Market Commentary

On Japan and Your Investments

March 2011

"Give me knowledge so I may have kindness for all" – Native American Proverb

To our clients,

We write with a brief update on your portfolios in the wake of the terrible events in Japan. With the whole world, we have been watching as the full impact of the disaster's scope continues to be realized. We know that family, friends and colleagues have themselves had to grapple with uncertainty regarding people they love. The human cost of this disaster is foremost in our minds and hearts.

We have also been busy assessing the immediate and longer-term impact of the disaster on your portfolios. Almost all of you have some exposure to Japanese stocks through your ownership of two mutual funds: IVA Worldwide and First Eagle Global. For several years these managers have been invested for you in Japan because companies in very strong financial condition there have been discounted in the market, thus presenting long-term opportunity. We have independently assessed as well as communicated with the fund managers about their thoughts on your Japanese holdings. We think that Japan remains a place to be invested for the long-term; your stock holdings in these funds are diversified and don't represent such a significant concentration in your overall portfolios that we have cause for any action at the fund level on Japan. As we know, these managers have held even greater holdings, proportionately, in stocks in other areas of the globe, and in bonds, cash, and gold bullion, which helps at a time like this from a portfolio balance perspective. We think your investments in these funds are being managed prudently and are aware that both managers have been selectively adding to Japanese holdings this week where they see opportunity – an appropriate step in our view.

Of course, as with our personal ties, the impact of the disaster will be felt in many places in the interconnected global economy. A few things your fund managers and we are thinking about for the coming weeks, months and even years are the impacts on the value of nations' currencies, Japan's sales of long-term U.S. government debt to fund rebuilding efforts in Japan, and the disruption of local and global trade relationships and supply chains. Overall, we continue to think that even with this awful news, we have already identified the issues in your portfolios we are the most concerned about: overly accommodative monetary policy in the U.S., inflation and rising interest rates in the U.S. and in emerging markets in the coming one to three years, and a wonderful rally in the stock market that has not necessarily been accompanied by a recovery of the broader economy here and in Europe.

Yesterday, both Charles deVaulx of IVA and Matt McClennan of First Eagle gave separate interviews to Morningstar, an independent fund research company. We have pasted the links to these interviews below in case you are interested in more detailed assessment of Japan from the managers themselves.

DeVaulx: Cautiously Buying in Japan http://www.morningstar.com/Cover/videoCenter.aspx?id=373880

McLennan: Intrinsic Value Still Intact in Japan http://www.morningstar.com/Cover/videoCenter.aspx?id=373978

Our hearts go out to everyone impacted by this disaster, which in the end is all of us. Of course, this is a general assessment of our view of client portfolios and it doesn't necessarily reflect the specific circumstance of every client. We will keep you apprised occasionally as we feel events and issues warrant, and hope your entry into spring is going well. Do be in touch with questions and concerns as you need.

This is a general assessment of client portfolios and does not reflect the specific circumstance of every client.