American Fund Commentary
Portfolio Sub-Advisor: McLean Budden Limited
Fund Commentary - December 31, 2011
Throughout 2011, capital was reallocated to purchase
attractively valued companies with strong relative growth
prospects. Within the Energy sector, market overreaction to the
political unrest in Egypt early in the year provided an opportunity
to increase our existing position in Apache Corp., and fund a new
position in Peabody Energy Corp.. In Materials, Monsanto Co. was
preferred over Mosaic Co., which was eliminated as the Portfolio
Sub-Advisor judged the latter's shares to be fully valued. Within
the Information Technology sector, Cisco Systems, Inc. was sold as
market share erosion continued to weigh on the stock. Proceeds were
used to fund new positions in Nuance Communications, Inc., Johnson
Controls, Inc. and CME Group Inc., while SYSCO Corp. and CVS
Caremark Corp. were eliminated. Bank of America Corp. and
Freeport-McMoRan Copper & Gold Inc. were both increased, as
relatively weak share price performance provided attractive buying
opportunities. Verizon Communications Inc. was reduced and the
proceeds were used to increase existing positions with higher
relative return potential. Finally, after a period of strong
performance, Electronic Arts Inc. was eliminated. The Fund
continues to favour exposure to industry-leading companies with
sustainable earnings growth and strong balance sheets.
The Fund is currently overweight the Health Care and Materials
sectors, while maintaining an underweight in Consumer Discretionary
and Utilities. U.S. equities endured another period of high
volatility as investors were whipsawed between vacillating periods
of "risk-on" and "risk-off". Equities outperformed government bonds
for the fourth quarter, while yields on the world's safe haven
securities - long-term U.S. Treasuries and 10-year German bonds -
were broadly unchanged. Efforts to contain Europe's sovereign debt
crisis took on a sense of urgency as investors moved Italian bonds
into their crosshairs, precipitating the fall of the Berlusconi
government. To be sure, implementing many of the austerity measures
in Europe is proving difficult due to domestic politics and fear of
economic contraction. This will continue to weigh on risk appetite
and remains a headwind for equities. However, on the positive side,
the European Union agreed to take steps toward fiscal unity and
progress was made in adopting some austerity measures and
structural reforms while the U.S. economy finished the year with
decent momentum. The European Central Bank cut rates by 50 basis
points and increased liquidity while global central banks
coordinated to ease funding stresses.