March 2012

by Michael Decter

The year started with a market wide relief rally for stocks and continued to rise on the back of a resolution to the Greek debt restructuring and positive US economic data. The unemployment rate fell to 8.3% (from 9.0%), and auto sales trended higher (over 15 million annualized rate in February). Unfortunately, the market gave up some of its gains towards the end of the first quarter as concerns about a hard landing in China increased. The markets were disappointed that the US Federal Reserve Bank Chairman, Ben Bernanke, does not see the need for QE3. We interpret the Fed’s commentary as positive, since Bernanke likely sees signs of sustainable growth in the US economy.

The Redwood Diversified Equity Fund was up 4.63% in Q1 outperforming the benchmark which was up 3.39%. Holdings which provided significant contribution to the fund during the quarter included; Apple up 48%, Ithaca Energy up 47%, and Martinrea up 42%.

For the remainder of 2012 we believe equities will provide healthy returns, specifically Canadian based companies focused in energy and domestic markets. Many companies with sound balance sheets have access to low cost debt and should be able to peruse growth opportunities now that the US economy has stabilized. Not all is rosy however. The highly indebted European countries will continue to be a drag on the global economy thus we believe stock selection will be important. A slowing China remains a risk, but given the array of tools it has at its disposal to re-stimulate its economy we are less concerned and would not be surprised if we saw some form of stimulus by the Chinese government in the second half of the year if the domestic economy is sluggish.