2010 Turned Out to be a Good Year After All

NOVATO, Calif., Jan. 28, 2011 /PRNewswire/ -- Nationally acclaimed investment advisor Winans International Investment Management's portfolio results for 2010 are:

Goodbye to a Volatile 2010!

Last year was a difficult time to financially navigate and will not be missed by investors. It was volatile enough to whipsaw our key long-term indicators. This has occurred only in a handful of times since the 1940s. Events such the flash crash and the European debt crisis caused many time-tested investment strategies to fail and kept the S&P 500 Index in the red until September. In fact, the entire gain in the broader U.S. stock market was made within the last 90 days of the year.

In reviewing our client portfolios for 2010, we observed:

• While average returns were good, individual portfolio returns had a wide range. In reviewing the lagging accounts, the common problem was due to high exposure in exchange traded funds (ETFs). While these funds can be effective investments over the long term, they are not without faults. This directly affected our key hedging strategies. In response we have made adjustments to how we will use these investments in the future.
• Foreign stock markets provided little to no growth in 2010. The international financial problems dampened the stock market performance in popular countries such as China, Brazil and Australia. While we typically invest in foreign markets during opportune times, our portfolios benefited from avoiding the international markets in 2010.
• There were high levels of investment turnover. Last year, investors were uncertain of the fate of investment related tax cuts from 2000. Coupled with the high levels of market volatility, this caused us to have a higher level of transaction activity than usual. While taking profits helped 2010's performance, it also created taxable gains.
• Corporate bonds and preferred stocks had another good year. Since the financial hurricane of 2008, corporate bonds and preferreds have had record-breaking price appreciation. While investment opportunities still exist, we expect future returns to go back to historical norms.

2011 & Beyond

Regardless of any short-term market advance, we expect the foreseeable future will resemble the economic challenges of the 1970s. During that time, major stock market averages traded within a well-defined range and other investment types (bonds, preferreds, reits, etc.) offered comparable returns to stocks.

There are several key things to watch in 2011:

1. Municipal Bonds – The fear of large municipalities filing for bankruptcy nationwide will continue to cause high levels of price volatility in municipal bonds. History shows us that during the widespread municipal defaults of the 1931-33, municipal bond yields increased 48%.
2. Housing – Real estate's falling prices continue to be the elephant in the room in relation to the overall strength of this economic recovery. History tells us that there will not be a long running bull market in stocks until real estate prices have stabilized.
3. Inflation – The fear of the government's monetary stimulus programs creating conditions for future inflation should cause higher price volatility for bonds with maturities exceeding 15 years. Investors should continue to limit fixed-income investments to 10 years and under.
4. As January goes, so goes the year. January's performance will be a key to our immediate course of action in 2011. Since 1936, a strong January performance in the S&P 500 Index has been followed by market advances averaging 12% (92% of the time). If the S&P 500 Index closes at a higher level on January 31, 2011 than the previous December 31st, we will likely maintain a positive bias. However, negative January performances in the S&P 500 Index during this timeframe have been followed by market declines averaging -7% (80% of the time). If the S&P 500 Index closed at a lower level on January 31, 2011 than the previous December 31st, caution would be warranted.

Our investment strategy continues to be:

Common Stocks: WHEN to buy and sell is as important as WHAT to buy and sell during these types of market conditions. We believe profitable navigation of these market conditions is possible by using higher levels of investment rotation, a willingness to hold high levels of cash after significant market advances and/or strategically using some hedging during volatile downturns.

Corporate Bonds: Short to medium term bonds in stable companies are currently yielding 5% - 7% annually. Cautious investors should consider investing a higher portion of their portfolios in the more predictable returns generated by corporate bonds rather than the ongoing volatility of a sideways moving stock market.

Preferred Stocks: We expect preferred stocks to maintain attractive yields, and can be a good addition for up to a 25% allocation in an income portfolio.

Definitions:

1. Growth Investments - 100% growth oriented mid to large capitalized U.S. stocks
2. Income Investments - 100% income oriented investments (corporate bonds, reits, preferred stocks, mlps, etc.)
3. Benchmarks – "Growth Market Benchmark" is the Price Appreciation and Income of the S&P 500 Index; "Income Market Benchmark" is a corporate income composite (50% Dow Jones Corporate Bond Index, 50% S&P Preferred Stock Index).
4. Winans International Statistics – Net Internal Rate of Return (IRR-ROI).

The results portrayed relate only to a select group of WI's clients whose performance results are primarily due to WI investment advisory services  and, therefore, excludes portfolios that:

1. Accounts opened for less than 12 months
2. Portfolio size is less than $50,000 as of the year-end balance.
3. Clients have changed their investment goal and asset allocation by greater than or equal to 11% during at year-end.
4. Net deposits and withdrawals are greater than or equal to 25% of the year-end balance.
5. Client selected investments are greater than or equal to 10% of portfolio at year-end.
6. Clients have placed restrictions on the investment activities of WI at any time during year.
7. Winans International retirement plan and employee accounts.

Disclosures:

The performance results portrayed reflect the following: the deduction of expenses paid by the client during the period shown; and, the reinvestment of dividends, capital gains, and other earnings when appropriate (such may be invested in a money market fund or other cash equivalent pending reinvestment). The results portrayed may be materially different if excluded accounts were otherwise included in the performance presented.

Benchmark performance for each portfolio category is based on the strategic weightings described above and may differ from actual weightings of client holdings during the period displayed. Client portfolios included in each portfolio category are based on client's stated investment strategy and not on actual asset class weightings within each client's portfolio. The volatility of each benchmark may be materially different from that of the investment portfolio. The percentage of clients outperforming their benchmark may be less than shown if benchmark weightings were adjusted to reflect actual client asset weightings over the same period. The difference in performance between WI Net Return % and Benchmark % may be less than shown, or negative, if benchmark weightings were adjusted to reflect actual client asset weightings over same period.

A portfolio's performance is a simple or straight average of the time weighted performance of the client portfolios included in each portfolio category and do not meet the requirements of an AIMR (GIPS) track record. The portfolio performance presented may be materially different if using an asset-weighted average of the client portfolios' performance included in each portfolio category.

Benchmark results are provided as market indicators only.  It should not be assumed that holdings, volatility or management style of any WI investment strategy will, or is intended to, resemble that of the referenced benchmarks.  The comparison of this performance data to a single market index or other index is imperfect.  Past performance is not indicative of future performance.  Inherent in any investment is the possibility of loss.

The information supplied and the formula calculations used are considered reliable but cannot be guaranteed. Information supplied can change without notice.

Additional information is available upon request at www.winansintl.com

SOURCE Winans International

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