Portfolio Commentary

Quarterly Investment Update for Q1 2009

U.S. Market Environment

The first quarter of 2009 marked another difficult period for U.S. equities. Investor concerns over job losses, the housing crisis, problems in the auto industry and the state of the financial system drove stock prices lower in the first two months of the quarter. Despite consumer and business sentiment reaching new lows, the broad U.S. market (as measured by the Russell 3000 Index) staged solid rallies in March following isolated, but positive, economic reports of a slight rise in consumer spending and a modest improvement in new orders for durable goods. With the goal of restoring economic growth and unfreezing credit markets, the government announced unprecedented fiscal and monetary measures, including a $787 billion economic stimulus package and an increase in the size of the Federal Reserve’s Term Asset Backed Securities Loan Facility, which would extend credit against a wide range of securities tied to auto, student and small business loans.

Growth-related U.S. stocks outperformed value-related U.S. stocks across all market capitalization ranges for the quarter.  Mid capitalization U.S. stocks provided the best returns relative to micro, small and large capitalization stocks for the quarter.

International Market Environment 

Equity performance posted substantial losses during the first quarter of 2009 as the global economy continued to experience one of its worst periods of negative performance in history. Sluggish economic conditions persisted in the U.S. and around the globe throughout the period. These included employment weakness and continued uncertainty in the banking system which continued to weigh on consumers’ psyches. Government intervention took center stage as various governments and central banks pushed forward with initiatives to counteract widespread recessionary trends and to boost spending power and optimism on Main Street, in the hope of reinvigorating economic activity and preventing the present contraction from worsening.

Growth-related non-U.S. stocks outperformed value-related non-U.S. stocks across all market capitalization ranges for the year.  In a reversal from the previous quarter, non-U.S. small capitalization stocks provided the best returns relative to non-U.S. mid and large capitalization stocks during first quarter of 2009.

In developed markets, performance was difficult. Within Western Europe, Finland (-21.91%), Italy (-20.58%), and Germany (-19.44%) posted the weakest returns. Norway (+3.25%), Belgium (-4.32%), and Sweden (-6.25%) had the best returns. Within the Pacific region, Hong Kong posted the best return (-0.47%), while Japan (-16.57%) experienced the weakest performance.

Within emerging markets results showed signs of optimism as the performance of the MSCI Emerging Market Index (+1.02%) finished in positive territory with growth stocks (+2.30%) outperforming value stocks (down -0.23%). The “BRIC” countries ended the first quarter with mixed results with Brazil (+12.50%), Russia (+5.93%) and China (+1.33%) posting positive returns while India ended the quarter down -1.50%.

NOTES

Sources: Driehaus Capital Management LLC, FactSet, Morgan Stanley Capital International and Standard & Poor’s Global Industry Classification Standard, Russell Indices, and the Wall Street Journal.