-U.S. economic GDP growth has trucked along in the 2% range with low rates of unemployment; but job growth is still limited to service sector jobs which pay lower wages. Reported inflation has been muted and commodity prices have largely be in free fall. The Federal Reserve is poised to nudge interest rates, but has deferred making the first increase given fragile global economic pressures.
-Early indications from the third quarter earnings season point to resilient corporate profits despite concerns about global economic growth. Of the 58 companies in the S&P 500® Index that have reported results, 81% exceeded EPS estimates while 50% exceeded sales estimates. Still, earnings are expected to decline for a second straight quarter.
-The analysis by Envestnet found advisors beat market benchmarks by an average of +3% a year. Tax benefits alone provided by financial advisors added up to more than +1% over the broad market annually from 1994-2014. A further +0.44 of added value came from regular rebalancing of a portfolio. Other outperformance attributes included asset allocation and fund/security selections.
-To help reduce portfolio markets risks, investors often turn toward “safe haven” assets such as government bonds and exposure to the US dollar (e.g. safer US markets versus their riskier counterparts) and/or shifting their allocations weightings toward defensive stocks versus cyclicals. However, we have been seeing correlations rise between equities and the traditional perceived “safe haven” assets. For this reason, we believe that for multi-asset portfolios are a more effective tool to mitigate volatility, particularly in a market environment where conventional asset allocation views on “safe haven” assets is changing. In short, true diversification comes from an unconstrained approach to multi-asset allocation.
- Quality company stocks matter! One study, Novy-Marx’s 2012 “The Other Side of Value: The Gross Profitability Premium,” showed that profitable firms generated significantly higher returns despite having higher valuation ratios. In addition, in a late 2013 PIMCO paper by Gordon and De Rossi, “The Profitability Premium in EM Equities,” PIMCO showed that profitability tends to be persistent and underpriced. There is a profitability premium for investors to capture. Though we select individual quality stocks, we also use these exchange traded funds (ETFs): We invest in a variety of domestic high quality ETFs including Vanguard Dividend Growth (VIG), iShares MSCI USA Quality Factor (QUAL), ProShares' S&P 500 Aristocrats ETF (NOBL), Wells Fargo Adv Glo Div Opp Common (EOD) and Global X ETF SuperDividend (SDIV).
-Certain stock sectors outperform others when Fed rate increases (expected in Dec) and these include: large established technology, financial and consumer oriented business entities. Consider these equity sectors for overweigh allocations as rates increase.
-The S&P 500 lost -2.6% over the month of September 2015 and dropped -6.9% over the last quarter. There has been a flight to safety in stocks toward megacap blue chip stocks. We have been overweight large stocks with sold balance sheets that operate profitably and have a history of dividend growth.
-Early indications from the third quarter earnings season point to resilient corporate profits despite concerns about global economic growth. Of the 58 companies in the S&P 500® Index that have reported results, 81% exceeded EPS estimates while 50% exceeded sales estimates. Still, earnings are expected to decline for a second straight quarter.
-The analysis by Envestnet found advisors beat market benchmarks by an average of +3% a year. Tax benefits alone provided by financial advisors added up to more than +1% over the broad market annually from 1994-2014. A further +0.44 of added value came from regular rebalancing of a portfolio. Other outperformance attributes included asset allocation and fund/security selections.
-To help reduce portfolio markets risks, investors often turn toward “safe haven” assets such as government bonds and exposure to the US dollar (e.g. safer US markets versus their riskier counterparts) and/or shifting their allocations weightings toward defensive stocks versus cyclicals. However, we have been seeing correlations rise between equities and the traditional perceived “safe haven” assets. For this reason, we believe that for multi-asset portfolios are a more effective tool to mitigate volatility, particularly in a market environment where conventional asset allocation views on “safe haven” assets is changing. In short, true diversification comes from an unconstrained approach to multi-asset allocation.
- Quality company stocks matter! One study, Novy-Marx’s 2012 “The Other Side of Value: The Gross Profitability Premium,” showed that profitable firms generated significantly higher returns despite having higher valuation ratios. In addition, in a late 2013 PIMCO paper by Gordon and De Rossi, “The Profitability Premium in EM Equities,” PIMCO showed that profitability tends to be persistent and underpriced. There is a profitability premium for investors to capture. Though we select individual quality stocks, we also use these exchange traded funds (ETFs): We invest in a variety of domestic high quality ETFs including Vanguard Dividend Growth (VIG), iShares MSCI USA Quality Factor (QUAL), ProShares' S&P 500 Aristocrats ETF (NOBL), Wells Fargo Adv Glo Div Opp Common (EOD) and Global X ETF SuperDividend (SDIV).
-Certain stock sectors outperform others when Fed rate increases (expected in Dec) and these include: large established technology, financial and consumer oriented business entities. Consider these equity sectors for overweigh allocations as rates increase.
-The S&P 500 lost -2.6% over the month of September 2015 and dropped -6.9% over the last quarter. There has been a flight to safety in stocks toward megacap blue chip stocks. We have been overweight large stocks with sold balance sheets that operate profitably and have a history of dividend growth.
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