Monthly by yaofenji


									                   Monthly Market Review – February 2013

Economic Data: The pace of positive economic data                CITIGROUP ECONOMIC SURPRISE INDEX
improved in February, as represented by the Citigroup
Economic Surprise Index. A stunning personal                                   120.0
income report on the first day of the month sent the
index racing higher, while sharply improved ISM                                80.0
manufacturing figures and a steep drop in the trade

                                                                 Index Level
deficit gave the index a subsequent lift.
Personal incomes jumped considerably in December,
rising 2.6%. This was the biggest gain in eight years.                         -40.0
The increase was attributable to accelerated bonuses
and special dividends, as companies sought to
distribute capital ahead of potential tax hikes in
2013. Spending was also positive, although slightly                                                               Source: Bloomberg
below expectations with a 0.2% increase. Negative
spending growth for nondurables, specifically
                                                                 PERSONAL INCOME & OUTLAYS - MOM
gasoline, weighed down the headline level.
Unfortunately, much of the gains in personal incomes                            3.0
were given back in February data, as incomes fell                               2.5                              Spending
3.6% in the month.                                                              2.0                              Incomes
                                                                 Growth (%)

On the manufacturing front, the Institute of Supply
Management (ISM) reported in February that its                1.0
manufacturing index accelerated to 53.1 in January.           0.5
This was a jump of nearly three points, and ended a           0.0
string of reports that hovered around the 50-line
(which demarcates expansion/contraction in the
sector). New orders improved by 3.6 points,
returning to expansionary territory and boosting the FORTIGENT®                                Source: Bloomberg
headline index. Later in the month, the composite
index continued its recent strength, increasing to 54.2 in February. Most of the gain came from the new orders
and production sub-indices, which generally bodes well for future readings.

Housing data remained fairly positive in February, particularly housing prices. The Case-Shiller Home Price
Index was up 0.9% in December; in the past year, the 20-city index is up nearly 7%. Housing starts softened
slightly during the month following robust January figures, but remain nearly 24% higher on a year-over-year
basis. Meanwhile, both existing and new home sales improved. New home sales, in particular, surged 15.6% in
the month. The housing market is generally being supported by some of the lowest inventory levels in years and
record low mortgage rates.

In late January, the first estimate of fourth quarter 2012 GDP suggested the US economy contracted by 0.1%. In
late February, that number was revised up to 0.1%; while an improvement, economists were disappointed by the
meager pace of growth to end last year. Weakness in inventories and government spending was generally offset
by consumer spending and business investment.
        5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                    Monthly Market Review – February 2013

Central Banks: The easing campaign of global central banks continued in February, as seven banks enacted
accommodative policy. However, 27 banks took no action, and one raised rates. The FOMC did not meet in
February, with its next scheduled meeting is March 19-20. In late January, the bank issued little new guidance as
the Fed maintained its current policy stance of zero interest rates and its purchases of $85 billion per month of
Treasuries and mortgages.

Minutes from the FOMC meeting on January 29-30 were released in February. The committee members’
increased concerns about the impact of ongoing asset purchases surprised market participants. Specifically,
“several participants discussed the possible complications that additional purchases could cause for the eventual
withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that
further asset purchases could foster market behavior that could undermine financial stability.” The committee
members’ concerns have sparked fears that the Fed could end its easing program earlier than expected. The
market impact from the central bank’s various installments of unconventional monetary policy is well known. It
remains uncertain whether investors see enough organic strength in the economy and in the corporate sector to
stay committed to risk assets once this measure of support is withdrawn.

The Bank of England and European Central Bank both held meetings in February, but yielded little in the way of
new policy. Barclays Research noted that ECB President Mario Draghi did strike a more dovish tone to convince
the markets that policy would remain accommodative for an extended period of time. There had been some
debate on this topic following the early repayment of some three-year LTRO loans.

The US dollar rallied sharply against the Japanese yen in February following the announcement that Bank of
Japan Governor Masaaki Shirakawa would step down three weeks earlier than his term expiration on April 8.
Given Japanese Prime Minister Shinzo Abe’s calls for aggressive easing policies, a dovish new BoJ governor was
expected. The nomination of Haruhiko Kuroda for the role is in line with these expectations, with the nominee
indicating that he could engage in open-ended asset purchases sometime in 2013.

