2nd Quarter 2008: A Tale of Three Seasons

Includes: DIA, QQQ, SPY
by: Dan Weiss

It was a tale of three seasons for the financial markets during the second quarter. Equity markets started off the second quarter with a bang, led higher by not only the energy and materials stocks but also consumer-related and even financial stocks as investors had increased confidence that an economic recovery was just around the corner in the back half of the year.

At the end of April, the S&P 500 was higher by nearly 5% with the NASDAQ was showing even higher performance to energy and materials and also to small caps from large caps as economic fears began to take shape late in the month and the financial sector began to once again take it on the chin.

In May, the S&P climbed just over 1%. Finally, in June, markets succumbed to signs that the financial crisis had more room to go as witnessed by increased write-offs, a struggling buyout market and increased spreads. In addition, we saw the effects of troubles in the financial sector spread to the consumer among many names in the gambling sector and high-end retailers.

Despite the share price drop in June in more of the budget-oriented consumer names, the sales results thus far have been fine for most of these companies, possibly due to the rebate check distributions. The place to be in the second quarter was clearly in energy where I mentioned in a prior post the energy sector within the Russell 2000 Index was up over 40% just for the quarter along with materials which also strongly outperformed. My Vestopia portfolio is strictly long-only, but those who shorted names outside of the energy and materials sector were generally rewarded during the quarter.

My portfolio managed a 1% gain for the quarter which exceeded the S&P 500 Index performance by roughly 4%. The portfolio was helped by the acquisition of Moldflow, very strong performance out of a biotechnology company which nearly doubled in value, by solid performance out of technology and from strong early returns from a couple of new positions in the portfolio. 

On the flipside, some of my more value-oriented names struggled, but as I mentioned in a prior message to subscribers. I am more excited than I have been in a very long time and possibly ever in the valuation and prospects of the names within the portfolio. The portfolio ended the quarter with 17 names with four new names introduced into the portfolio and two names removed from the portfolio (one due to a buyout and one due to decreased confidence in the ability of management to deliver). Subscribers can continue to read on at Vestopia to read a comprehensive list of specific drivers of performance quarter and my thoughts for the upcoming quarter and back half of the year.