Portfolio Management Perspective

Portfolio Management Perspective

Review of Benchmarks, Strategy, Risk, and Performance – Perspective from one of our Portfolio Manager’s – March 13, 2020

Whenever the topic of investing is discussed we are conditioned to think first of the New York Stock Exchange opening bell and Wall St. bankers in Brioni suits. And why shouldn’t we? Over the past 200 years, stocks have arguably been the most powerful generator of wealth.
 
That rosy conventional wisdom has the benefit of a perpetual time-horizon and an ambivalence towards risk. As we all know, stocks might be notorious for rising over time, but they also can produce nasty results if improperly managed. Very few of us are fortunate enough to be ambivalent towards risk or the trajectory of our investments – if we were, being 100% invested in the DOW or S&P 500 would be a fine strategy. That is where financial planning and asset management comes in.
 
As a conservative asset manager, we are tasked with two main objectives a) produce a rate of return that achieves an objective (generally retirement/self-sufficiency) and b) protect against downside and volatility.  Our definition of success in both goals is directly related to the specifics of your financial situation. 
 
Since the inception of our Total Return strategy in 2004, we’ve employed a mix of equities (stocks), commodities, fixed income, and cash to achieve the objectives stated above for clients. At any given point, we may be more dependent on one asset class or another to provide upside thrust or downside support for our clients’ portfolios. As you might expect, this asset mix is largely dependent on (among other things) the outlook for the economy, interest rates, and the inclination for risk in the markets.
 
In some environments, such as 2017, the stock market and high-quality individual equities genuinely are the best option for capital appreciation.  In other periods such as late 2018 and 2019, a choppy market and unclear fundamental prospects warranted a higher concentration in traditionally less economically sensitive asset classes like bonds, gold, and cash. No matter the environment, we are continually assessing our outlook and corresponding exposures.

In the client updates over the past week, we noted how our conservative positioning at the outset of this decline was yielding promising results. That remains the case, and when we evaluate client performance relative to equity benchmarks (DOW, S&P 500, NASDAQ), we are heartened by the fact that client accounts have a) declined substantially less than the benchmarks and b) exceeded the results previously experienced in similar periods of stress.
 
Since our inception, having a trained eye on risk management has allowed clients to generally experience asymmetric rates of upside and downside participation vs. equity benchmarks. In other words, we’ve consistently achieved more upside than downside through the course of market trends. 
 
Finally, we understand that the personal nature of the virus and the corresponding downside reaction in markets can be especially anxiety provoking.  And while this is everybody’s first time managing through a true pandemic, it is far from our first time managing through a panicked market.  We will get through this turbulent time and be prepared to deploy the capital we’ve preserved throughout the episode.

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Market Brief February 10 2020

Market Brief February 10 2020

Valentine’s Day is almost here, and the stock market continues to show investors plenty of love! The Dow, S&P, and Nasdaq indexes all finished up last week Dow up 3%, S&P 3.17%, and Nasdaq 4.04%. The coronavirus remains a serious threat, but markets shrugged off the virus news in favor of positive U.S. manufacturing data, strong jobs reports, and company earnings. The Dow and S&P index finished the week with the best performance since the 5 trading days leading up to June 7, 2019. The Nasdaq had it’s best week since November 30, 2018.

The number of coronavirus cases continue to grow and estimates of economic growth for China continue to fall. The coronavirus has spread to different industries at different times. Initially, the travel and oil industries took a hit, as obvious travel restrictions were put into place. Oil prices are down 20% since January. Retail chains, such as Starbucks, also took a hit as many stores in China were closed. Currently, the healthcare industry is taking it on the chin, due to cancelled surgeries and disruption in supply chain. Technology may be on the horizon, as companies like Apple look at their own supply chain and impact the virus will have on production. Throughout February corporate earnings calls, the theme was similar, it is too early to tell the impact, but keep a close eye on what is happening. As of last night, the coronavirus death toll has exceeded that of the SARS virus.

Enter Federal Reserve. After Wednesday’s meeting, Wall Street was leaning towards another rate cut. This belief evaporated by Friday when the jobs report was released and the results were very strong. In Germany, industrial production fell in December by 3.5%, the largest drop post-financial crisis. Global woes remain an area of concern.