Source: Barclays Capital,, BEA, BLS, ISM, Econoday

         5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                   Monthly Market Review – February 2013
                                                                        REGIONAL INDEX PERFORMANCE
Global equities were mixed following January advances due               FEB/YTD
to a number of macroeconomic factors. The ACWI index                                                                                                   YTD

was flat for the month of February reflecting a balance                                Japan
between relative strength in developed Asia and the US, and
weakness in emerging markets and Europe.
                                                                          USA (Russell 1000)
A few significant events had a major impact on global                                                                                           6.8%

markets. First, minutes from the Fed’s January FOMC
meeting indicated that its asset purchase program could end                   AC Asia Pacific                         0.9%
sooner than expected. Previously the Fed had committed to                                                                          3.6%

open-ended quantitative easing ($85bn per month) until
unemployment decreased, so the more hawkish stance                                                      -1.2%
                                                                           Emerging Markets
increased capital market uncertainty. If the Fed does pull                                                            0.1%
back on monetary stimulus, it could have a major impact on
global markets, which are largely being fueled by central                                         -2.7%
bank liquidity. In his testimony before Congress in late                                                                          3.0%
February, Chairman Ben Bernanke defended and reaffirmed
                                                                                               -5%               0%                 5%           10%
his commitment to strong stimulus measures.                                                                                           Source: Bloomberg

The other major news in February came from Italy, where
                                                                        MSCI COUNTRY PERFORMANCE                                                       FEB
elections were looked upon as an indicator for the direction            FEB/YTD                                                     5.0%               YTD
of recession-plagued Europe as a whole. Citizens are clearly               South Korea                                     1.1%
sending an anti-austerity message in rejecting the current                    Australia                                            3.9%
technocratic PM Mario Monti. Unfortunately, a surprising                         Japan                                           2.7%
showing by the center-right party of disgraced former PM                                                                   1.3%
                                                                                  USA                                                     6.6%
Silvio Berlusconi in the Senate has led to divided                                                                        0.4%
                                                                                Taiwan                                     0.6%
government and greater uncertainty for Europe broadly.                                                                    0.0%
Strong performance by the anti-Euro Five Star Movement,                                                                             4.7%
which won 25% of the Italian vote, added to concerns.                          Canada                                     0.5%
Equity markets across the continent sold off following a                United Kingdom                  -2.5%
strong rally as the results became clearer, and Italian                          Brazil                 -2.5%
government bond yields rose sharply. The nation now faces                       Mexico                -3.0%
either a broad coalition between vastly different factions, or                  France               -3.4%
the more likely scenario of a fresh round of elections to                     Germany                -3.9%
produce a more definitive result.                                                                    -3.9%
                                                                                 China                                    0.0%
                                                                                Russia          -5.6%
On a global basis, the defensive consumer staples led other                                                               0.3%
                                                                                 Spain          -5.9%
sectors, followed by strength in industrials and health care.                                                             0.6%
The energy and materials sectors were weak reflecting                             India                 -2.7%
slumping commodities prices. Housing remains a bright                              Italy          -4.8%
spot for the US economy, as new home sales continue to                                     -10%         -5%          0%           5%        10%      15%
climb.                                                                   FORTIGENT®                                                     Source: Bloomberg

        5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                         Monthly Market Review – February 2013

 Earnings revisions across developed markets have been turning less negative, although consensus estimates for
 2013 and 2014 continue to trend lower. Markets seemed to show little reaction to the ongoing budget fight in
 Washington; on March 1, the day the sequester went into effect, the S&P 500 was basically flat at 0.2%. While
 the possibility of a compromise still exists, it will be interesting to gauge the market’s reaction as the depth of the
 cuts begins to take hold at the end of March. The US did end February on a positive note, as Q4 GDP was
 revised up from -0.1% to +0.1%.

GLOBAL INDEX PERFORMANCE                                      FEB        YTD
                                                                               DOMESTIC INDEX PERFORMANCE                                FEB
FEB/YTD                                                                        FEB/YTD                                                   YTD

       US Large Cap                          1.3%                               Russell 1000 Value           1.4%
       (Russell 1000)                                             6.8%

                                                                                    Russell Midcap           1.4%
  US Small-Mid Cap                           1.1%                                                                                       8.4%
   (Russell 2500)                                                   8.1%
                                                                                         S&P 500            1.4%
         Int'l SMID                        0.7%
       (EAFE SMID)                                          5.4%                                            1.3%
                                                                                      Russell 1000                            6.8%
   Int'l SMID Plus                         0.3%
 (ACWI ex-US SMID)                                    3.9%                            Russell 3000                              6.9%

              Global                   0.0%                                                                 1.2%         5.6%
                                                           4.7%                Russell 1000 Growth

      Int'l All Cap                                                                   Russell 2500          1.1%
                              -0.9%                                                                                                    8.1%
   (ACWI ex-US IMI)                                 3.2%
                                                                                Russell 2000 Value         1.1%
        International        -0.9%                                                                                               7.2%
           (EAFE)                                      4.3%                                                1.1%
                                                                                      Russell 2000                                7.4%
   International Plus        -1.0%
     (ACWI ex-US)                                   3.0%                                                   1.1%
                                                                               Russell 2000 Growth                                   7.7%
                             -1.2%                                                                        0.7%
  Emerging Markets                     0.1%                                       Russell Microcap

