March Market Commentary

March 2009

Market cycles typically coincide with overall investor outlook and confidence, as noted in the following graph. This cycle is certainly testing the range of an investor’s emotions and conviction, as the first quarter’s initial downdraft has been replaced by a now multi-week up turn. Are we at the bottom?  We wondered if investors have reached the point of capitulation, and informally surveyed a group of our clients and prospects at an event in March. Where would you place yourself?  Our groups’ average response was 8.2 ⁽¹⁾.
 

Source: Natixis Bleichroeder, Inc., Market Analysis Team

The recent bear market has erased equity returns earned over the past 12 years (see following chart), as measured by the S&P 500 Index. The difficult market conditions we’ve been facing quieted during March as the S&P 500 Index finished the month with a positive return of 8.8%.

Source: Bloomberg Finance L.P.

We take some considerable pride in our 10-year performance numbers in comparison to the broader market, as measured by the S&P 500 Index.⁽²⁾ As of the end of the first quarter, our Funds outperformed their respective benchmarks, as well as the S&P 500 Index.

The recent series of Lipper awards won by our Select Value Fund for Consistency of Return also demonstrates the effectiveness of our process through these difficult times.

We rely on our stock picking to generate returns for our clients.  That said, we can’t help but notice the remarkable continued build up of cash, as we have commented on in the past.  As investors respond to the downturn in the market, they seem to have parked assets in cash and cash-like vehicles as shown in the chart below.
 

"Cash is King"

 Source: Bloomberg Finance L.P.

We believe that this mountain of liquidity could be a continued stimulus for stock appreciation as investors regain confidence in stocks. As investors committed to fundamental, value investing, Heartland is working as always to uncover long-term wealth-building opportunities for your portfolio. It may take some time, but we remain confident that stocks will once again be driven by fundamental realities. In the mean time, as we have been saying, we are finding many compelling valuations.

⁽¹⁾ This survey is based on the opinion of a group of Heartland Clients and Shareholders. There is no scientific research methodology applied in the results shown.

⁽²⁾ The S&P500 Index provides an indication of broad market performance, but is not the benchmark for the Funds.