Monthly Investment Commentary

A wide-ranging lead article addresses the tendency of investors to question their investment philosophy after a very difficult period. We describe what we believe are the essential components of a core belief system and how that underlies a successful investment strategy. We also consider the lessons that should be drawn from the market meltdown that began last year, and the difference between mistakes in implementing a process and the failure of the process itself. We added emerging-market equities and reduced high-yield bonds in our model portfolios in mid-May. Click here for details.

Fund Reports

Active Management Strategies for Treasury Inflation-Protected Securities (TIPS): We are researching TIPS and could wind up making a tactical allocation at some point if we think higher inflation poses a risk to our portfolios. If we do, it is likely we would use active managers. This article gives an overview of why we are interested in TIPS, why we would likely use active managers, and discusses the strategies managers may employ as they seek to add value against a benchmark. We also mention some tax considerations for investors in TIPS funds.  

Laudus Rosenberg U.S. Small Cap and U.S. Discovery: AXA Rosenberg, advisor to the funds, believes the recent market rally is indiscriminately rewarding stocks with weak fundamentals and poor long-term earnings outlooks.

Oakmark International and International Small Cap: Despite the significant near-term challenges and uncertainties, Herro remains optimistic about the global economy over the mid and longer-term. We note that Herro has had an optimistic outlook for as long as we can remember talking to him. But in addition to the reasons he has given in the past—ongoing productivity increases, the spread of capitalism across the world, the growth of a consumer middle class in developing countries—Herro’s current optimism is also partly a function of the current financial crisis.  

Oakmark Select and Oakmark Fund: Since the beginning of the year, the volatility of stock prices has given the Oakmark team plenty of ideas to analyze. “The general belief here is that you can probably throw darts at a stock quote page and find something that’s attractive,” Nygren quips.