                       -5%            0%              5%                 10%                         0%      2%     4%   6%       8%          10%
 FORTIGENT®                                         Source: Bloomberg          FORTIGENT®                                 Source: Bloomberg


 February proved to be another strong month for US equity markets, as stable corporate fundamentals, improving
 economic data, high levels of corporate M&A activity, and strong fund flows drove the US markets to new
 recovery highs. However, February experienced more volatility than prior months, with the VIX rising 8.8% to
 15.5 on fears about the outcome of the Italian election and concerns that the Federal Reserve may scale down
 monetary stimulus sooner than expected. After hitting a high of 19 in late February, the VIX retracted a large
 portion of its gains as Fed Chairman Bernanke stringently reinforced his intent to maintain the Fed’s easing policy
 in his testimony before Congress. This helped push the markets back near their recovery highs, driving the Dow
 Jones Industrial Average, S&P 500, and NASDAQ higher by 1.4%, 1.1%, and 0.6%, respectively. Mid Caps
 outperformed both Large and Small Caps, and value outperformed growth.

            5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                   Monthly Market Review – February 2013
Increased investor caution was evident through sector               RUSSELL 3000 SECTOR PERFORMANCE                                                        FEB
leadership, with three of the top four performing sectors           FEB/YTD                                                                                YTD

in the month being defensively-oriented. The consumer
staples sector was the top performer in February, rising                  Consumer Staples
3.1%. This was driven mainly by Heinz, which rallied                                                                          2.5%
19.5% after Berkshire Hathaway and 3G Capital                                                                                                 8.8%

announced they would be taking the company private.                                  Utilities
Utilities and telecom also outperformed after lagging in                                                                                    7.5%

January, rising 2.2% and 2.0%, respectively, as the high                   Telecom Services
yield characteristics of these sectors came back into
favor. The industrials sector was the only cyclical area of                       Financials
the market that performed particularly well in February,                                                                1.2%
rising 2.5%. This can largely be attributed to positive                                                                                       8.9%

earnings results and an expansion in depressed valuation             Consumer Discretionary                             0.9%
multiples. Much of the rally was driven by better-than-
expected results from transportation firms and a 5.1%                 Information Technology
rally in General Electric after Comcast announced the
purchase of GE’s remaining 49% stake in NBC                                          Energy                                                  8.2%

Universal.                                                                                             -1.3%

The materials sector was the worst performer in                      FORTIGENT®
                                                                                                 -5%            0%              5%            10%           15%

February and the only to post a negative return, falling                                                                                   Source: Bloomberg

1.3% as the reemergence of global growth fears pushed                MSCI ACWI EX-US SECTOR PERFORMANCE                                                    FEB
commodity prices lower and hurt stocks in the sector.                FEB/YTD                                                                               YTD
Execution issues at Cliffs Natural Resources (-31.4%)
and Freeport McMoran (-9.5%) were also key detractors                Information Technology
from the sector’s performance. Energy suffered a similar                                                                         1.2%
                                                                          Consumer Staples
fate and was up only 0.5% for the month. Technology                                                                                                5.8%

stocks continued to lag the broader markets, rising just                         Healthcare
0.6% in February. Apple remained a key detractor from
sector returns, falling 2.5% in the month as activist                             Industrials                                   0.9%
David Einhorn verbally sparred with Apple’s board of
directors about returning cash to shareholders.                      Consumer Discretionary
However, weakness in the sector was more broad-based                                                           -1.0%
than in prior months and hit many high-growth                                                                                                  5.0%

members such as F5 Networks and EMC.                                                 Utilities

International:                                                                     Materials       -3.8%

The Japanese market (+2.7%) continued to benefit                          Telecom Services
from export growth due to the depreciating yen. The                                              -4.7%
currency has now dropped 17% vs. the US dollar since                                                           -1.6%

the beginning of November, prompting concern from                                                      -5% -3% -1% 1%                 3%    5% 7% 9%
some members of the G7 of a potential currency war.                                                                                        Source: Bloomberg

GDP unexpectedly fell 0.4% in Q4, bolstering PM

        5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                    Monthly Market Review – February 2013
Shinzo Abe’s case for continued monetary stimulus. As expected, Mr. Abe nominated an advocate of aggressive
policy action, current Asian Development Bank President Haruhiko Kuroda, to head the Bank of Japan.

