Greenthought$, our little "baby" that began just over nine months ago, has been a great source of pride to us at Emerald Asset Advisors.  It has given us a convenient and frequent way to express our observations and opinions about the markets, the world and how they impact wealth.  We have also been able to share insights into decisions we make in the portfolios we manage for clients directly and through other professional financial advisors across the United States. 

We realize that many of the people who read Greenthought$ were introduced to it since our first issue was sent last July.  Thus, many recipients have missed some of our most critical "thought$."  While the past issues are archived on our website, www.emeraldassetadvisors.com (under the Resources tab), viewing a long list of titles is admittedly not the most "user-friendly" way to see what you missed.  So, today we are introducing Greenthought$ "Snack Packs."

Green Thought$ Snack Packs are a collection of past newsletter articles with a common theme.  We have taken the "best of" from the newsletter series and grouped them in "packs" of up to five stories.  Since each one is two minutes or less of reading, we figure that you can "digest" these in under 10 minutes, or about the time it takes to eat a snack! 

To view a Snack Pack, just go to www.emeraldassetadvisors.com, go down to the box at the bottom of the home page, click on Greenthought$ Snackpacks, and then click on the name of a "snack pack" to pull it up in pdf format.

Snack Pack topics are as follows, and we will add/replace these packs as new issues come out and new themes emerge:

INVESTMENT OUTLOOK - our views on vital issues that may impact wealth

MARKET HISTORY LESSONS - perspectives that may help you understand how different investment styles may behave in the future

PERFORMANCE ANALYSIS 101 - an introduction to evaluating the returns and risk of an investment portfolio, and why they are so important to understand

WALL STREET'S BULL - separating financial mythology from reality

EMERALD NEWS - important announcements/updates about our firm, its people and our investment programs

Enjoy your Snack Packs!

As promised in our last issue, here is a recap of some changes in our Global Cycle portfolio during April and early May:

GLOBAL CYCLE PORTFOLIO:

1.      We made several small moves.  Most involved the reduction of our holdings in funds that short both the U.S. Small Cap Index and Emerging Markets Index (though we still own a position in both) and adding to existing positions in funds that focus on India, China and Global REITs.  We have owned all of three of these positions for a while, but they were at the minimum position sizes we would normally hold.  Thus, these moves are best described as moving the positions up from their floor levels as opposed to any rampant bullishness on our part.  Longer-term (which is the focus of Global Cycle) we like all of them, but find it difficult to make any very large commitments to anything equity-oriented in today's world.

2.      As we did recently in our "Hybrid" portfolio, we initiated a position in a fund that shorts U.S. Treasury Bonds.  Unlike Hybrid, in this portfolio we installed a position to short the 10-year bond (Hybrid is shorting the 30-year).  What's the difference?  In our opinion, the 30-year is a more direct play on interest rates.  The 10-year is the recognized benchmark for U.S. Government bonds, and since we expect that this position will be held for a longer period of time (given Cycle's longer-term nature), we felt the 10-year was a better match for Cycle.

3.      We bought a position in a fund that owns the Agriculture segment of the Commodities market.  We don't buy commodities directly through futures, instead preferring to buy Exchange-Traded Funds (ETFs) that access the commodity exposure for us.  It is no secret that food prices are going up rapidly and there is good reason to believe that this particular "economic cycle" is in its early stages.  While we realize that there will always be volatility in this area, the Cycle portfolio is built to take advantage of long-term global trends, and therefore accepts more volatility than our other strategies.  The addition of this position along with the bond-short security gives us two new ways to participate in a rising inflationary environment that we believe is the most likely case for the U.S. and the rest of the world.

4.   Finally, we bought a fund that aims to deliver twice the inverse of the daily performance of the Dow  Jones U.S. Oil & Gas index.  That is, on a day that oil and gas stocks go down 1%, this security aims to be up 2%.  When oil and gas stocks rise by 1%, we'd expect this fund to be down 2%. We still see oil in a bull market, but want to hedge against potential downside risk over the coming months.  While we expect to hold oil longer than that, the extremely volatile nature of oil, along with the possibility that we are seeing a speculative overshoot for now, caused us to seek a hedge.

* 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. 

(c) Emerald Asset Management

www.emeraldassetadvisors.com