Market View

There is no doubt that this was a difficult quarter for the markets in general, however, the RDAM large cap model portfolio faired better. Every sector in the S&P 500 turned in negative performance - and in the RDAM model portfolio every sector did the same. The Consumer Discretionary Sector which performed so poorly last year had a nice rebound, it was just slightly negative at -0.15% and within the sector Nike was up 6.21%% for the quarter. Our Consumer Staples Sector was also down less than the market at -3.40% with Avon scratching out a positive return. We are underweighted in the technology sector as growth rates appear relatively unattractive – this helped our relative performance although NVIDIA was the worst performer in the portfolio by a long shot, down 41.82%. The good news is that when we bought NVDA we bought it as a pair with Intersil (ISIL) which was one of the better performing issues (up +4.86%) so the strategy to by NVDA and ISIL as a pair helped sector performance and portfolio performance. Performance in the IT sector was also aided by a strong quarterly return for ‘Big Blue" which was up 6.89%.

We are expecting 2008 to be rather difficult and we have positioned the portfolio accordingly. Our portfolio strategy remains unchanged: there continue to be three main themes that we will continue to emphasize for the next 12 to 18 months.

1. We believe that the need for engineering and construction for both domestic and global infrastructure building is an important current and long-term need. Consequently we are investing in companies that provide needed infrastructure services and goods. To that end, we own Fluor and Manitowoc in the portfolio.
2. We have shifted our focus to expect far more restrained consumer spending over the next 18 months. We are in the process of lightening our exposure to retail issues and increasing focus on more basic consumer staples while trying not to compound the error of selling issues at very over-sold prices or at the very bottom.
3. We are maintaining our overweighting in energy as we expect continued high levels of capital spending for exploration and production. This capital spending cycle should have a fairly long time frame, extending out over the next three to five years.

In updating our market valuation matrix work we show basically no change from the previous quarter. The market has steeply discounted expected EPS growth to approximately 3%. Using an expected EPS growth rate of 3% in the model gives us a current Justifiable P/E 18.6 vs. a current P/E of 15.5. Our valuation work suggests that the market remains undervalued at these levels, however, we believe that it will remain a tough market for the next quarter or two. We do not expect multiples deteriorate any further but rather think the market will trade near these valuation levels for next quarter or so and toward the end of the year actually begin to recover.

One of our institutional clients asked us to provide input for a roundtable discussion of what they are calling "very interesting market conditions". They asked what we considered the greatest current risk to the market and on the other side of the question they wanted to know what we considered the greatest opportunity. I thought I would include these for you.

Greatest risk:

Right now I think that one of the biggest and unquantifiable risks to our market is civil unrest. My concern here in the US is that a political unrest like that of the mid and late 1960’s ignites here this summer during the political conventions. It could be fueled by high commodity (e.g. food and fuel) inflation and/or further fueled by a growing political storm over mortgage foreclosures on low income residents. Or it could be triggered by lines for gasoline this summer given any disruption in the supply chain. This would be quite a bleak picture for the stock markets both here and abroad. However, should any of this materialize - or even parts of it - I believe that the place to be in the stock market will be in the large-cap stocks. Be in well run companies with global markets that can suffer disruptions without collapsing and capitalize on what may be unique opportunities that chaos may create.

Greatest opportunity:

At this point I believe that some of the biggest gains will be found toward the end of this year in the retail stocks. As we move toward the end of the elections we should have a clearer picture as to what the road ahead will look like and that always lifts markets. The best operators in the retail industry should be the first to benefit as both the market and the consumer begin to believe that the worst is behind us. And we count Nike, Coach, Home Depot and Lowe’s as some of the shrewdest operators in both good and bad markets. They are flexible and have the financial muscle along with vision for long-term growth that will allow them to contract and be conservative when necessary and to seize opportunities when others stumble.

Even without civil unrest or protests in the streets I believe that for long term investors large-cap growth stocks provide the best avenue for growth with less risk than almost any other investment asset. We have been through many market cycles and have found that quality well run companies survive and stocks in these companies can prosper in good times and weather storms far better than others. Experience has taught us that in tumultuous times a good defense is also the best offense.

Barbara Dickson

Rutland Dickson Asset Management

4/16/08

214-969-7088

dickson@rutlanddickson.com

Disclaimer: This website is for informational purposes only.  Past performance does not serve as an indicator of future performance.