Absolute Return Portfolio Management LLC

Global Equity Markets

When I last wrote in mid-July I indicated that the market consolidation was complete and that the advance would resume. This view was based primarily upon my assessment that investor sentiment had become too pessimistic. That view was timely and I haven't had much reason to update my views since, nor do I today, but it's getting too long between installments not to write again.

Today, the psychology of investors still retains elements of skepticism and anxiety with some hints of adoption of the sustainability of the market advance. It is encouraging to continue to see market pundits speak about a "bear market rally" or "bear market trap" when referring to the advance from March of this year. It isn't until the skepticism is thoroughly replaced with outright enthusiasm and cavalier risk-taking that we need begin worrying about the health of the market advance.

Speaking of the market's health, this advance is remarkably robust. The internal technical breadth of the market is quite excellent and shows constant and aggressive accumulation of stock by savvy investors. No bear market or significant market decline is likely to begin with such strong underpinnings. That said, bull market rallies tend to have breath-taking drops over a two or three day period that quickly stifles enthusiasm and strikes fear back into the hearts of investors. I view such declines, however, as buying opportunities for new clients and free cash balances.

It is interesting to note also that market leadership is firmly in the hands of small-cap stocks domestically and emerging market regions overseas. Leadership stemming from these riskier asset classes illustrates the assumption of greater risk based upon improving confidence in the advance's sustainability.

International Equity Regions

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

ASIA (ex-Japan) -
Moving up through the ranks and likely to be a BUY again soon. 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 -
Rated as a BUY. We own EFA.

JAPAN -
Still on SELL.

LATIN AMERICA (LatAm) -
Rated 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 allocations are:

1. 20% Small-Cap Growth
2. 60% Small-Cap Value
3. 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 for Emerging Market Debt due to US Dollar weakness and, accordingly, better foreign market performance.

Inflation Hedge / Real Assets

GOLD Bullion - (GLD) - On a BUY

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 BUY

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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