By: Clark A. Kendall

Equity markets retreated in the first quarter of 2008 amid fresh signs of a U.S. recession. The S&P 500 Index returned -9.44 percent in the quarter while mid cap and small cap indexes fared slightly worse. When investors get cold feet, they plow money into those assets they feel are the safest. And those include U.S. government bills (short term U.S. debt). While U.S. stocks fell in the quarter, U.S. Treasury securities posted their best three-month start to a new year since 1995. Investors sought the relative safety of Treasuries amid disappointing news on the U.S. economy and deterioration in the credit markets.

By: Paola Saenz

During the calendar year 2007 we emphasized the “reasonable price” portion of the GARP portfolio. During the past 6 months (since Oct 2007), during the stock market correction, the GARP portfolio value held up relatively well when compared to the broad market. This is the result of our focus on valuations and the “reasonable priceness” of the portfolio. We have paid close attention to the overall portfolio and individual security valuation as measured by price to earnings, price to cash flow and price to sales. We feel that a majority of the broad “market correction” is behind. During the past quarter, we have made slight changes to the GARP portfolio to emphasize growth in the portfolio.

The Income and Growth portfolio’s current yield from interest and dividends at the end of the first quarter was 4.8%—73% higher than the current 5-year Treasury rate of 2.77% and 9% higher than the 10 year treasury rate of 4.4%.

The Income and Growth portfolio offers investor the advantage of not just higher current income but also increasing expected current income for the foreseeable future. Approximately 64% of the assets in the income and growth portfolio are invested in common stocks that are projected to increase dividend payments by 5% per year over the next three to five years, according to the average estimates by Wall Street analysts.