Elsewhere in the Asia-Pacific region, results were mixed. South Korea (+5.0%) had a reversal after performing
poorly in January, driven by strong results for index heavyweights Samsung Electronics (+6.6%) and Hyundai
Motor (+6.3%). The market shrugged off another periodic nuclear test by North Korea, and the report on
January exports showed a 10.9% year-over–year increase despite the appreciation of the won vs. the yen. Australia
(+3.9%) showed strong results despite lagging performance in commodities. Weakness in China (-3.9%) was
due almost entirely to actions by authorities within that country as well as the US. First were the aforementioned
FOMC meeting minutes, which indicated a potential end to liquidity measures. This was followed by the
People’s Bank of China draining a record weekly high $145bn from the banking system, prompted by PM Wen
Jiabao’s concerns of an overheated housing market. Both of these actions led to a 3% drop in the local Shanghai
composite in one day (February 21). Housing market fears also led to an announcement from China’s State
Council that the government would strictly enforce the 20% capital gains tax on profits from home sales, and
increase down payments and borrowing rates for buyers of second homes in China’s cities. On the broader
economic front, the February manufacturing PMI remained in expansionary territory (50.4) despite seasonal
volatility due to the Lunar New Year holiday.

News from Europe was broadly negative for the month, and this was reflected in market performance. Q4 GDP
for the Eurozone contracted 0.6%, the worst quarterly decline since Q1 2009. The economies of Germany,
France, and Italy all shrank more than expected. The forward-looking expectations are not much better, with the
ECB predicting zero growth for 2013. Moody’s downgraded the UK’s credit rating from AAA to AA1, driving
the pound to a two-year low against the dollar. The Bank of England is predicting a higher inflation outlook due
to the weak pound and higher energy costs. Of course, the biggest story out of Europe was the Italian elections,
which had a profoundly negative impact both across the continent and globally. The Italian market (-12.6%)
was the worst performer among the major economies during the month.

The emerging markets index continued to show weakness (-1.2%), erasing minimal January gains. The fear that
the Fed will bring an earlier end to stimulus measures affected investor sentiment as the rally in emerging markets
has largely been fueled by excess liquidity. In addition, declining commodity prices provided a drag on the
performance of raw materials producers, many of which are based in the developing world. Central and Eastern
Europe remain weak due to knock-on effects of the ongoing recession to the West, and need the Eurozone to
strengthen in order to drive export growth. India (-7.3%) was the worst performer among the BRICS, suffering a
series of bad news including a drop in industrial production and a widening trade deficit. South Africa (-2.1%)
released a better than expected 2.5% GDP growth for 2012, but this positive news was overshadowed by a lower
projection for 2013 and a record trade deficit in January.

Source: MSCI, Bloomberg, WSJ, The Economist, Morgan Stanley, Bespoke, FactSet, Russell, Reuters, J.P. Morgan, Barclays Capital,
Financial Times, Goldman Sachs

         5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                    Monthly Market Review – February 2013
                                                                  US TAXABLE FIXED INCOME
Taxable Market: High quality fixed income, as                     PERFORMANCE FEB/YTD
represented by the BarCap Agg, returned 0.5%                          BarCap US Tsy Long                                  1.3%
during the month. Price returns were boosted by                       (Long US Treasury)             -2.3%
falling Treasury rates. Corporates outperformed with                  BarCap IG Credit                                   0.8%
higher carry as spreads were constant. Agency MBS                 (Investment Grade Credit)                  -0.1%
underperformed; the sector produced coupon returns
                                                                 ML US Conv ex-Mandatory                               0.7%
but underperformed duration matched Treasuries.                     (Convertible Bond)                                                   4.7%

                                                                        BarCap US Agg               0.5%
Two impactful events in February were the Italian            (Barclays Aggregate)          -0.2%
parliamentary elections and the enactment of the                                                   0.4%
                                                           ML US HY BB/B Rated
BCA (Budget Control Act) sequestration cuts. No            (BB/B rated High Yield)                      1.5%
clear political coalition seized control of Italy. Even                                           0.4%
                                                         BarCap US Tsy Interm
worse, two parties, one led by a comedian and the (Intermediate US Treasury)                     0.0%
other by discredited ex-prime minister, Silvio
                                                        BarCap US Agg Sec. MBS                    0.3%
Berlusconi, gained enough seats to influence the              (Agency MBS)                 -0.2%
course of reforms in the country. Both men are                                                   0.2%
                                                            BarCap US HY Loans
threats to rile the markets by dialing back the                 (Bank Loans)                           1.4%
austerity measures enacted by outgoing Prime                                                                     FEB
                                                             BarCap US TIPs                      0.0%
Minister Monti. The BCA sequester cuts went into (Infl. Protected Securities)            -0.6%                   YTD
effect on March 1 as US politicians failed to come to                            -5% -3%     -1%   1%      3%      5%
a compromise on budget reforms. Markets generally FORTIGENT®                                         Source: Bloomberg
took both developments in stride – left tail risk from
Europe is diminished due to proactive policy making                          US Treasury Yields
by the ECB, and investors generally expect                                                                   YTD
Washington policymakers to come to an agreement
                                                        Security             1/31/2013    2/28/2013        Change
by the next debt ceiling.
                                                                 90 Day                       0.07             0.10              0.03
Bernanke boosted the markets during his semiannual               2 Year                       0.26             0.23              -0.03
address to Congress. The chairman took a dovish
                                                                 5 Year                       0.88             0.76              -0.12
tone by highlighting the benefits of the Fed’s
unconventional purchase programs and downplaying                 10 Year                      1.98             1.88              -0.11
potential costs. In particular, Bernanke assuaged                30 Year                      3.17             3.09              -0.09
market fears about the early termination of its QE                                                              SOURCE: BLOOMBERG
programs. Investors were concerned with Fed minutes
that showed dissension among the board for ultra lax                                       US TIP Yields
monetary policy, and other members publicly                      Security             1/31/2013              2/28/2013          Change
questioning whether low rates may birth asset                    5 year                   -1.64                -1.72             -0.09
bubbles, especially in corporate credit.
                                                                 10 Year                  -0.58                -0.67             -0.09
In review of specific Fixed Income sectors and 20 Year                                        0.12             0.10              -0.02
markets:                                       30 Year                                        0.51             0.52              0.01
                                                                                                                SOURCE: BLOOMBERG
•   US TIPS underperformed nominal Treasuries
    with a 0.0% return. Lower inflation expectations cancelled out gains from decreases in the real yield. Higher
    gasoline prices, which were pressuring inflation prints at the start of the year, eased in February.

