Dear Valued Client:

Identifying opportunities and key themes is an important part of building successful portfolios. Executing and managing is what differentiates Coral Gables Trust.
 

2009 was a tremendous year for investors in just about every asset class, despite a raucous first quarter. Global Equities, Corporate and Municipal Bonds, REITs, Gold, Oil, etc, all had, on average double digit gains. Coral Gables Trust is proud of the investment guidance and management of our client portfolios in 2010. Coral Gables Trust Investment Committee's wisdom and experience has enabled our clients to weather well the periods of volatility and extreme fear (January-March) and unprecedented surge and optimism (April-December) that characterized the year. Our Investment Committee made very bold calls to add equity and fixed income exposure in late March, effectively calling the bottom of the crisis. This decision has translated into powerful performance across our client's portfolios.

As we look forward into 2010, here are a few of Coral Gables Trust Investment Committee's main thoughts:

• After the sharp upward move in markets last year, we expect the trend in 2010 to be directionally higher with returns to be more normalized. The S&P 500 operating earnings should continue to trend higher and with a conservative P/E ratio of 16, the S&P 500 may be positioned to reach 1300, representing potential upside from current levels of approximately 15%.

• The US economy has bounced well off the bottom and should continue to improve. Caution is warranted as sustained growth may be challenged as the economy comes off the life support provided by the various forms of stimulus. Although the trend line is up, the line itself will not be straight up. We therefore recommend that investors who are largely on the sidelines begin to build portfolios and use any pullbacks to add further exposure.

• We continue to recommend a diversified allocation to equities and fixed income securities with a defensive bias on the equity allocation including an overweight to large cap, high dividend paying stocks. For fixed income portfolios we recommend a shorter duration and adding floating rate instruments to portfolios. Although we do not expect short term rates to increase in the near term, we note that 10-30 year treasuries yields have already begun to move higher causing these Treasury bond prices to fall and investors in these bonds to experience mark-to-market losses. The prudent strategy is to ladder the maturities and our recommendation is for maturities not to exceed 5 years.

• With Cash/Money Market Returns at historically low levels, we see little sign this will change in 2010. For longer term investors, we do not recommend maintaining levels of cash higher than normal strategic allocations.

• The US dollar continues to be of focus globally. We expect a reversal of the previous trend of weakness as the US is better positioned for recovery than many other countries and therefore should be the beneficiary of net inflows which should in turn boost the currency. Gold as a safe haven, hard asset and hedge against a declining US Dollar appreciated 24% in 2009; we consider it unlikely to repeat that type of performance in 2010.

• We are cautious on Real Estate and REIT exposure as commercial real estate continues to show signs of deterioration and residential, although apparently stabilizing, remains fragile given the high unemployment level and the historical correlation between real estate and employment.

• In the near term, emerging markets appear to represent compelling valuations and growth potential and we are maintaining our current allocation to this asset class. China and Brazil both show strong GDP growth, political and fiscal stability and while these markets have had important gains in 2009, valuations remain attractive.

• General economic expansion globally should bode well for demand for commodities particularly for energy including, among others, oil and natural gas. Commodities have faired well in 2009 driven in part by the weakness in the US dollar. They should continue to perform well in 2010 more as a result of expanding global demand.

We look forward to sharing these and all of Coral Gables Trust Investment Committee's thoughts for 2010 and beyond with you personally. We value your trust in our ability to manage your wealth and financial well being and look forward to working together for many years to come. We wish you a healthy and prosperous 2010.

On behalf of Coral Gables Trust Investment Committee,

Joseph Nader
Chief Investment Officer