Commentary Archive 2006

Commentary Archive 2006 background

Commentary Archive 2006

Disclosure

Performance results are based on estimates. Although the information contained in the commentary sections have been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. Past performance is not necessarily indicative of future results. Different types of investments involve varying degrees of risk.

December 2006 Summary

For the year

The Hanseatic Large Cap product outperformed the Russell benchmark by 2.97%.

During the fourth quarter the Hanseatic Large Cap product bested the Russell benchmarks by 0.71%.

Hanseatic’s Large Cap product gained 0.53% during the month exceeding the Russell 1000 Growth Index by 0.19%.

November 2006 Summary

Hanseatic’s Large Cap product gained 2.43% in the month of November, outperforming the Russell 1000 Growth benchmark by 0.45%.

Year to Date

The Large Cap has gained 11.29% and leads the Russell 1000 Growth benchmark by 2.58%.

The outPerformance in the Large Cap product was due to increased exposure to the technology sector, particularly software. Selected energy and finance sector stocks also contributed positively. Healthcare stocks were a modest drag to portfolio Performance.

October 2006 Summary

Hanseatic’s Large Cap product gained 3.35% in the month of October, underperforming the Russell 1000 Growth benchmark by 0.17%.

Year to Date

The Large Cap leads the Russell 1000 Growth benchmark by 2.00%.

The underPerformance in the Large Cap product was due to underexposure in Technology, and in particular those technology stocks with the largest capitalization weighting in the benchmark indices. All sectors in the portfolio contributed positively for the month.

September 2006 Summary

Hanseatic’s Large Cap product gained 1.19% in the month of September, underperforming the Russell 1000 Growth benchmark by 1.56%.

During the third quarter, Hanseatic’s Large Cap product lost 1.67% underperforming the Russell 1000 Growth benchmark by 5.61%.

Year to Date

The Large Cap leads the Russell 1000 Growth benchmark by 2.00%.

UnderPerformance in the Large Cap product during the third quarter was largely attributable to declines in moderately overweight positions in the Energy and Industrial sectors. Technology and Finance contributed positively during the quarter.

August 2006 Summary

Hanseatic’s Large Cap product lost 0.15% in the month of August, underperforming the Russell 1000 Growth benchmark by 3.27%.

Year to Date

The Large Cap leads the Russell 1000 Growth benchmark by 3.33%.

The overall market had a generally positive tone during the month of August. Technology stocks were particularly strong, although still negative for the year. Energy, Utility and Transportation stocks spent the month digesting some of their prior gains. Also, growth stocks, primarily Technology, outperformed value-oriented stocks during the month.

UnderPerformance derived from modestly overweight positions in Energy, Materials and selected industrial stocks, and an underweight position in Technology.

July 2006 Summary

Hanseatic’s Large Cap product lost 2.92% in the month of July, underperforming the Russell 1000 Growth benchmark by 1.01% and underperforming the S&P 500 Total Return Index by 3.54%.

Year to Date

The Large Cap leads the Russell 1000 Growth benchmark by 6.47% and the S&P500 Total Return Index by 0.30%.

The overall market was weak during the month; Consumer Staples and Utilities were the only sectors showing positive Performance in the Large Cap. Industrial, Consumer Discretionary and Technology stocks were particularly weak.

June 2006 Summary

Hanseatic’s Large Cap product gained 0.75% in the month of June, outperforming the Russell 1000 Growth benchmark by 1.14% and outperforming the S&P 500 Total Return Index by 0.61%.

For the second quarter, the Large Cap led the Russell 1000 Growth benchmark by 2.19% and lagged the S&P500 Total Return Index by 0.27%.

Year to Date

The Large Cap leads the Russell 1000 Growth benchmark by 7.60% and the S&P500 Total Return Index by 3.96%.

Seven of the ten Sectors contributed to the Large Cap Performance during the quarter. Consumer Discretionary, Materials and Energy contributed slightly more than others without any significant standouts. Technology, Finance and Healthcare were all negative on the quarter.

May 2006 Summary

Hanseatic’s Large Cap product lost 4.30% in the month of May, underperforming the Russell 1000 Growth benchmark by 0.91% and underperforming the S&P 500 Total Return Index by 1.42%.

Year to Date

The Large Cap leads the Russell 1000 Growth benchmark by 6.28% and the S&P500 Total Return Index by 3.17%.