         5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                   Monthly Market Review – February 2013

•   Agency MBS gained 0.3% during the month. Total returns for the sector continues face the headwind of
    mortgage pre-payments. Agency OAS was unchanged during the month as heavy Fed sponsorship was
    countered by institutional investors exiting the sector on rich valuations and anticipation of QE ending.
    Despite strong housing data showing robust sales and buoyant valuations, non-agency MBS performance
    slowed down from a blistering January.

•   Investment grade corporate bonds gained 0.8% during the month as price movements are primarily driven by
    Treasury rates thus far in 2013. Corporate OAS (Option Adjusted Spread) has been static in the 130 bps
    range. Both Heinz and Dell announced LBO (Leveraged Buy Out) deals to go private; their debt traded off
    in the aftermath. The deals serve as warnings to credit investors about the potential for LBO activity to
    accelerate, and the damage deals can do to the credit profiles of target companies by increasing leverage.

•   High yield bonds gained 0.4%. Mirroring their investment grade peers, OAS movements in the sector are
    very placid in 2013. Interestingly, the sector held steady in the wake of Italian elections while other risk assets
    sold off. Recent performance illustrate that high prices prevalent in the sector may be making high yield
    bonds more sensitive to movements to Treasury yields rather than credit risk.

•   Leveraged loans gained 0.2% in February. Retail flows into loans continue to accelerate to historically strong
    proportions. The month saw weekly inflows of $1.4B, $1.3B, and $1.2B, which represent the top three
    heaviest flows ever for the sector. However, loan yields are poised to scale down with record re-pricing
    activity. New loan issuance totaled $113 in February, which doubled the previous monthly record. The vast
    majority of activity was due to companies re-pricing their loans to a lower spread over LIBOR, oftentimes
    with less restrictive terms.

•   Convertible bonds also held steady with a 0.7% monthly return. Half of the market is now defined as equity
    sensitive. Bonds with this designation have an average TAX EXEMPT FIXED INCOME
    price of $147 and a yield of 2.6%, which means that PERFORMANCE FEB/YTD
    investors are taking on considerable equity risk in the
                                                               BarCap Muni BAA   0.4%
    convertible markets.                                       (BBB Rated Muni)                1.7%

Municipal Market: Intermediate municipals, as represented                     BarCap Muni A            0.4%
                                                                              (A Rated Muni)                     0.9%
by the BarCap 1-10 year blend index, gained 0.3% during
the month. Muni yields generally lag Treasury moves so the                 BarCap 1-10 Muni            0.3%
market underperformed on a relative basis as Treasuries                   (Intermediate Muni)             0.6%
rallied. High yield munis trailed the broad muni markets                                              0.3%
                                                                           BarCap Muni Long
during the month to break up their persistent performance                     (Long Muni)                           1.1%
leadership over the past year. Investors may be rotating into
higher quality intermediate products to position more                        BarCap Muni AA
                                                                             (AA Rated Muni)
conservatively in terms of credit and duration.
                                                                           BarCap Muni AAA            0.3%
                                                                           (AAA Rated Muni)             0.4%

                                                                            BarCap HY Muni           0.1%                          FEB
                                                                            (High Yield Muni)                       1.2%           YTD

                                                                                                0%             1%          2%            3%
                                                                        FORTIGENT®                                         Source: Bloomberg

