Alan Radlo, Bob Swanson, Brandon Snow

Market Commentary
First Quarter 2012
Alan Radlo, Chief Investment Officer Portfolio Managers Bob Swanson and Brandon Snow Cambridge Advisors Equity markets in North America and overseas enjoyed a profitable first quarter. U.S. stocks achieved a double‐digit gain thanks to that country’s strengthening and diversified economy and confidence in its currency, compared to the weak euro. Growth was fuelled by the capital goods, technology and automotive industries. The United States continued to demonstrate its partial insulation against the European sovereign debt crisis and other world events. However, investors remained concerned about the possibility of a third round of quantitative easing and a continuing high U.S. federal deficit. Canadian equities lagged those in the U.S. and abroad, due largely to a lower gold price, resulting from a strengthening U.S. economy, and to slowing growth in China, which reduced demand for Canadian resources. We believe economies in Canada and the United States will continue to improve this year, as worries over European debt recede. While it is unrealistic to expect the first quarter’s strong equity market performance to be maintained throughout the year, companies with strong balance sheets and the ability to raise dividends and buy back stock should perform well, regardless of any lingering economic uncertainty. We expect market volatility to increase later in the year, amid political leadership uncertainty in the United States, Europe and China. Rising interest rates will continue to bode well for equities, as investors opt for higher yields combined with growth available from stocks. While higher rates will boost share prices of banks and other lenders, we anticipate this will negatively affect interest‐rate‐sensitive stocks such as those in the utilities sector that have high debt levels. Cambridge Income Fund The fund was launched in mid‐January with an objective of generating tax‐efficient returns through a diverse mix of fixed‐income and high‐yielding equity securities from around the world. The fund is designed to offer a competitive yield, but also to capture some capital appreciation and to protect against inflation. At the end of the quarter, the fund’s yield was 3.5% to 4%. Assets had been allocated to a diversified portfolio of investment‐grade and high‐yield corporate bonds, convertible bonds and preferred shares, with a smaller weighting in real estate investment trusts. With equity values improving, a larger portion of the fund was allocated to high dividend‐paying global equities such as Unilever, Nestlé and Kimberley Clark and several larger pharmaceutical companies such as Bristol‐Myers Squibb and Pfizer. 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I www.ci.com
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Market Commentary
Cambridge Canadian Asset Allocation Corporate Class outperformed its benchmark, aided by an underweight position in energy stocks and overweight positions in information technology and health care. We reduced our cash level to about 13% amid diminished worries about Europe. We increased our U.S exposure, mostly in the more defensive market sectors such as health care, consumer staples and information technology. These sectors contained many undervalued stocks with attractive dividend yields, including Bristol‐Meyers Squibb, Kimberly‐Clark and Intel. While underweight financials, this became our largest sector as we added to positions in Wells Fargo, Toronto‐Dominion Bank and Royal Bank of Canada. In the portfolio’s income section, positions were initiated in corporate and convertible bonds, as well as in preferred shares. Most of these acquisitions had short maturities of less than five years, to protect against a rise in interest rates. Our focus was on high‐yield bonds, where the yield spread provides some cushion against the potential of rising rates. Some convertible bonds have conversion features that will provide upside potential should the equity market rebound. Cambridge Canadian Equity Corporate Class outperformed the index, driven in large part by our substantial overweight positions in the consumer staples, information technology and health care sectors and, to a lesser extent, industrials, and by an underweight position in energy. Offsetting that was an underweight position in financials. Our cash position fell below 12%, down from 18% at the end of the previous quarter. Financials and industrials remained our largest sectors, with positions increasing in each. We also added to energy, taking advantage of value in natural gas‐related stocks, after the warm winter kept prices low. We restored some positions in consumer staples stocks, as the risk‐reward characteristics improved. We had taken profits during the previous period. Alimentation Couche‐Tard, Shoppers Drug Mart and Metro were our biggest individual positions. Cambridge American Equity Fund outperformed primarily to our overweight positions in industrials, health care and financials and by our continued avoidance of telecommunications services and utilities. Our cash position remained at about 7%. Our decision to increase exposure to financials – primarily in banks with strong asset management, as opposed to lenders – provided a performance boost, as U.S. banks’ investment fundamentals improved. Key additions were PNC Financial, State Street, City National and Bank of New York Mellon. Information technology was our largest sector. We focused on software companies, with our largest positions being Apple and Qualcomm – although we took profits from Apple. A key new acquisition was Faro Technologies. We were heavily invested in the industrials sector, mostly in automotive and aerospace‐related stocks, such as Deere and AutoZone. Our large position in health care was broadly diversified, including such pharmaceutical giants as Abbott and Merck but also more consumer‐oriented players such as Perrigo and Mead Johnson. Cambridge Global Equity Corporate Class outperformed the benchmark, aided by our positions in stocks related to the aerospace and automotive industries. In aerospace in particular, the demand for better fuel efficiency has driven up values, including companies based in Europe, showing their Market Commentary
success isn’t determined by performance of their local economy. The portfolio was underweight financials, although we returned this sector after exiting it completely during the previous quarter. We added large positions in financial institutions more focused on asset management that on lending, such as U.S. banks PNC Financial and State Street, and U.K.‐based Standard Chartered. The portfolio was overweight industrials, health care and information technology. It continued to avoid telecommunications services and utilities. The portfolio was almost fully invested at the end of the period. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This commentary is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities.