January performance was driven by the Bond Portfolio performance of +1.08%. In the U.S. fixed income markets, bond prices increased during the month as signs of the economic recovery weakened and new financial regulations were being proposed (the “Volker Rule”). The Barclays Aggregate Bond Index (“BABI”) returned +1.53% over the month of January. The 10 year US Treasury yield dropped to 3.61% by month end from 3.84% over the month. Although fourth-quarter gross domestic product (GDP) for the U.S. and U.K. turned positive, unemployment still persists at 9.7% and uncertainty about the recovery continues.
The Limited Risk Portfolio was down –4.12% while the S&P which finished down –41.23% or -3.70% for the month, its worst monthly percent drop since February 2009 when it fell –10.9%. The Dow finished down –360.72 or –4.46% for the month, its worst monthly performance since February 2009. Global equity markets fell on concerns that tighter regulations will impede growth and concerns that China is moving towards reining in the availability of credit. Thus for the 3rd January in a row the calendar-related anomaly known as the January Effect failed to materialize as financial security prices decreased in the month of January. This phenomenon is usually caused by individual investors who sell stocks for tax reasons at year end (such as to claim a capital loss) and reinvest after the fist of the year. This year broader market forces caused all equity markets to dip. Greek government bonds were downgraded and Japanese government bonds faced the possibility of a downgrade, adding to the uncertainties about the global economies.
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