Loading...
HomeMy WebLinkAboutDocumentation_Pension General_Tab 19_11/28/2005• Diversification and Sector Neutrality Continue to Make Their Case HOW THE INDICES FARED • S&P 500 t73 3.60% 12 Mon 12.25% Russell 2000 Q3 4.69% 12 Months 17.95°~ ..:Dana's Small Cap Equity Strategy has outperformed the Russe112000 by 495 basis paints through the first 3 quay- tees of 2005. The Equity Market The third quarter can be summed up in two words: Hurricane Katrina. The human tragedy viewed on TV was something we could not fathom ever occurring in our country. Merely three weeks later another 100-year storm, Hur- ricane Rita, threatened to inflict the same type of damage in about the same area. Interest- ingly, we actually experi- enced arally shortly after the storm hit land and the S&P 500 approached a quarter high a mere week following the storm. How- ever the full impact of these storms on our markets is currently unknown. Overall, it was a good quarter for the equity markets -both the S&P 500 and the Nasdaq index reached four-year highs in early August. The S&P 500 was up over 3% for the quarter and that brought the year-todate number into positive territory. The Nasdaq rose 4.6%; how- ever it is still down 1.1% for the year. Eight of the ten S&P economic sectors posted positive returns, which was up from six in the second quarter and four in the first quarter. No sur- prise, the energy sector led the way with an 17.7% increase as energy stocks followed the price of oil. Oil topped out at $70.85 on Au- gust 30 due to Hurricane Katrina and its im- pact on the supply of oil. Dana Portfolios: Performance and Stocks It was wonderful to have a summer rally, after the flat line we experienced throughout the year. When dissecting our Large Cap perform- a TrP 111 tf li)1TYlPTC IVPTP CTTPa r'~ arrncc CPVPT'al ~), is re ~d- sh m ,y- to rY as The Dana Large Cap Strategy is up 10.52% year-ta-date and ahead of the S&P by 775 basis points. Instruments (TXN) and Motorola (MOT). Given that crude oil was up over 17%, we had our share of energy sector winners. These included: Valero (VLO), ConocoPhillips (COP), and Apache (APA). Valero, the nation's largest refiner, has benefited from the demand surge in oil and the limited current supply. In addition, its refining margins have increased significantly and Valero is able to refine the cheaper heavy/ sour crude more efficiently than others. The health care sector has also shown some life. Our largest winner in this space was Amgen (AMGN). Amgen, a biotech com- pany, saw its shares jump 15% in early July due to a 38% profit rise, blowing past the Street's consen- sus and boosting guidance. Strong sales of its flag- ship anemia drug, Aranesp, which helps chemo- therapy patients, spurred growth. On the small cap side we were also pleased with our numbers as we were able to post a 6.5% return for the quarter. We beat the S&P 600 by over 1.1% and the Russell 2000 by over 1.8% for the quarter. Interestingly, on an index basis, small cap continues to outperform its large cap brethren through 2005. Standouts in our Small Cap Strategy were from the discretionary, technology and industrial sec- tors. Gildan Activewear (GIL) was our top per- former. The maker of blank apparel for private- label use experienced a steady rise in its stock price throughout the quarter. Earnings surpassed expec- tations and guidance was expected to be higher due to stronger unit volume sales, amore favorable product mix and the lower cost of cotton. Our next winner was the target of an acquisition, Ree- bok International (RBK). Its shares leaped during the quarter as it was announced that Adidas was going to purchase Reebok, in a deal valued at $3.8 billion, in hopes of taking on behemoth Nike in the ultra competitive shoe market. The industrial sector was led by Lennox International (LII) and Old Dominion Freight Line (ODFL). Lennox, a maker of air conditioners and heaters, reported its second-quarter profits up 33% as sales improved due to higher prices and volumes, prompting the company to raise its yearly outlook. The upbeat (804) 765-0157 www.danainvastment.com dia®danainvestment.com report boosted Lennox's stock to an all-time high. • ODFL reported its profit increased by a third in the second quarter as it expanded its trucking network, prompting the company to raise its earnings outlook for the rest of the year. Finally, technology had three winners: PortalPlayer (PIAI~, due to bullish reports on the chipmaker as it stands to benefit from the inclusion of its chips in new and upcoming products from Apple; communications equipment maker Comtech Telecom- munications (CMTL) had strong earnings, sales, cash flow and is soon to be added to the S&P 600 all of which propelled its shares; and Diodes (DIOD), had a very strong quarter, after the chipmaker said that it now expects third-quarter sequential sales to be at the high end of its previous guidance. fuel to the inflation fire, and potentially slows growth. And one final note, for the month of September there were no advances in the number of divi- dend increases, but a substantial increase in dividend reductions. It may be too early to tell, but some companies seem to be growing more conservative when they peer into their crystal balls, prior to determining their dividend policy. In contrast, we do like the fact