SEESAW

The 1Q market was a seesaw.  The S&P 500 index's monthly returns were +1.5%, -2.0%, and +1.1% resulting in a quarterly return of +0.6%, with dividends reinvested.  Even February's 416 point sell off was shrugged off.  Yet we have concerns: slowing corporate earnings growth, recently higher energy prices, and uncertainty regarding the Fed.  Consequently, we expect returns will be subdued throughout the remaining year.   

For the 1Q, the S&P 500's utilities were up +9.2% reflecting a modest decline in interest rates and a flight to safety.  The materials and telco sectors also did well, but these, as well as the utilities, are smaller sectors of the overall market.  Financials were a major drag on performance, down -2.9%; sub-prime mortgage defaults reminded mortgage lenders why they're supposed to ask for proof of employment and wages.  All returns are with dividends reinvested.

Gold Leaf is an independent Registered Investment Advisor that buys stocks in cash positive companies with sustainable competitive advantages.  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 March 31st, portfolio attributes were:

Our best performer was a labor saving company that rapidly produces 3D plastic models from CAD designs.  No more waiting for the design team to finish their clay models.  Modifications are made by revising the CAD design and quickly generating another plastic model.  With dividends, the stock was up +36%.  General Cable, manufacturer of a variety of cable types, was up +20% (after dividends) as demand for electrical grid upgrades continues.

Some of our holdings that performed extremely well for us last year retreated a bit.  Digene, up +64%, with dividends, in 2006, was down -11% in the Q.  The same phenomenon occurred with International Game Technology.  We made no major sales during the Q.  We put cash to work in the banking arena since some of the better franchises are being tarnished undeservedly by the sub-prime mortgage mess.

Gold Leaf does not provide legal, accounting, or tax advice.