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2011 Off To A Choppy Start

|Includes: EXC, FE, LLY, iShares U.S. Preferred Stock ETF (PFF), RSH, WINN, WWE

Thusfar, 2011 has been marked by increased volatility, with the Dow posting an average daily trading range of over 168 points, or 1.44%. Expect volatility to continue through February, which has been a weak month historically.

Year-to-date, the portfolio is up 1.38%, trailing our benchmark by just over 1%. Primary contributors to the underperformance include our 13.5% cash position, a relatively light January dividend calendar and severe weakness in a few of our small-cap names (WWE, RSH, WINN).

Longer term, we remain confident in our 2011 S&P 500 projections of 1,550 - 1,570, which represent a retest of the 2007 all-time highs. As such, any significant near-term market pull-backs should be seen as buying opportunities.

We continue to position the portfolio conservatively, with a 13.5% cash position and a 7.73% yield on cost. Favored investments include utilities, telecoms, large-cap pharma, REITS, preferred stocks and high yield bonds. Greater selectivity is warranted as yields on many equity and REIT investments have come down over the past year, and increased competition from bond yields is expected later this year as interest rates rise with the recovery in the economy.

Overall Sentiment:  Near-term cautious. Long-term bullish.
Portfolio Yield: 7.73%
Projection: Short-term correction of 3% - 5%. Initial S&P500 support at 1,257, further support at 1,225. Breakout to 1,400 - 1,440 in the next 6 months and 1,500+ in next 12 months.

Top 5 Positions:

  1. Cash - 13.5%
  2. First Energy (NYSE:FE) - 5.8%
  3. iShares S&P U.S. Preferred Stock Index (NYSEARCA:PFF)- 5.1%
  4. Exelon Corp. (NYSE:EXC) - 4.9%
  5. Eli Lilly & Co. (NYSE:LLY) - 4.6%
Disclosure: Long: PFF, FE, EXC, LLY, WWE, RSH, WINN