FEAR FACTOR - INFLATION

The dominant theme of the 2nd Q was the fear of inflation.   Commodity prices rose; the economy continued to expand.  Anticipating the FED rate hike by several months, interest rates began to move up in earnest in early April.  The yield on the ten year treasury rose from 3.84% early in the Q to 4.60% by Q end.  The S&P 500 index's energy stocks, reflecting supply/demand tightening, were up +9.0%.  As is to be expected in a growing economy, the industrial sector also did well by gaining +7.6%.  Interest rate sensitive stocks suffered.  The financial sector was down -0.9%, and utilities lost -0.4%.  All returns are after dividends.

Gold Leaf is an independent, lower risk firm that buys stocks in companies with sustainable competitive advantages that generate cash.  Gold Leaf's goal is to provide objective investment management and to protect client assets on the downside while participating in most of the market's upside.  On June 30th, portfolio attributes were:

Our largest gainers in the Q were some of our most recent additions.  We purchased PetsMart (up +20%) based on the growing trends in pet demographics.  Patterson Dental, the 800 pound gorilla of dental distribution, was up +12%.  Hewitt Associates, a benefits consulting company, was down -14% for the Q as the company announced the acquisition of a competitor, Exault.  Exault leads in internet based, human resource applications.  Contrary to the market's reaction, we like the stock since Hewitt can now piggy-back on an existing tech platform rather than having to invent one itself.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.  All returns are after dividends.