, via inflation, for the market.  If patience and inflation moderates we are increasingly positive for Q1/Q2 of 2012.

Continue to keep an eye on the direction of the Fed and events in Europe.  Though Europe shows solid signs of unison they have high hurdles to cross.  What, when and how they take action can and most likely will significantly affect markets.

Summit Global Investments does not render legal or tax advice, and the information contained in this communication should not be regarded as such.  Prospective investors will be given the opportunity to further discuss the model and such data.  Past performance is no guarantee of future results.