In this issue, we focus on some recent transactions in the portfolio models we run for families and for financial advisors (on behalf of their clients)*.   These transactions took place in April and early May.

HYBRID PORTFOLIO:

We purchased three new securities, to use the cash position that had built up from our sale of a short-S&P 500 position earlier this year:

• 1.      We bought a mutual fund that shorts the 30-year U.S. Treasury Bond.  That is, when rates go up, this fund is expected to profit.  After a long, long cycle of downward moving interest rates, we feel from both a fundamental and technical standpoint that the tide is turning, and rates will eventually move higher.  The long-term financial cost of government bailouts, wars and historically high deficits make us confident this will eventually be a profit-center for the Hybrid portfolio.

• 2.      We bought a REIT (Real Estate Investment Trust) index fund, on the belief that after a 40% decline from early 2007 to early 2008, this sector will be a helpful complement to the existing Hybrid portfolio mix, as the industry slowly gets its legs back under it.  REIT yields, which based on the index, had dropped below 3% at one point last year, have nudged over 4% in recent weeks.  We could not build a case for buying an investment whose yield is frequently what attracts investors when the yield was below 3%, but above 4% the case gets stronger.  In fact, we added to our initial position purchased in April and in early May bought a bit more.

• 3.      We bought a fund whose manager executes a very flexible asset allocation policy.  The managers have run this fund for over 11 years.  Here are a few brief excerpts from a recent interview with them in Boomer Market Advisor magazine:

"In our view, flexibility and uncertainty are the hallmarks of a new global business and investing paradigm we define as global rebalancing. Since the bursting of the dot com bubble in 2000, we have seen a shift away from growth dominated by the U.S. and toward a path where more countries contribute - especially emerging and developing countries."

"As portfolio managers, we attempt to capture this global dynamic with a go anywhere at anytime asset allocation strategy."

"One side of the global rebalancing coin is that the U.S. will begin repaying the tremendous debts it has built up over the past several years - and a lot of that debt is owed to foreigners. We are already seeing initial evidence of this in terms of the merchandise trade and current account deficits. While some see this trend as a positive − which it will be once it runs its course − in the near-term it means U.S. economic pain as growth slows due to reduced consumption and increased savings. Thus the S&P 500's reign as a linchpin of asset allocation will, in our view, become less and less valid over time."

              Now, that's our kind of thinking!

• 4.      We also sold a longtime Hybrid holding, as we concluded that there were better places to put our clients'capital over the next 18-36 months.  We don't believe this hedged equity fund has hurt us very much, and has been a solid performer in down markets.  However, its upside has been minimal too, and ideas like those noted above are more attractive to us at this time.  We own another fund that is similar enough to this one that we no longer felt compelled to own both.  Having no shortage of good ideas is a high-class problem!

CONCENTRATED EQUITY PORTFOLIO:

• 1.      We used some of our excess cash to buy a fund we have owned in the past. It became attractive to us again after it fell about 15% in the stock market's October 2007 to March 2008 swoon.  As the fund's own literature states, it "holds approximately 20-30 stocks, with most major industry groups represented.  Many studies show the benefits of diversification drop dramatically after fifteen stocks"  Those studies are the underpinning for our Concentrated Equity program, and we expect this fund to once again play a solid role going forward.

As part of the next issue of GreenThought$, we will review the recent strategic changes in our Global Cycle portfolio.

* These comments apply to the changes made in the accounts we manage directly.  Note that there may be modest differences in the portfolio holdings between the accounts managed for our direct clients and those run through manager access platforms (how advisors access us for their clients).  These differences are due mainly to tax-related moves in our direct accounts for a particular client or unavailability of certain securities in a particular access platform.