First Quarter Market Commentary

The first quarter of 2014 brought change for our firm and our clients. As a team, we elected to use Charles Schwab Institutional as Custodian of our client accounts. This transition required long hours for our employees and a small mountain of forms for our clients to execute. With this change we gained access to institutional class investment products and some new ways that we can interact with our clients. This Portolio Review represents one of these enhancements. Moving forward, you will receive this personalized report on a quarterly basis. The document will allow us to demonstrate the progress achieved in managing your investment assets. It will provide asset allocation and performance information at a composite level for your investment portfolio as well as a brief market commentary. Do not hesitate to contact our office at 619-255-0700 and the event you have questions regarding information contained within this document.

On average, the market (as measured by the S&P 500 index) ended the quarter about where it started. Bright spots during the quarter included real estate investment trusts, commodities and the utility stocks. By contrast, Emerging Market equities continued their downward trend.

Although we recognize the critical importance of a diversified portfolio, in the near term we continue to believe that, due to historically low interest rates and slow systematic improvement in the global economy, equities provide a better value proposition then fixed income securities.

In rebalancing portfolios, we are inclined to tactically reduce exposure to small cap domestic equities (given the significant returns achieved within this category since the market lows of 2009 and valuations measurably above historical averages) while taking a slight overweight to emerging market equities. Although geopolitical concerns continue, we find that current events (and low price to earnings multiples) have created a compelling value proposition within this asset class.

Within the fixed income component of our portfolios (given improving corporate balance sheets and our expectation for rising rates), we favor short-term corporate bonds over Government securities and longer dated issues.