Small-C March 2011 Letter

The portfolio gained 0.7% for the month of March, bringing the year-to-date return to 3.8%.

This month, we made some important changes to the portfolio, partly in response to tax considerations and partly because of a shift in our view.  Even though we remain short treasuries, we now favor some amount of inflation protection and exposure to economic growth.  The outlook for corporate debt remains good, however less-so than it has been for some time, with spreads not offering the same amount of cushion as they have for the last couple of years.  We're mindful of the fact that if we wait for the outlook to be poor it will be too late.  Therefore, we have cut our exposure to corporate debt, and moved taxable equity exposure towards non-dividend paying equity and non-taxable debt to high-dividen equity.  Unfortunately, that meant we bought Berkshire Hathaway just days before the Sokol scandal broke.We changed our crude oil exposure to a broader commodity exposure, though we still have an important exposure to oil prices via our Inpex shares.



* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.