        5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                      Monthly Market Review – February 2013
Some upcoming headlines in the municipal
marketplace look to be Detroit, MI and Puerto Rico.                               AAA Municipal Yields
The state of Michigan announced it was taking                                                                                    YTD
control of Detroit’s operations as it attempts to turn            Security           1/31/2013          2/28/2013               Change
around the finances of the ailing city. The impact for
muni investors will hinge on how the state may                    2 Year                 0.44               0.43                 -0.01
choose to refinance or restructure some of the city’s             5 Year                 0.93               0.94                 0.01
muni obligations – of particular interest to the state            10 Year                2.13               2.10                 -0.03
may be pension obligations that do not carry a
general obligation pledge.                                        30 Year                3.98               3.96                 -0.02
                                                                                                             SOURCE: BLOOMBERG
Puerto Rico’s pension, which is 6% funded, is also in
the headlines. The territory is looking to enact difficult reforms that include hiking the retirement age and
decreasing of benefits. The proposed legislation faces a tough battle from entrenched interests. How successfully
the newly elected governor can navigate the process may go a long way in soothing, or inflaming, market concerns
about the trajectory of Puerto Rico’s fiscal profile.
                                                                   INTERNATIONAL FIXED INCOME
International Markets: Currencies were broadly
International                                                      PERFORMANCE FEB/YTD
weaker against the dollar for both developed and
emerging countries. Local currency developed bonds                       JPM GBI Global Hgd
were hit hard by depreciation of the British pound                       (Developed Hedged)                              0.2%

and euro, which were off (4.4%) and (3.8%),
respectively. Hedged developed bonds outperformed                                                           -0.2%
                                                                      JPM EMBI+ Composite
as yields for safe havens drifted down in the                           (EM USD Bonds)              -2.3%
aftermath of the Italian elections.

Japan is likely embarking on a new monetary course                  JPM GBI-EM Global Div                   -0.3%
as the government nominated an aggressively dovish                (EM Local Currency Bonds)                              0.4%
chief for the Bank of Japan. Potential policies on the
table will likely depreciate the yen and put pressure
on Japan’s economic competitors in the region such                       JPM ELMI+                          -0.6%
as South Korea and Taiwan. Currencies in the region                (EM Local Currency Cash)                              0.2%
could be in for a bout of volatility as policy makers
intervene to restore competitiveness for their exports.                                                                             FEB
                                                                      JPM GBI Global Uhgd       -2.0%
                                                                     (Developed Un-Hedged)-3.7%
Sources: Barclay’s Capital, Bloomberg LP, Financial Times, J.P.                                                                     YTD

Morgan, Municipal Market Advisors, US Treasury
                                                                                              -5%                   0%                  5%
                                                                   FORTIGENT®                                             Source: Bloomberg

          5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                   Monthly Market Review – February 2013
                                                                 HFRX INDEX PERFORMANCE
In an environment rewarding fundamentals, hedge                  FEB/YTD
funds and alternative investments are beginning to                                                                1.5%
                                                                      HFRX Convertible Arb.
return to more favorable status. Directional strategies,                                                            2.4%

such as Equity Hedge, did quite well in the month                       HFRX Equity Hedge
with modest market exposures. Systematic trading                                                                 0.6%
                                                                    HFRX Market Directional
strategies continue to be the laggard, posting a modest                                                                 3.2%

loss in the month due to a handful of trend reversals.                  HFRX Event Driven                       0.5%
                                                                   HFRX Global Hedge Fund
In the directional area, the HFRX Equity Hedge and                                                                  2.4%

Market Directional Indices posted gains of 1.2% and                  HFRX Absolute Return
0.6% in the month. Current consensus is that equities                                                           0.3%
                                                                         HFRX Merger Arb.
are one of the more attractive asset classes to own, and                                                        0.5%

that can be seen in managers willingness to increase                   HFRX Market Neutral                      0.2%
market exposures.        According to several prime                                                             0.1%
                                                                          HFRX Distressed
brokerage reports, net market exposure in the equity                                                             0.9%

hedge universe has risen quickly since the start of the                HFRX Relative Value
year.                                                                                                   -0.1%
                                                                              HFRX Macro                        0.0%
Event driven managers also posted positive returns in HFRX Systematic Diversified                       -0.5%
                                                                                                        -0.6% YTD
February to continue the more favorable backdrop for
                                                                               -10.0% -5.0% 0.0%     5.0%     10.0%
that strategy. The index was up 0.5% in February and FORTIGENT®                                   Source: Factset
3.8% YTD. Activist and special situations managers
are leading the way, while distressed and merger arbitrage is lagging. This year has been notable for the event
driven space in that many of the recent deal announcements are the largest we have seen since the financial crisis.
For instance, a consortium announced plans to take HJ Heinz
private in a $23.6 billion deal, Dell released plans to go private
for $20.7 billion and Liberty Global moved to acquire Virgin
Media for $16 billion. An uptick in leveraged buyout (LBO)
activity, along with growing appetite for broad M&A signals a
possible return to favor for event driven strategies. It appears
we are still in the early phases of that cycle based on corporate
leverage ratios, cash on balance sheets and overall activity