Year-to-date index performance; Dow up 1.98%, S&P up 3.0%, and Nasdaq up 6.1%. What else? For the S&P companies reporting in January, no dividends were cut, same result as January 2019, and 41 companies increased their dividends, which is up from 36 a year ago. Due to low bond yields, investors are flocking to real estate mutual funds and REIT investments. As reported by EPFR Global, $11B of money flowed into mutual funds with a real estate focus in 2019, and another $3B has moved there in 2020.

Have a great week!

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Market Brief January 13 2020

Market Brief January 13 2020

Happy Monday to you all! The markets quickly pushed aside the idea of increasing tension between the United States and Iran, as cooler heads prevailed. Global news is now instantly spread and processed by the markets, and being an election year, further geopolitical volatility should be expected. During an address last Wednesday, President Trump gave no signal of further escalation. The Dow, S&P, and Nasdaq indexes all finished up last week Dow up 0.6%, S&P 0.9%, and Nasdaq 1.7%.

The markets shook off the Middle East tensions and lower payroll figure released on Friday, the U.S. economy added 145,000 jobs in December. Despite being weaker than expected, the jobs report extended the streak of gains to 111 months in a row. The decade wrapped up with 10 straight years of job growth as well. Wage inflation reported a 2.9% increase year-over-year, outpacing current inflation levels. Europe economic reports were positive last week. The Eurozone’s December services PMI’s were revised higher and industrial production rose higher.

U.S. inflation, retail, and housing reports fill up the week of economic news. 2019 holiday sales were a record, so the attention is focused on the Retail Sales report released on Thursday.

From the Stock Trader’s Almanac – the first five trading days of the new year were positive, indicating an increased likelihood of an up year for the market. The Santa Claus rally was also positive. Whenever both the Santa Claus rally and first week of trading are positive, the Dow has gained an average 11.5% for the year and rose 80% of the time.

Year-to-date index performance will begin tracking once we have a month under our belt in 2020. The Oklahoma/Ohio State National title was suppose to be tonight! Since we don’t have a dog in the fight, we will take the Tigers to win the championship! And for the sports nuts reading this, I am referring to the Orange and White tigers!

Have a great week!

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Market Brief January 6 2020

Market Brief January 6 2020

Happy First Monday of 2020! 2019 was a great year for returns in the market, and I am certainly looking forward to what this next year brings. Following the down year in 2018, all the indexes finished above 20%. The Dow up 22%, S&P up 29%, and the Nasdaq up 35%. The year never felt that way. Many headlines focused on negative sentiment to the trade war, manufacturing struggles, and the inverted yield curve. Despite these concerns, a strong consumer, low unemployment, and a Fed willing to reduce interest rates pushed markets higher.

As we enter 2020, we are reminded that not only trade war, but real wars can also cause market corrections and possible recessions. This unfolded last week with tension between the U.S. and the Middle East quickly escalating. Other points of caution ahead include the political environment in the U.S., as well as, the U.K. and China, and the impact rising wages for workers will have on corporate earnings. Lastly, the repo market remains a question mark as to how the economy and markets respond to the Feds actions. A similar buying spree pushed markets on a tear in 1999, followed by the dot com bust.

The markets never act as expected. So where danger lies, is typically determined after the fact. I don’t make market predictions, the market will go up or down, and volatility along the way is to be expected. Planning around the timing of market fluctuations is not sound for reaching goals. A comprehensive strategy that offers options, organization, and structure can provide the best chance for accomplishing financial goals. Whatever your goals may be for 2020 and beyond, the most sound advice is to work with someone to help you get there!

Have a great week!

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Market Brief November 4 2019

Financial Advisor Market Brief November 4 2019

We enter the second to last month of 2019 on a positive note. More treats than tricks last week, as all three indices finished positive: the Dow up 1.4%, S&P 1.5%, and Nasdaq 1.7%. The indices reach for record all-time highs, while much of the commentary is pointing to global economic downturn. There are three areas driving the markets higher at this time. First, corporate earnings is underway and majority of the results are much better than expected. Second, economic data continues to be positive. Third, improving trade talks, although this seems to with each passing day. And for a bonus reason, the Fed cut rates last week, as expected.