Seven of the ten Sectors contributed to the Large Cap underPerformance during the month. Technology, Semiconductors and Communication Equipment in particular, hindered Performance. Agricultural Products and Entertainment were the best performing Sub-Industries.

April 2006 Summary

Hanseatic’s Large Cap product gained 1.77% in the month of April outperforming the Russell 1000 Growth Index by 1.91% and outperforming the S&P 500 Total Return by 0.43%.

Year to Date

The Large Cap leads the Russell 1000 Growth benchmark by 7.49% and the S&P500 Total Return Index by 4.83%.

Seven of the ten Sectors contributed to the Large Cap outPerformance during the month. Healthcare stocks, biotech and HMOs in particular, hindered Performance. Gold and Steel were the best performing Sub-Industries.

March 2006 Summary

Hanseatic’s Large Cap product gained 2.52% in the month of March outperforming the Russell 1000 Growth Index by 1.04% and outperforming the S&P 500 Total Return by 1.27%.

For the quarter and year-to-date, the Large Cap leads the Russell 1000 Growth benchmark by 5.36% and the S&P500 Total Return Index by 4.24%.

The Large Cap outPerformance during the quarter came from Finance, Industrials, Materials and Technology Sectors respectively. Specific Sub-Industries that contributed were Investment Banking and Brokerage, Steel and selected Tech Comm Equipment.

February 2006 Summary

Hanseatic’s Large Cap product lost 1.52% in the month of February underperforming the Russell 1000 Growth Index by 1.36% and underperforming the S&P 500 Total Return by 1.79%.

For the year, the Large Cap leads the Russell 1000 Growth benchmark by 4.11% and the S&P500 Total Return Index by 2.77%.

The Large Cap portfolio was hurt in February by sharp declines in energy stocks and a couple specific technology stocks.

January 2006 Summary

Hanseatic’s Large Cap product gained 7.42% in the month of January outperforming the Russell 1000 Growth Index by 5.66% and outperforming the S&P 500 Total Return by 4.77%.

The S&P500 and the NASDAQ Composite finished January with solid gains of 2.5% and 4.6% respectively. Eight of ten broad market sectors were positive. Energy, metals, and selected semiconductor stocks were especially strong.

A leading bear scenario for the current market rests on the negative case for housing prices and housing demand. Depending on the severity of the decline in the real estate market, the collateral impact on consumer spending and negative consequences for economic growth risks a serious stock market decline. Recent data underscore the notion that the housing sector is slowing. All the housing stocks underwent cyclical declines in the September-October period. But most housing stocks have recovered quite well in the last several weeks, seemingly not discounting the bear case.

And there is a case to be made that economic growth is robust, interest rates are low in an absolute sense and inflation is moderate. Moreover, and importantly, equity markets across the globe are in secular bull markets. We remain moderately constructive about the US Stick market.

Looking back at 2005 and forward to ’06

Turning to the overall market, the 2005 domestic equity markets delivered flat and uninspiring Performances. This was particularly notable given the context of a global equity bull market. By one measure of returns, the US ranked 29th out of 32 equity markets in the world.

Beneath the tranquility of the benchmark returns, things were a little more dynamic with the significant positive moves in the energy, utility and materials sector. Large cap growth stocks, widely-perceived to represent good value in the last two years, disappointed again.

Going into 2006, there is no shortage of daunting and quite rational risks confronting the market. The complex interactions among OPEC, individual member intrigues (Iran, Venezuela, Iraq) and the China/India demand profiles make energy pricing a minefield. Interest rates, with a new Fed chairman and the Ten Year Note yield less than the two year maturity presents a conundrum. All of this comes at a time when , at least in our view, the prevailing macro outlook of the US stock market is that the US is mired in a low-return secular environment, as in the 1966-1982 period. Moreover, the current "bull" market is three years old, matching the average post-WWII bull market in duration. If an investor holds these two tenets, as we believe many do, there is little room for doubt that 2006 will see the markets resume a southerly course.

We believe that market forecasts necessarily hinder one’s ability to adapt to changing market environments; so we take none seriously, including our own. But we would not be surprised to see a more positive market Performance than the consensus seems to anticipate. Inflation remains tame, and earnings growth may be surprisingly robust. But more than being "right" on the Dow or S&P500, it will again be more important to have exposure to those industry groups that will maintain their current leadership, or emerge as new leadership.