Cambiar Investors LLC
4Q 2009 Market Commentary

Global markets capped the decade on a positive note, as the strong fourth quarter helped propel many markets to their largest annual gains in over 5 years and further solidified the belief that global economies are well on their way to recovery. Record low interest rates along with financial commitments from governments worldwide helped stimulate growth in all corners of the world.

In Europe, the broad-based Dow Jones Stoxx 600 posted its largest gain since 1999, as commodities and financials, two of the hardest hit sectors during the recession, help lead the surge off the March lows. Also during this time the U.K. FTSE 100 became the seventh stock market to recoup its losses from the Lehman Brothers bankruptcy.
In Asia, stocks fared similarly to their European counterparts as the MSCI Asia Pacific posted its largest gain since 2003. Investor confidence grew as Japan reported economic growth for the first time in three years, while in China, a stimulus package equivalent to 13% of GDP coupled with lending equal to 30% of GDP helped their recovery and raise economic growth guidance.

While the global recovery has occurred throughout all regions of the world and help deliver positive returns for the majority of all stocks, active managers like Cambiar provided a greater level of outperformance both relative to our EAFE benchmark and to the majority of our active peers. During the quarter, the investment team’s ability to properly allocate to the appropriate sectors help drive the portfolio’s outperformance. For the full year, the portfolio not only benefitted by strategic sector allocations but also strong stock selection. The investment team worked diligently to not only seek out businesses that possessed attractive valuations with positive catalysts, but also systematically captured gains when appropriate.

International ADR
During the fourth quarter, the Cambiar International ADR portfolio returned 4.8% (4.5% net), outpacing the MSCI EAFE index, which returned 2.2%. For the year, the portfolio returned 38.6% (37.2% net), vs. 31.8% for the index.

Basic Materials was the leading sector for the quarter. Stock selection was key, as three of the top performing names within the portfolio resided in this segment. Cambiar’s holdings have benefitted from the increase in demand for agricultural products. Our fertilizer names have benefited from a recovery in soft commodity prices as well a pickup in demand for their products as distributors begin to rebuild channel inventories. In addition, even as the global economy entered a recession, food demand growth remained intact. The rise in commodity prices has also helped, mainly to due to surging demand out of China.

Energy was another strong contributor for the quarter, as once again stock selection was vital. All of Cambiar’s holdings provided positive return for the quarter, as rising oil prices help drive performance. For the year, Energy was the best performing sector on an absolute basis. The industrialization of many emerging market economies, most notably China, continues to draw up demand for oil. The portfolio has been well positioned to take advantage of opportunities across Asia, Europe and South America.

The portfolio’s low allocation to Financials continues to be another source of outperformance. Unlike the third quarter, where our underweighting deterred from performance, the fourth quarter saw the momentum slow for many names and our underweighting to this sector, mainly banks, provided the largest outperformance on a relative basis.

On a country level, exposure to the United Kingdom was the largest contributor. The economy has benefitted heavily from government assistance and record low interest rates. Underweighting in Japan also provided outperformance relative to the EAFE. The country was a negative contributor to the EAFE for the quarter, due to the weak performance of their financial sector.

Looking Ahead
Moving into the new decade, it is safe to say many will not look back at the Noughties as a time of prosperity. Global markets were scourged with instability and crippled by bursting “bubbles”. Even the gaudy growth of the Emerging Markets couldn’t help generate positive returns for the global indices over the decade.

Moving forward, we are all able to see that no matter developed or emerging, the economies of the world have been able to weather the storm of the worst recession since World War II and have carried the momentum of 2009 into 2010. The recovery is far from complete, but the lessons learned from the past have started to pave the way for the future. The global recovery continues to move along nicely and shows no sign of stalling. Cost cutting achieved by many businesses throughout 2009 is expected to translate into healthy earnings growth this year.

Cambiar continues to remain flexible in terms of the regions in which we can seek out opportunities. In the past month we have increased our exposure to Japan on the belief that exports will continue to improve, driven by strong Asian demand and a weakening yen. Domestic stimulus will also contribute to growth. There are many investment opportunities that meet our stringent requirements.

Now with the largest part of the rally safely behind us, we believe are entering an environment that is ideal for seasoned stock pickers like Cambiar. We remain observant for companies that possess attractive value characteristics and strong growth catalysts and feel that our portfolio is well-positioned with offensive and defensive stocks that will excel nicely in the coming year.

As always, we appreciate your continued confidence in Cambiar Investors.

 

The performance information depicted above represents Cambiar’s International Equity ADR Composite. Returns are net of transaction costs and include the reinvestment of all income. Gross returns do not reflect the deduction of management fees. Actual returns will be reduced by management fees. The client is referred to Cambiar’s Part II of Form ADV for a full disclosure of the fee schedule. As fees are deducted quarterly, compounding increases the impact of the fees by an amount directly related to the gross account performance. For example, an investment of $10,000 on 01/01/2009 would have grown to $13,855 on a gross-of-fees basis and $13,722 on a net-of-fees basis on 12/31/2009 based upon the actual returns earned in the composite. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. & Canada. The performance of the MSCI EAFE benchmark includes the reinvestment of all income. The MSCI Asia Pacific Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The Dow Jones STOXX 600 Index is derived from the Dow Jones STOXX Total Market Index (TMI) and a subset of the Dow Jones STOXX Global 1800 Index. With a fixed number of 600 components, the Dow Jones STOXX 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The FTSE 100 is a market-capitalization weighted index representing the performance of the 100 largest UK-domiciled blue chip companies, which pass screening for size and liquidity. The index represents approximately 88.03% of the UK’s market capitalization. Cambiar’s past results do not necessarily indicate Cambiar’s future performance and, as is the case with all investment advisors who concentrate on equity investments, Cambiar’s future performance may result in a loss.