Monthly Investment Commentary

Remarkably, after all of the volatility witnessed throughout 2011, the S&P 500 index ended the year exactly where it started, with its 2% return coming from dividends. The investment views we have been delivering for several years now have also not materially changed, though recently they have shifted in a slightly more negative direction as the situation in Europe deteriorated.

Q&A on Changes to Strategic Portfolio Allocation

During our entire 25-year history we have considered ourselves global investors and we have always had exposure to non-U.S. domiciled stocks. In recent years, as the global economy and equity markets have evolved and matured, we have been reconsidering the foreign stock weighting within our strategic allocations (formerly referred to as “neutral” allocations). After careful analysis, our research team has decided to increase the international stock component of our strategic allocations, including the addition of a dedicated emerging-markets equity allocation to acknowledge the maturing of the emerging markets and other factors, such as the global focus of many businesses regardless of where they are domiciled.

Fund Research

BlackRock Floating Rate Income: Hart says that there’s a massive dichotomy between the health of corporate America and sovereign America or Europe. He states that the credit fundamentals for most issuers of loans, which are the highest rung in a company’s capital structure, continue to improve and are at healthy levels.

Oakmark International and Oakmark International Small Cap: We recently held a conference call with David Herro of Harris Associates, adviser to the Oakmark funds, regarding Oakmark International. Much of the conversation was focused on Europe, but we also discussed his takeaways from a recent visit to Japan.

Manager Q&A: Mike Gomez, PIMCO Emerging Local Bond: We recently spoke with PIMCO’s Mike Gomez to get an update on his views of Europe, the broader emerging-markets environment, and the current strategy for PIMCO Emerging Local Bond, a fund we own in our model portfolios. We’ve decided to include excerpts of our discussion in a Q&A format because it allows us to present his views in greater depth than our regular fund update format.