This quarterly investment summary covers view on the market and current portfolio positioning. I believe what is measured will be managed. I measure the investment results daily and manage the portfolios with the objective of outperforming the S&P 500. For my retirees and more conservative investors, I blend the S&P 500 with an appropriate bond fund index. Individual portfolios are further tailored to align client’s goals with their risk tolerances.
Year-to-date results through July 2015
I am unable to show you in print my investment track-record due to laws and compliance. I can say that managing an asset allocation using active and passive investing has been the right call so far this year. Earlier this year we found a few very undervalued companies and took advantage of select stock prices.
The majority of my clients’ assets are invested in my two asset allocation strategies. On request, I can provide you with the holdings of each of these asset allocations. My clients will receive their actual returns quarterly, direct from Interactive Brokers.
My view on the markets
Investors are starving for income due to the results of the low rate environment. With interest rates near zero, many investors find themselves taking more risk in equity markets. Given that the S&P 500 has returned close to 16% per year over the past 5 years, I find that the risk tolerances of many investors has become more aggressive.
This year is clearly a stock pickers market. On 7/27/15, the Wall Street Journal reported that so far this year, Amazon, Google, Apple, Facebook, Gilead and Walt Disney Co. have accounted for more than all of the market-capitalization gains in the S&P 500. In such a low growth, low interest rate, economic environment, investors will pay a premium to own innovation companies that are growing revenues faster than the economy. We wrote about this trend last week before the Wall Street Journal article. My view is that you need to blend active management with passive exchange-traded funds (ETFs). If you want to have a chance to outperform the S&P 500, you will need to be able to select a few individual companies that are growing faster than the economy.
Current Portfolio Positioning
Here is how I have achieved my investment results:
I have maintained a zero weighting to the Energy sector in the portfolio. The only exposure the portfolio has to Energy companies is through exchange traded funds (ETFs). I have been writing all year about the poor fundamentals in this sector. My negative call began on December 11, 2015. The post is here. The Energy Select Sector SPDR ETF is down 11.18% through July 2015.
China & Commodities
There is no exposure to Emerging Markets companies in my clients portfolios. We also do not own any commodity stocks. It has been wise not to own this sector. Many commodity stocks are down over 50% this year. Gold, copper, and other metals are at the mercy of the Chinese government. The Chinese stock market is being artificially supported and we believe that volatility will continue. I don’t believe any news coming out of China and wrote two weeks ago how I have no trust in global markets. Overseas investing should come with a label warning, “Investing in global markets and commodities can be hazardous to your portfolio.” With commodity prices being so low and investors so fearful, we could see a large rebound in this sector. We will be just watching for now. There could be many investment opportunities once prices stabilize.
I currently have only a small allocation to European stocks. Europe is looking more interesting based on cheaper valuations and a recovering economy. I prefer to own U.S domiciled companies because I believe that they are growing faster than their European counterparts. Investors also face currency risk when they invest overseas. With U.S markets off the highs set this year, we are actively seeking opportunities in the U.S. and not in Europe.
All of my clients’ portfolios have between a 10–25% allocation to cash depending on the client’s personal risk tolerance. My investment philosophy is to always hold some cash in the event that markets drop or new opportunities arise. In addition, cash helps to reduce volatility. The portfolios would have a lower cash allocation if I believed stocks were undervalued or bond prices were going to rise. For now,I feel comfortable holding cash and being ready to buy into any market drop.
U.S Markets: Health Care & Technology
The sectors that I’m most interested in owning are Health Care and Technology. I actively maintain a shopping list of new buys that I will make if markets do fall. As I tell all of my clients, down markets are good if you are prepared for them in advance. Part of me is now hoping we see a short-term market drop so that I can take advantage of potentials new buys. The aging global population, increasing demand in emerging markets, and innovation in biology have me very excited about opportunities in the years ahead for all of my clients.
Health Care companies have been one of the best sectors to own over the past 5 years and I believe that sector has the potential to be the best to own over the next 5 years. You will see a large overweight to Health Care companies in all my portfolios.
I want to thank all of my clients for trusting me with managing their wealth. We are off to a great start so far in 2015. I promise you that I will never advertise awards such as I’m a 5-star advisor or how I’m the fastest growing registered investment advisor firm with xx amount of assets. I believe investment results, professional investment experience, continuing education, and designations such as CFA and CFP are how you should judge your advisor. But what is most important, is that I’m helping you reach your goals. At the end of the day, it is actual investment returns that will help you meet those goals and not award plaques hanging on walls.
Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities. All performance is based on data gathered from Morningstar.com.
The material on this site represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed to be accurate, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. It should not be construed as advice meeting the particular investment needs of any investor.
Past performance does not guarantee future results.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Exchange-traded funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market.
They are methods used to help manage investment risk.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value.
Constant Guidance Financial LLC does not offer legal or tax advice, individuals are encouraged to discuss their financial needs with the appropriate professional regarding your individual circumstance.
Please feel free to contact us with any questions.