Comments 2005

December 2005

Equity markets have continued to perform well and our Fund has profited from it. In particular insurance stocks, after a long period of neglect and underperformance, have finally been noticed by the market. These stocks are inexpensive, they suffer under the high damages of this years hurricane season, but they have a promising outlook for earnings in the coming year. It seems that investors are according them a somewhat higher valuation. Especially attractive seem to be reinsurance companies, because their business is less commodity like and requires higher knowledge than primary insurance. Overall we remain cautious despite the good disposition of the market. Profitability seems to be at peak levels, interest rates are rising and the political situation is unsettled.

November 2005

Equity markets have held up relatively well so far, despite higher interest rates. Rising yields will render bond more attractive eventually. Insurance stocks have weathered the record storm season surprisingly well. After heavy losses this year due to damages, strong rates should enhance profitability in the future in a more normal weather environment. Business opportunities are ample after several years of record damages in the catastrophe business, valuations remain attractive. Drug companies like Pfizer and Merck have also encountered set backs. Their prices have declined to levels that take into account their problems. Their balance sheets are strong, dividend yields generous. Kingfisher, a major building products store in the UK and France has been downgraded by the market to an attractive level.

October 2005

Equity and bond markets have maintained their friendly tone, although short term interest rates in USD and GBP and energy prices have continued to climb. Economic growth is satisfactory, but only booming in China and India. Particularly in a time like this we try to avoid the popular hot stocks which are on everybodys mind, because their prices are most likely pushed too high. We look for good companies trading at fair prices, with growing earnings, cash flow and dividends. There are many fine companies in this category, with stagnating prices while profits and dividends have continued to go up. Banks, insurance, consumer and health companies come to mind. They are sound investments, should be able to withstand adversity and likely will move ahead over time.

September 2005

After a fine weather period in stock markets some clouds are appearing. Energy prices are stubbornly high and hurricane Katrina is inflicting record high damages on the US South. We had invested in inexpensive insurance and reinsurance stocks hoping for a more normal natural catastrophe period. Stocks have suffered somewhat, but we hope claims are manageable and the outlook for firm premiums has improved. We remain committed to the sector. Unfortunately the political situation in the Middle East and Iraq is deteriorating and no solution is in sight. On the positive side, economies in the US and Europe have performed better than expected, profits have slightly improved and interest rates are relatively stable.

August 2005

Markets continued to perform positively during July. Ample liquidity and low yields on bonds and deposits induce investors to search for better returns elsewhere.

Under the surface, uncertainty lingers. Inflation is slowly growing (high oil prices, higher interest rates in USA), economic growth is subdued and competition is intense. Consumers are hesitant because confidence in job security is limited. Political situation is volatile in US (sinking approval for Bush), Europe (terror attacks in London, elections in Germany) and the Middle East (Iraq, Israel and Palestine). In this situation we invest defensively in value stocks and keep ample cash reserves. We plan to add to positions on declines. Bonds remain unattractive for the time being.

July 2005

Markets have performed well during June, not because of a booming economy, but in large part due to low interest rates, ample liquidity and a shortage of investment alternatives. However, this cozy situation could change sometime in the future. Rising interest rates would dampen enthusiasm for equity markets.

Nevertheless, reasonably priced value stocks with good dividends appear to be the best investment vehicle to face an unpredictable market. Bond yields, even high yielding debentures, are not attractive at the moment. Value stocks on the other hand have held up well even in bear markets. Insurance and bank stocks have lagged behind despite dramatically improved earnings and rising dividends after the troubles in 2001 and 2002.

June 2005

Interest rates remain very low amid ample liquidity. Economic growth is subdued. Europe seems to be immobilized, at least politically, after the French "no" to the European constitution and the call of General Elections in Germany in the fall.

There is widespread pessimism about the capacity of governments to introduce meaningful reforms to revitalize the economy, increase competitiveness and to lower the number of those without a job.

Investors have ample liquidity but trouble finding attractive yields in stocks and bonds. Price levels have moved up. We wait at the moment for more favourable prices before making further investments. Sectors we like are banks, insurance and energy companies.