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Fourth Quarter 2014 Commentary and Performance Review

The Broadleaf Growth Equity Portfolio gained a solid 2.6% during the fourth quarter, bringing its full year return to 11.8%.  While lagging the overall market’s return for the year, our results on a one, three and five year basis remain in the top half of our peer group and are in solidly positive territory.  Our results since inception – nearly ten years ago – remain ahead of the indices on a net of fees basis.

While we hate making excuses, actively managed funds have had an unusually difficult time beating the overall market indices over the past few years; to say the S&P 500 has had a hot hand would be an understatement.  The popularity of indexing is likely a reflection of three factors – low interest rates, general risk aversion in an atypical recovery, and the proliferation of exchange traded funds. With nearly 36% of the S&P 500 members now paying a yield higher than the ten year treasury (a figure that rarely exceeded ten percent in recent decades), investment dollars have chased dividend stocks perhaps out of mere necessity.

As growth investors, our primary focus isn’t income generation, but long term profit growth and stock price appreciation.  With defensive, slower growth, dividend paying sectors like utility stocks topping recent performance charts, we’ve missed out on some of the largest gains in the market.  And while we expect interest rates to remain low, we also suspect that many growth companies with stable businesses and ample cash flows will ultimately follow Apple’s lead by offering more competitive yields in the future.

Regardless of whether or not a company pays a dividend today, profits will always be the “mother’s milk” of the stock market.  On that note, we’re confident we’re invested in the right long term areas. (View a printable version of this Review:Broadleaf Q42014 Final)