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Quarterly Commentary, Q1 2015

Benchmark Returns for the Period Ended March 31, 2015

Annualized
Quarter 1 Year 5 Year 10 Year
US Treasury Bills (one month) 0.00% 0.01% 0.05% 1.37%
Barclays Capital US Gov’t/Credit Inter Bond 1.45% 3.58% 3.52% 4.34%
Standard & Poor’s 500 0.95% 12.73% 14.47% 8.01%
Russell 1000 Value (large cap value) -0.72% 9.33% 13.75% 7.21%
Russell 2000 (small cap) 4.32% 8.21% 14.57% 8.82%
Morgan Stanley Europe, Australia and Far East (EAFE) 4.88% -0.92% 6.16% 4.95%
Wilshire REIT 4.67% 25.25% 16.14% 9.59%

Quarterly Commentary

The US economy lost some momentum, posting GDP growth of 2.2% annualized vs. 5.0% during the previous quarter. Despite the slowdown, the current bull market celebrated its sixth birthday, making it the fourth-longest run of the last 80 years. Consumer spending increased at an annualized rate of 4.4% and unemployment has fallen significantly, from 10.0% just five years ago, to 5.5%. Inflation remained weaker than expected, hovering well below the 2% target. The Fed will continue to monitor these metrics closely and most economists still expect small rate hikes starting the second half of the year.

The US Dollar hit its strongest level since 2003, but this can be a double-edged sword. While US consumers benefit from increased buying power for overseas goods and a favorable exchange rate, the flipside is US exports become more expensive and less competitive internationally. It also reduces the value of US corporate profits generated overseas. With 50% of the earnings of companies in the S&P 500 coming from foreign countries this can have a significant impact on earnings.

A globally-diversified portfolio experienced a roughly 2.6% return for the quarter with domestic large cap stocks dampening returns slightly. Returns for the S&P and Dow were close to flat at .95% and .33% respectively. Domestic small cap, REIT and international asset classes had the best relative performance. The NASDAQ composite posted a 3.79% quarterly return and was just 22 points shy of its all-time high set in March of 2000. International markets have made a strong comeback from their 2014 losses. The international EAFE and emerging markets, which were down 4.90% and 2.19% in 2014, ended the quarter positive at 4.88% and 2.24%, respectively.

The first quarter proved to be a volatile period, with dramatic daily market fluctuations. The S&P 500 experienced 27 consecutive days with no two positive days in a row. This was the longest such stretch since 2001. For 36 of 61 trading days, the Dow saw swings of one hundred or more points. In markets like this it can be very difficult to ignore the news and maintain your long-term investment strategy. However, consider this quote from Nobel Prize winning economist Paul Samuelson: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.