In trading strategies, performance was flat to down. The
HFRX Macro Index lost 0.1% and is flat on the year, while
the HFRX Systematic Diversified Index lost 0.5%. Macro
managers were long equities throughout the month, but pared
that exposure slightly as markets entered a patch of modest
volatility. It was relatively unusual in that the dollar was one
of the best performing asset classes during a better environment for risk assets. The DXY index, which shows
performance of the dollar against the six biggest trading partners, posted a 3.5% gain. Stories of currency wars
dominated the headlines, particularly with regards to countries like Japan.

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           Monthly Market Review – February 2013

                                           In aggregate, alternative strategies continued to benefit from the
                                           ability of the market to discern between company and market
                                           fundamentals. That bodes well for managers ability to add value on
                                           the long and short side of their portfolios, as well as their ability to
                                           add alpha across various segments of the market.

                                           Sources: Bloomberg LP, The Economist, Factset, Credit Suisse, Barclays, JP

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                   Monthly Market Review – February 2013

With the January effect exhausted, yield-heavy liquid real             LIQUID REAL ASSET PERFORMANCE
assets generated range bound returns in February.                      FEBRUARY/YTD
Commodities were the relative laggard, led lower by
sequestration concerns in the US, Italian Parliamentary                                                                1.4%
                                                                                          S&P 500
elections, and less than stellar import and PMI data out of                                                                           6.6%
Commodities: The entire complex was lower for the                                MSCI US REIT
month with the exception of natural gas (+2.4%) and                                                                                           FEBRUARY
cotton (+1.5%). Kansas City wheat was the weakest                                                                                             YTD
performer, falling 11.4%.                                                           Alerian MLP

Energy: Geopolitically, the Iranian nuclear program
question was kicked further down the road with an                               S&P Developed                        0.6%
agreement between P5+1 nations (US, Britain, France,                            Property ex US                                3.4%
China, Russia, and Germany) and Iran to hold two more
meetings in March and April. Fundamentally, oil import
data from China – now the largest oil importer in the                       DJ UBS Commodity
world – was a positive, especially when one considers that
the central government recently hiked retail gasoline prices                                       -5%          0%            5%             10%         15%
for the second time in less than 6 months.                              FORTIGENT®                                                     Source: Bloomberg

In the US, natural gas caught a bid toward the end of the             COMMODITY FUTURES PERFORMANCE
                                                                      (S&P GSCI ) JANUARY/2012
month due to expectations of a colder than initially
forecasted start to March. Over the longer term however, a
steeply contagoed curve along with a return of nuclear                           Softs
power capacity may limit upside. A contangoed (upward
sloping) curve signifies that immediate supply is well                                                -4.2%
ahead of demand.                                                                                                                                         1.1%

Precious Metals: Gold fell 5.0% in February owing to                       Agriculture

investor skittishness. According to Barclays, fund                                                                     -1.7%

COMEX gold investments closed the month at their
lowest level since 2008 and new shorts at the highest level           Industrial Metals
                                                                                                               -2.8%                       February (Futures)
since 1999. ETP flow data shows that February was one                                                                                      YTD (Futures)
of the worst months on record, with GLD suffering nearly                                    -5.5%
$4 billion in outflows. We have noted in several write-ups                                                          -2.2%

that over the past couple of years new access points to
gold have allowed investor interest to grow and even                  Precious Metals
outpace jewelry demand. This has resulted in a fickle
pricing environment prone to bouts of volatility.                                     -7%     -6%     -5%     -4%    -3%    -2%      -1%     0%     1%     2%
                                                                       FORTIGENT®                                                      Source: Bloomberg

Industrial Metals: A strong start to the year quickly gave
way to a sell-off in industrial metals. New mining supply data surprised to the upside, while Chinese import data
        5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                   Monthly Market Review – February 2013
remained mixed and difficult to gauge. March’s National People’s Congress should bring clarity on whether
China’s recent stockpile build of industrial metals heralds another wave of infrastructure spending. At this point,
the markets are somewhat skeptical. Case in point, aluminum is down 20% from a year ago yet the futures curve
remains in steep contango.

Agriculture: Wheat tumbled double digits for the month on strong crop yield data out of Russia, and improving
moisture conditions in the US. A recent USDA report showed that drought expectations going into this spring
are better than they were at this time last year, when the severity of the drought caught many investors by surprise
spurring near 60% rallies in select grains. Soybeans (-0.2%), on the other hand held up relatively well during the
month despite a rough start. Two consecutive weeks of export order cancelations put substantial pressure on the
grain, but a subsequent rebound calmed market concerns. US exporters sold 689,000 metric tons the following
week with 69% of the sum heading toward China.

