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Great Lakes
Advisors, Inc.
Large Cap Value Equity
2Q10 Commentary
After a
four-quarter rise following a March 2009 low point, the equity market
retreated during the spring quarter by over 11%, leaving the S&P500 more
than 7% below the beginning-year level halfway through 2010. Concerns
included economic data marking a slower recovery in the US, China, Asia
and Europe as well as structural issues of both the European financial
system and European sovereign debt credit quality. Value style indexes
declined at a rate similar to that of the equity market over the
April-June period. Volatility measures, as in 2007-2008, rose during the
quarter as another economic-financial crisis unfolded.
Global
economic themes dominated results among industries in the period. Areas
with relatively more sensitivity to the economic pace dropped further than
those which are less affected by broad trends. Global industrial raw
materials producers (Alcoa –29%, Dow Chemical -20%) and consumer
discretionary goods manufacturers (Brunswick -22%, Energizer -20%) limited
results. Facing the prospect of wide-ranging and possibly adverse
legislation, financials (Bank of America -20%, Wells Fargo -18%, Hartford
-22%) dropped as did industrial manufacturers with financial subsidiaries
serving a broad range of customers (General Electric -21%, Textron -20%).
In contrast, the more stable electric/gas utility holdings (Public Service
Enterprise Group +6%, Duke Energy -2%, Nicor -3%) and most consumer
frequent-purchase goods holdings (General Mills flat, Kraft -7%, Altria
-2%, Clorox -3%, Kimberly Clark -4%) led results. In addition, some
relatively good quality holdings in a variety of industries (Target -6%,
Caterpillar -4%, 3M -6%, Berkshire Hathaway -2%) also contributed
positively to results.
While the
equity market now stands about 30% below levels of fall 2007, same
favorable factors are present. Ongoing global economic recovery-modest,
as has been forecast given the need to reduce debt levels- with a positive
effect on corporate profits, low money market interest rates as inflation
remains mild and, by historical standards, fair valuation support the
equity market.
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