Gimbal Capital Management November Update

November 2, 2012

Gimbal Capital Management

Monthly Update

Index

October

S&P 500 TR

-1.85%

Corporate Bonds

 1.28%

Treasury Bonds

-0.16%

Best & Worst Sectors

Cyclicals

2.34%

Financials

2.01%

Utilities

1.13%

Technology      -7.56%
Healthcare

-3.56%

Gold

-2.33%

October is the month in which most companies report third-quarter earnings and begin to forecast their sales for the next year.  Analysts reduced earnings expectations for the third quarter based on a slowing economy, and markets reacted negatively as many companies still missed expectations.  The S&P 500 dropped -1.85% for the month, and technology, which led sector performance all year, was the worst-performing sector.  European markets performed well this month and the search for higher yields pushed corporate bonds up 1.28%.   Treasury prices dropped as investors sold in reaction to reduced risk in Europe and the inflation threat imposed by the Fed’s most recent quantitative easing announcement.  Our more conservative strategies continue to outperform our more aggressive strategies this year.

 

December 31, 2011 through October 31, 2012

     

Income

 

Growth

 

Opportunity

S&P 500 TR

             14.30%

x

50%

x

70%

X

100%

Citi BIG Corp

10.15%

x

 

 

30%

 

 

Citi BIG Treasury

  1.88%

x

50%

x

 

 

 

Composite Benchmark

 

=

        8.12%

=

13.17%

=

14.29%

Composite Total Return, Net

 

 

       6.23%

 

5.53%

 

2.98%

Composite Asset Allocation (Stocks/Bonds/Cash)      48/43/9        66/27/7

 

   58/24/14
Tax-Equiv. Yield (Interest & Dividends)           4.61%

 

3.30%

 

1.70%

 

During the month, we bought Volkswagen, Autoliv, and Potash Saskatchewan and sold Raven Industries and Cliffs Natural Resources.  Volkswagen and Autoliv are auto-related businesses with strong product portfolios, and Potash is the world leader in potash & fertilizer mining.  All three companies are related to our preferred investment themes and we believe that all are significantly undervalued based on their cash flows.  Raven and Cliffs were sold on weak performance and our concerns about their ability to generate profitable sales growth.

 

Risks related to Europe have abated, however the pace of their recovery will be slow and further shocks are certainly possible.  There are early signs of recovery in China. The highly unstable and fluid political situation in the Middle East makes it a formidable threat to the global economy.  The U.S. budget deficit is still in an untenable position, and we expect no changes in the situation until after the election, and possibly into the early months of 2013.  Overall, we are cautiously optimistic in our view of equities, and we still favor our durable demand themes of agriculture, autos, and oil & gas.  Portfolio bond allocations are declining  due to maturities and calls.  We are not satisfied with the quality or the yield of the bonds currently offered and will look for higher-yield equity investments to fill this gap.  Cash positions are currently elevated and we are patiently seeking out opportunities to put this money back to work.

 

 

Sincerely,

 

 

 

Daniel A. McAdams                                           David S. Hodge, CFA

Chief Investment Officer                                                Security Analyst