August 8, 2011

Today was another tough day for risk-based assets.  The S&P 500 Index dropped 6.6% on the day and is now down 11% year-to-date. On Friday evening, after the U.S. stock markets closed, S&P decided to downgrade the U.S.’s long-term credit rating one notch to AA+ from AAA. S&P said the downgrade "reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics." It also blamed the weakened "effectiveness, stability, and predictability" of U.S. policy making and political institutions at a time when challenges are mounting. It's possible the blow in the short run might be more psychological than practical. Over the weekend, rival ratings firms Moody's Investors Service and Fitch Ratings both stated that they would be maintaining their top-notch ratings for U.S. debt. And so far, U.S. Treasury bonds have remained a haven for investors worried about the health of the U.S. economy and the state of Europe's debt crisis.  Nevertheless, this downgrade is an event that is difficult to quantify in terms of its short and long-term effects.  It is for this reason that today we reduced exposure to risk-based assets across all asset allocation strategies (Ultra-Conservative, Conservative, Moderate, Aggressive and Opportunistic) by another 5% to 7.5%.  There has been no immediate direction for the redeployment of this cash as we are currently in the principal protection mode, rather than focusing on capital appreciation. It is our belief that this volatility will ultimately create opportunities for growth in the future. However, until there is more clarity on the situation, discretion is the better part of valor. If the situation continues to deteriorate, we are prepared to trim risk-based assets even more aggressively. For now, we feel comfortable with our reduced weightings.  We will continue to communicate our views as the situation evolves and appreciate the faith you have placed in our firm. Jonathan D. Smith, CFA Chief Investment Officer Andrew C. Zimmerman Chief Investment Strategist Notes: The DT Investment Partners’ Market Commentary discusses general developments, financial events in the news and broad investment principles. It is provided for information purposes only. The material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Investments in various asset classes entail different investment risks. For example, small cap equities tend to be more volatile than large or mid-cap equities.  International equities and emerging markets have exposure to currency fluctuations, foreign taxes, political instability and the possibility for illiquid markets.  Fixed income investments involve interest rate and credit risks among others. Real estate investing includes risks such as declines in value of real estate, changing economic conditions, tax laws or property taxes. Commodities’ investing is highly volatile and subject to changing economic conditions and the vagaries of speculators among other risks. Further, diversification and strategic or tactical allocation do not assure profit or protect against loss in declining markets. Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.  Past performance does not guarantee future results.