Absolute Return Portfolio Management LLC

Global Equity Markets

The most fascinating aspect of the equity markets over the past two months is that a very modest consolidation has led to near outright fear on the part of investors. Discussions of "green shoots" have quickly turned to "withering yellow weeds" illustrating the high level of skepticism that exists. Keep in mind that the markets "climb a wall of worry".

For example, the Rydex Cash Flow data shows that investors are positioned as cautiously/pessimistically as they were at the March lows!

Similarly, the AAII Sentiment Survey has shown a persistent decline in optimism with a commensurate increase in pessimism over the past five weeks; coincident with the peak in the equity markets. Noteworthy, again, is the fact that the level of bearishness last week equaled that of the March lows. Thus, two sentiment studies confirm that the public at large feels as negative and anxious as they did in March; a time when the markets had plunged nearly 40% in 2008 followed by a gut-wrenching plunge of 25% into the March 2009 lows.

The technical condition of the market is quite healthy. In fact, the recent lows of late June and last week has set up positive/bullish divergences among several measures of market breadth.

Our domestic and international equity models are positive and suggest that the rally is very much intact.

International Equity Regions

Consistent US Dollar weakness coupled with superior fundamentals puts International Equity regions among are highest allocations.

ASIA (ex-Japan) -
We prefer a blended position of FNI (Chindia), PGJ (Golden Dragon) and FXI (Xinhau 25) over EPP (Pacific ex-Japan) as EPP is a poor performing representation of the Asian region.

EMERGING MARKETS -
Rated as a BUY, our top diversified pick is VWO. EEB and EEM are close seconds.

EURO -
Still on a SELL.

JAPAN -
Still on SELL.

LATIN AMERICA (LatAm) -
Rated as a BUY. Top-ranked diversified LatAm ETFs include GML and ILF. EWW and EWZ are top-rated single country ETFs.

USA -
(see Equity Style section for specifics)

Equity Styles (US Markets)

Our primary equity models are bullish. Our current allocation is 80% Small-Cap Growth and 20% Large-Cap Growth.

Investment Grade Bonds

High Grade Corporate and International Bonds remain on a BUY. We favor International Bonds due to US Dollar weakness which translates into currency gains for non-US holdings.

High Yield Bonds

Our model is on a BUY and has recently switched to Emerging Market Debt due to US Dollar weakness and, accordingly, better foreign market performance.

Inflation Hedge / Real Assets

GOLD Bullion - (GLD) - On a SELL

Goldman Sachs Commodity Index (GSG) (largely energy ) and DB Commodity Index Tracking Fund (DBC) on a SELL .

Real Estate - Our models rank REITs as a SELL.

If you have any questions about our research or Absolute Return Portfolios do not hesitate to call. We can be reached toll-free at 877-632-7491.

Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings.

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