4th Quarter 2010 Commentary
The Fund fully participated in the strong equity rally during the fourth quarter, bolstered by holdings in a number of broad indices. The rally began in September, but by early November all of these broad indices broke above their April highs at which point the market paused to consolidate its gains. The rally continued in December with a slow grind upward, and despite the low holiday volume ended the year in new-high territory.
Energy and its derivatives provided the strongest leadership within the portfolio during the period. Full positions (3% of assets) in coal, nuclear energy, and two oil and gas related ETFs—services/equipment and exploration/production—boosted returns. Other significant performers were a metals and mining oriented ETF that dramatically outperformed the benchmark and an inverse Treasury bond ETF that gained more than 17%.
Numerous international ETFs that had provided market leadership during the third quarter could not continue that strength into the fourth quarter. We sold many of these positions once they proved that they could not sustain their trend, as the Fund's international stake decreased from 32% of assets at the end of the third quarter to less than 6% by the end of December. Financials, however, finally began to show positive growth. The portfolio opened new positions in two Banking ETFs and one Financial ETF by the end of the year. Homebuilders also showed real signs of life and the portfolio built up a full position in that area by year end.
Despite the strength shown in these sectors, low volume and neutral market breadth raised questions about the true strength of the market rally. As such, the strategy began to take profits in its larger positions and develop sell signals for the underperformers. This raised the Fund's cash position substantially from 3% to more than 15% by year-end as defense until a trend (up or down) appears with confirmation from strong volume and breadth.
New Century Capital Management
11 January 2011
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 on that index. An ETF may not be able to replicate an index exactly since returns may be reduced by transaction costs, expenses and other factors while the index has none. The Fund invests in many different areas of the market, each of which may involve its own element of risk. Use of aggressive ETF investment techniques such as futures contracts, options on futures contracts and forward contracts may expose an underlying fund to potentially dramatic changes (losses) in the value of its portfolio. In selling covered call options the Fund continues to bear the risk of a decline in the value of the underlying stock, an illiquid market, and no control over the exercise of the call options.
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.