2nd Quarter 2010 Commentary
The second quarter delivered the first major market correction since the market low in 2009. The period began with the Dow Jones Industrial Average hovering around the 11,000 level in an overbought condition. Market breadth was at near record positive levels at the outset, with the advance-decline line at or near an all-time high until the beginning of May. From that point, market breadth reversed directions as losers outpaced winners with only two brief interruptions through the end of the quarter.
The Fund held about 10% of assets in cash for either a pullback in the market or rebalancing at the beginning of the period. The portfolio was primarily in domestic equities with only three small holdings in country stocks, one of which was an emerging economy ETF. There was minimal exposure to commodities or currencies with only one position in the gold and precious metals industry. The Fund also began the quarter with a 7% hedge position using broad index inverse ETFs, in anticipation of a correction from the overbought condition.
Despite these precautions, the Fund still suffered losses with the general market sell-off. After initially resisting the decline, the Fund experienced a significant correction in some of its strongest positions from the first quarter. We liquidated or reduced a number of positions including a number of foreign market holdings centered on India, Israel, Brazil, Chile, and Canada. Inverse ETF positions established towards the end of the quarter to further hedge the broad index positions provided somewhat of a boost. The strategy also captured some of the return in fixed-income through two bond ETFs— Barclay's 20+ Year Treasury Bond (TLT) and the Barclay's Aggregate Bond ETF (AGG).
Many funds that proved weak during the second quarter had been leaders since the beginning of the year. The most notable were indexes within the mid-cap and small-cap segments of the market. For example, Rydex S&P 500 SmallCap 600 Pure Value (RZV), was up more than 30% earlier in the year but had relinquished virtually all of that gain by the end of the second quarter. Less dramatic examples could be seen in many large-, mid-, and small-cap index ETFs. Some sectors that had seen profits earlier in the year gave them back during the last two months of the second quarter. Notable among the areas giving up gains in this period were retail, industrial, biotechnology, and financial, with banking and insurance significantly impacted.
New Century Capital Management
July 12, 2010
As of June 30, 2010, iShares Barclay's 20+ Year Treasury Bond comprised 1.09% of the portfolio's assets, Barclay's Aggregate Bond – 2.10%, and Rydex S&P 500 SmallCap 600 Pure Value – 1.87%.
Note: The Fund invests in exchange-traded funds (ETFs) which are securities of other investment companies. An ETF seeks to track the performance of an index by holding all, or a sampling, of the securities of that index. The Fund invests in many different areas of the market, each of which may involve its own element of risk.
Past performance does not guarantee future results. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost.
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800 992-8151 for a prospectus containing this and other information. Read it carefully. Aston Funds are distributed by BNY Mellon Distributors Inc.