Manager Commentary

As of March 31, 2013

Global markets returned 7.73% during the quarter ended March 31, 2013, as measured by the MSCI World (Net) Index¹. Japanese stocks were the strongest performers. “Abenomics” (named for Japanese Prime Minister Shinzo Abe), characterized by a massive quantitative easing² stance adopted by the Japanese Central Bank, prompted a strong equity rally in Japan offset somewhat by a weakening yen. Performance of stocks in Japan contributed almost 12% to index returns. 

The index’s U.S. equity component added 10.51%, driven by double-digit returns in all but three of the 10 industry sectors. The U.S. housing market recovery and expectations for improving employment data bolstered investor confidence. The technology sector, the largest U.S. sector in the index, underperformed largely due to a 16% decline in the stock price of Apple, Inc., which is about 17% of the sector. Canada, one of the index’s worst performing markets, had barely positive returns. The underperformance was due to negative returns from energy and materials, which comprise over 40% of that market. The U.K. and Europe also lagged, returning 2.51% and 2.85%, respectively.³ 

Large swings in currency values favoring the U.S. dollar contributed to underperformance of international equities versus U.S. equities during the period. Versus the U.S. dollar, the yen lost 7.8%, the pound sterling lost 6.5%, the euro lost 2.9%, and Canada’s dollar lost 2.5%. The Cypriot banking crisis demonstrated that major challenges remain within the European Union. The impact of the crisis on investors’ risk perception negatively affected performance of European financials and emerging markets in general.

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¹The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Performance for the MSCI World Index is shown “net”, which includes dividend reinvestments after deduction of foreign withholding tax. Investors cannot invest directly in any index.

²Quantitative easing is monetary policy used by central banks to stimulate a national economy. Typically, central banks implement quantitative easing by buying financial assets from commercial banks and other private institutions, injecting a pre-determined quantity of money into the economy..

³Regional markets and associated returns are represented by each regions constituents within the MSCI World Index.