that this bull market has been driven by earn- ings, and that valuation multiples have actually contracted. One statistic we saw noted that S&P multiples are down 9.5%, while earnings are up 12.5%. Earnings will continue to be strong throughout 2005 and we do see value in this market, as the current Fed policy remains accommodative, and the econ- omy has demonstrated resiliency in the face of recent adverse events. Outlook Despite offering the best market returns of the year, x, hW rE.nhgsl4tlo some real risks have emerged this past quarter. Chief of ,6 ' - ~±? ,ea our concerns is the consumer. The economy and ulti- ,x mately the stock market are heavily dependent on the 6 ` consumer. Right now we are starting to see some cracks ° develop and consumer confidence plummet. The high ooMLC saPSOD cost of gas, the expected high cost of heating this win- ter, lower discretionary income, all-time high credit zax EPa cn.n Mb Fsnust card delinquencies, and record personal bankruptcies ,sx (people rushing to file before the law changed on Octo- ~~ ""` ber 17) -have us worried about the holidays and the Sx health of the consumer and our economy. The recent ~ • Hurricanes are also a concern. It is going to be difficult DwLC saps°o to identify the hurricane impact on the economic data. In addition, it will be interesting to see how many com- panies try to use their perceived "get-out-of-jail-free- card" by blaming any shortfall of their revenue and hb.b Eamhga RSlb earnings to "ICatRita" in an environment already thick x' with margin pressure. And don't forget the Fed as they ,s continue to raise interest rates. Recently they have 6 started to harmoniously jawbone about the risk of infla- ° tion. If the concerns are real, rising inflation will be a Danasc saPSOo huge headwind for the equity markets and force the Fed to continue to raise rates. One quick related static- EPa liresrA Ran rennet tic -gold reached an 1&year high of $473/ounce on 20% tsax ,~ the last day of the quarter, which usually signals higher t5x inflation and economic trouble on the horizon. Crude ,ox oil is a common thread weaving through all of these sx .- issues, and we do not see the high prices abating any- 07 Danasc saP6m time soon. Oil lightens the pockets of consumers, adds Dana Large Cap Characteristics hke b GM Fbr Retb ,e ,x io r 6 0 Dare LC S8P 500 DNIMM YNM 3% zx fax tx ox Dens LC S8P 500 PIE b CreM (1EDf Mtls z ,~ ,.~ D Dana LC S8P 500 MsAel GP (AnrpUMeeian) 120 eaa 00 ~~ » ~ 25.< o`' Dana LC S8P 500 Actua/Compasile Chaaclerislia as o/September30, 2003 Dana Small Cap Characteristics hke b Cash Fbr Retle PIE is Drasrlh (PEG) Ratle 18 2 121 12 12 os 6 0 0 Gna sc saP soo DMeeM YNM zx ,.ox usx 1% ox aNsc saPSOo Dana SC 58P 600 Mrtet Cap (AveraOe/Median( z.o 1.6 (b is I.0 os o.o Dena SC S8P 600 Aqua/CDmpasile Cha2clerislics as nlSeplember30, 1003 Dana Investment Advisors, Inc. is an independent federally registered investment adviser providing equity and fixed income investment management services to a broad range of clients. The returns presented have been prepared and presented in accordance with the AIMR PPS Standards. AIMR has neither endorsed the presented performance, nor is AIMR affiliated with Dana Investment Advisors, Inc. in any way. All fee-paying accounts utilizing similar investment strategies to those discussed herein were included in the composite performance returns presented. Total firm assets for the period ending 12-31-04 were $2,307,600,000. The number of portfolios contained in the Dana Large Cap Equity and Small Cap Equity Strategies were 186 antl 30 respectively. The percentage of firm assets in 2004 represented in the Dana large Cap Equity Strategy was 15.9%; with an annual 2004 return dispersion of .0.59%. The percentage of firm assets in 2004 represented in the Dana Small Cap Equity Strategy was 1.7%; with an annual 2004 return dispersion of 1.71 % . To receive a complete list and description of Dana Investment Advisor, int.'s composites antl/or a presentation that adheres to the AIMR-PPS standards, contact Nick Berich at Tel. (262) 782-3631. All data is presented in U.S. Dollars. Portfolio Charac- teristics reflect Dana Equity Strategy holdings as of market close on the date indicated. Returns presented are exclusive of investment management and custodial fees, and net of transaction costs. Investment management fees would reduce the returns presented, far example: on aone-million dollar portfolio with an advisory fee of .75% earning a 10°% return, the total cotn- pounded advisory fee over a five year period would be $50,368. The resulting average annual return for the period would therefore be 9.17%. All returns were Calculated on a time weighted • total return basis. Pertormance does include the accrual of income and the reinvestment of dividends and interest received. Indexes shown were selected because they demonstrated similar characteristics to the Dana strategy to which they were compared. During various market cycles, the strategies discussed herein have demonstrated portfolio characteristics and returns that have been both more and less volatile than that of the comparable index. While data contained herein was gathered from sources deemed reliable. the accuracy of the data presented cannot be guaranteed. Past perormance is not indicative of future returns.