Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

Following the sharp sell-off in the markets at the end of January, investor sentiment continued to be mixed. Valuations were fair to full. but expectations for better economic growth buoyed the optimistic. The first estimate of Q4 2013 GDP growth in the US came in at 3.2% (subsequently to be revised downward to 2.4%) on strengthening exports and increased consumer spending. The suspension of the US debt limit for a year gave further impetus to the markets. Political turmoil in Italy, Turkey, and (more bloodily) Ukraine, and weaker data out of China only slightly dampened enthusiasm. The month closed with the S&P 500 Index reaching record highs.

February was generally challenging for active managers. While the managers were able to add value over their indexes in down periods, the robust upswing that characterized most of the month was not favorable to most fundamental, stock-specific investment approaches. Those managers that were able to outperform did so through concentrated positions in a few favorable names. Although implied stock price correlations (as measured by S&P 500 options) initially declined, they have rebounded from the recent lows seen at the end of 2013. Increasing correlations may present fewer opportunities for value to be added through active management.