Today we share with you an excerpt from our Q1 letter to investors, recapping the first quarter and providing some insight to our current market thinking for Q2 and beyond.

The equity markets continued their winning ways in the 1^st quarter as all major indices pushed higher during the period.  In fact, this was the strongest opening quarter for U.S. stocks in 14 years.  The S&P 500 Index rallied 11.8% while the Dow Jones Industrial Average increased 8.1%.  

Investors' appetite for equity assets continue to outweigh concerns about the debt crisis in Europe and faltering attempts to deal with budgetary issues at home.  Global political leaders are using regulatory, fiscal, and monetary policies to address the overhanging government debt problems without driving their economies back into recession.  Meanwhile, in the U.S., the economy has been growing moderately with improvement in the unemployment rate, albeit modest.  Overall corporate earnings have been healthy and should continue to improve.

Despite these positives and the enthusiastic response to this modest improvement, we continue to pursue a cautious approach when managing portfolio risk.  This prudence is manifested in defensive holdings within the Consumer Staples, Healthcare and Utilities sectors.  While this defensive posture has been a drag this quarter, our research continues to signal that some conservative holdings are warranted in an environment in which many economic uncertainties remain unresolved.  The crosscurrents of good and bad news challenge us to react but not overreact.  This highly disciplined approach has rewarded our investors over the long term and is the basis of our methodology.