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Large Cap Value
As of July 31, 2010
We would like to share with you our review and outlook for the U.S. large cap value market as of July31, 2010.For the month, the Russell 1000 Value Index had a total return of+6.8%,compared with a total return of +7.0% for the S&P 500 Index.Year to date, the Russell 1000 Value Index and the S&P 500 Index had total returns of +1.3% and –0.1%, respectively.
INVESTMENT REVIEW
Stocks rebounded in July, lifted by better-than-expected second-quarter corporate earnings, passage of financial reform legislation and signs of stability in Europe. The U.S. economy, however, slowedin the second quarter as gross domestic product (GDP) grew at a more moderate pace than in the first quarter and the final three months of 2009.
U.S. corporate profits were strong despite sluggish consumer spending; large companies with global operations benefited from the decline in the euro in the first half of the year and a surprise uptick in euro-zone economic activity (the composite purchasing-managers index and industrial orders both rose, unexpectedly). Greater clarity from successful stress tests of major European lenders provided an additional confidence boost.
The financial services sector (which had a total return of +6.1%)1 recovered from a steep selloff,although it underperformed the benchmark. Investors rotated out of insurance companies and into large cap banks, which by and large beat earnings expectations and showed continued stabilization in credit trends. Regional banks also posted improved results, with some reporting their first quarterly profit since 2008. Banks in general are showing declines in loan-loss provisioning and bad debt.
Insurers’ performance was mixed, although AFLAC was a standout. The company’s shares rallied after it cut its holdings of southern European sovereign debt with little impact to book value. The issue had weighed heavily on the shares since mid-April.
Energy stocks (+9.9%) benefited from a stable commodity price environment in July. ConocoPhillips, a top performer, beat analysts’ estimates due to stronger oil prices and a rebound in refining margins.
Corporate spending for servers to meet growing demand for Web-based services drove information technology performance (+7.1%).Chipmaker Intel reported record second-quarter sales and topped analysts’ estimates, driven by demand from internet-related companies.The materials sector (+12.5%) was the month’s top performer. Although these companies had been hindered by China’s efforts to slow its economy and reduce price speculation in housing, infrastructure spending has remained strong and provided a boost to materials share prices in July.
INVESTMENT OUTLOOK
We believe that the U.S. economy will likely avoid a double-dip recession in the near term as GDP continues to grow, although at a slower rate than initially forecast. The Federal Reserve’s commitment to maintaining a low interest-rate environment, amid little sign of inflation, is likely to keep the recovery on track.
Overall, we find many large cap companies in good financial health, with substantial cash on their balance sheets. Although cautious about expanding their business, many companies have indicated that they plan to increase capital spending this year, which supports our thesis of a gradual economic recovery. In this low-growth environment, we favor consumer staples companies, which benefit from consistent earnings, and the technology sector, which allows us to participate in the recovery and maintain our high-quality bias.
1 Sector returns as measured by the Russell 1000 Value Index.
Past performance is no guarantee of future results.
The performance information in the preceding commentary does not reflect the performance of any Cohen & Steers Fund. Fund performance information is available through the link or links below.
Cohen & Steers Dividend Value Fund Performance
Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A prospectus containing this and other information can be viewed by clicking here or may be obtained by calling 800-330-7348. Please read the prospectus carefully before investing. Cohen & Steers open-end funds are distributed by Cohen & Steers Securities, LLC.
The views and opinions in the preceding commentary are as of the date of publication and are subject to change. This material should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment.
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