So why is recession talk a daily headline? The negative headlines focus on trade war uncertainty, global manufacturing slowdown (Germany), and contraction in U.S. manufacturing as areas of concern. And while that may be true, these headlines fail to shine light on the strength of the consumer and low unemployment (September 3.6% reading was a 50-year low). Never has there been a recession with the unemployment rating where it is at today. Icing on the cake is the Fed interest rates at such a low level. In fact, at the end of the last 5 bull markets, the lowest Fed rate was 4.75%, compared with today’s rate range of 1.5-1.75%. Lastly, the jobs report from Friday indicate further job creation in the marketplace, reaffirming the strength of the U.S. labor market.

For now, the Fed stated they will keep rates steady unless prompted by new economic data to take action. Inflation is still top of mind, and the latest quarterly GDP report indicated growth rate of 1.6%. This reading is slightly below the Fed’s annualized growth target of 2.0%.

And with all that said, the Citigroup Market Sentiment indicates a reading closer to market panic (vs euphoria). The week ahead has light economic reports being released. Main focus will be on corporate earnings, global manufacturing data, and Friday’s University of Michigan consumer sentiment report.

Year-to-date index performance; Dow up 17.2%, S&P up 22.3%, and Nasdaq up 26.4%. What else? If you are in the market for a new home, the Hamptons have the largest inventory for sale since 2011, can you say Buyers market! Or if you prefer a parking spot, the most expensive spot just sold in Hong Kong for $969,000 – that’s a lot of dough for 135 sq ft of concrete – maybe it has a beautiful view!?!? Heading to college, be sure to check the price tag! To the surprise of nobody, growth of indirect college costs (tuition less grants and scholarships) from early 1980s to early 2000s has grown 137%, per a St Louis Fed Analyst. Fair to say it has grown another 137% from the early 2000s to now? Not a bad idea to start socking away college tuition dollars if you have rugrats in the house. According to the Bureau of Labor Statistics, less than ⅕ of American full-time workers have access to any paid family leave, although that is up from just 10% as recently as 2010. So, trending in the right direction… but hope you have a nice boss! We do have a great rivalry match-up tonight on MNF, for entertainment purposes to keep the pick ’em streak alive its America’s Team over the G-men! How bout dem Cowboys!

Have a great week!

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Market Brief October 28 2019

Market Brief Oct 28 2019

Happy Halloween! And the markets either have a trick up the sleeve, or a treat for those invested! The Dow, S&P, and Nasdaq indexes all finished up last week Dow up 0.7%, S&P 1.2%, and Nasdaq 1.9%. The indices reach for record all-time highs, while much of the commentary is pointing to global economic downturn. The lesson here is that stocks are acting better in the face of weak economic data, such as the September ISM reading and weak German production. Stock markets are a leading indicator, and economic data reports are looking backwards. So higher prices are factoring in strong earnings, favorable monetary policy, and (current) positive sentiment from the U.S./China trade war.

As of Friday, the federal-funds futures market priced in a 93.5% probability of a quarter-point rate cut. The Fed aims to keep the economy growing, even with a 50-year low unemployment rate of 3.5%. So what’s with the further rate cut? Well, the central bank’s inflation target is 2%, and current growth is below that target. And it is not just the U.S. participating, globally, there have been 40 rate cuts in the past 3 months. Global rates, however, may have reached a floor, as Sweden’s central bank (also the oldest central bank) hinted to a rate increase in December. Time will tell.

And with all that said, the Citigroup Market Sentiment indicates a reading closer to market panic (vs euphoria). Looking at this week (besides Fed meeting on Wednesday), it is a heavy economic reporting week with Consumer data Tuesday, employment on Wednesday, and manufacturing data on Friday.

Year-to-date index performance; Dow up 15.6%, S&P up 20.6%, and the Nasdaq up 24.2%. What else? Colorado was hit with the second snowfall on the Front Range. So, if you were dreaming of a white Halloween, you might get it this year! We don’t have a great match-up on MNF tonight, but for entertainment purposes to keep the pick ’em streak alive, it’s the Steelers over the Fins! World Series prediction was off with America’s pastime, Astros in 5, and the Oklahoma/Ohio State National title collision course doesn’t seem likely after the Sooners lost this weekend.

Have a fun and safe Halloween week! And turn back the clock Saturday night!!

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.