The softs complex held up relatively well during the month due to continued strength in Cotton (+1.5%).
Coffee, Cocoa, and Sugar fell 4.5%, 3.3% and 2.2%, respectively.
                                                          Alerian MLP Index Yield
MLPs: As the earnings season came to a close,                                     Alerian MLP Index Yield
M&A and secondary issuance activity picked up
                                                                                  Average Since 1995 - 7.6%
at an unprecedented pace. M&A dollars              7.50%

expended topped $14 billion in the first two                                      Normal Avg (ex. 1999, 00, 08,
                                                                                  09) - 7.1%
months of the year setting a pace to nearly
double 2012 totals. By itself, M&A activity        6.50%

strengthens valuations, but much of the            6.00%
financing YTD has come via shareholder
dilutions. Large equity transactions thus far
include DCP Midstream ($450 million in new         5.00%

equity), Enbridge Energy ($238 million) and
Enterprise     Products    ($502       million). Fortigent®                                                              Source: Alerian
Expectations are for March to be another
dilution-heavy month, which will likely dampen M&A tailwinds.

Energy prices were unsupportive of commodity exposed MLPs in February. An uptick in natural gas futures ate at
the margins of gatherer and processor operators, while falling oil prices hurt upstream operators. Neither of the
above had a material impact on midstream operators.

MLPs finished the month yielding 6.0%, although at certain points the number fell into the fives. The last time
that happened was a year ago when the US 10-year was also yielding near 2.0%. The historical spread between
the two is close to 300 bps.

REITs: US REITs lagged broader equities yet managed to finish the month in positive territory. Healthcare
REITs led the charge, topping 5.4% while storage and industrial REITs fell. Apartment REITs (-0.6%)
continued to struggle due to continued improvement in residential housing demand and prices.

Commercial real estate prices showed added signs of life. The Moody’s/RCA National All-property composite
rose 8.1% in 2012, led higher by the central business district office sector, which rose 19.1%. Much of activity

        5000 Horizons Drive, Columbus, Ohio, 43220 ~ telephone 614 267 2600 ~ facsimile 614 267 2700 ~
                    Monthly Market Review – February 2013
came in Q4, with many pushing to close deals before the impending tax-hike. A decline in distressed sales was a
notable takeaway last year, accounting for 18% of transactions, which is nearly half of the 2010 peak.

In Asia, Japan REITs regained strength after a                     REIT PERFORMANCE
lackluster January, topping 5.5% on the hopes of                   FEBRUARY/YTD
additional easing. Australia (+1.6%) found support
from industrial (+1.1%) and diversified REITs                                  S&P Japan
(+2.9%), although weakness in residential (-4.3%)                                                                                          6.8%

anchored broad returns. Detractors came from Hong
Kong, where a 9.5% decline in the residential                              S&P North
                                                                         America Property
property index compounded on 2012 residential                                                                                    4.6%

weakness.                                                                                                                         FEBRUARY
                                                                           S&P Developed                          0.6%
                                                                           Property ex US
European REITs were the relative laggard, with the                                                                          3.4%

Spanish and Italian property indices falling 39.0%
and 8.2%, respectively on renewed economic fears.                         S&P Asia Pacific           -0.5%
                                                                          x Japan Property
Scandinavian Property Indices served as ballast, with                                                                            4.5%

Sweden, Finland and Norway all in positive territory.
                                                                        S&P Latin America
                                                                            Property                                 2.2%
Emerging markets were effectively flat, with a 14.7%
decline in India, offset by strength in Indonesia                                            -2.0%
(+18.0%), Philippines (+11.9%) and South Africa                               S&P Europe
                                                                               Property         -1.4%
                                                                                         -4%     -2%         0%    2%       4%     6%          8%
                                                                   FORTIGENT®                                               Source: Bloomberg

Sources: TreppWire,,, MLPHINDSight, S&P, WSJ, CBRE, Cohen & Steers, FactSet,
Alerian,,, USDA, USGS,, SteelPath, Barclays, CLSA, Moody’s, CoreLogic,
Green Street Advisors;, Bloomberg, propertymentorgroup;, SA Commercial Prop News

“Some part of the information contained herein was prepared for WealthStone Inc by employees of Fortigent, LLC.
This information is not meant as a guide to investing, or as a source of specific investment recommendations, and
WealthStone Inc and Fortigent make no implied or express recommendations concerning the manner in which any
client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s investment
objectives. The information is general in nature and is not intended to be, and should not be construed as, legal or tax
advice. In addition, the information is subject to change and, although based upon information that WealthStone Inc and
Fortigent consider reliable, is not guaranteed as to accuracy or completeness. WealthStone Inc and Fortigent make no
warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use
of, or reliance on, the information.”

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