MERGER MANIA

In the 2Q, private equity firms seemed to be tripping over themselves to buy publicly traded companies.  During this Q alone, six of our companies struck deals to be acquired: Alltel, Digene, Equity Inns, Kinder Morgan, MAF Bancorp, and MedImmune.  All of the announced prices were substantially above where the stock was then trading.  The S&P 500 index flourished under this merger mania.  With dividends reinvested, it posted a solid +6.28% for the 2Q and +6.96% for the 1st Half.  Gold Leaf rode the "takeout" wave.

The bad news for the 2Q centered on the interest rate sensitive sectors.  As the 10 year Treasury rate climbed from March's 4.65% to June's 5.03%, prices suffered (bonds really suffered).  The S&P 500's utilities were down -1.1% and financials were up only +1.5%.  The energy sector rallied on higher oil and was up +14.3% while info tech gained +10.2%.  All returns are after dividends.

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 June 30th, portfolio attributes were:

Two of our takeouts were among the best performers for the Q.  Digene, the healthcare test maker, is being acquired by a Dutch company, Qiagen, and was up +41.6% (with dividends reinvested).  We will receive shares of Qiagen upon consummation of the deal.  Equity Inns, the hotel REIT, is being purchased for $23 cash by two private equity firms.  During the 2Q, with dividends reinvested, the stock was up +38.3%.

Our banks were our worst performers with nearly all of them retreating during the Q.  With cash proceeds from some of our takeouts, we purchased shares of a biotechnology company that specializes in fast track drugs, therapeutics that target respiratory problems, cancer, and autoimmune deficiencies.  With FDA fast track status, a company dramatically shortens the expense of clinical trials.

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