Absolute Return Portfolio Management LLC

Global Equity Markets

Several short-term measures of investor sentiment have reached extreme levels suggesting that the correction that began this week could continue. Similarly, short-term measures of market breadth illustrate a condition where a continued correction or consolidation of recent gains is necessary.

More importantly, however, intermediate-term measures of investor sentiment still show heightened skepticism. All weekly sentiment surveys currently show a preponderance of bears(fear) as compared to bulls(greed). Significant market tops have all coincided with the opposite condition of a significant plurality of bulls(greed) compared to bears(fear), however. In other words, fear, concern and anxiety still prevail and thereby contain the risk appetite of most investors. This bodes well for a continuation of the market advance following a short-term correction.

Also, intermediate-term measures of market internals (advance/decline issues & volume and new highs/new lows) show at market that is quite robust and healthy. This gives further credence to the likelihood of the rally continuing after a brief hiatus.

As noted in the last issue, sharp single or multiple day declines typical of bull market rallies quickly stifle enthusiasm by raising fear levels and knocking back overly-extended short-term gauges of optimism. Again, I view such declines 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.

Our current aggregate allocation is as follows:

• 33.3% Europe
• 33.3% Emerging Markets
• 33.3% Latin America

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.

US Equity Markets (Equity Style Model)

Our primary equity models are bullish. Our current allocations are:

20% Small-Cap Growth
60% Small-Cap Value
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.

Our current allocation is:

• 100% International Investment Grade Bonds

High Yield Bonds

Our High Yield Bond model is on a BUY. Our current allocation is:

• 100% Emerging Market Bonds

Inflation Hedge / Real Assets

Current allocation:

• 50% Gold Bullion
• 50% Real Estate Investment Trusts (REITs)

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

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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