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« Portfolio Update | Main | Portfolio Update »

Portfolio Update 

As we are sure you are aware, our long-term indicators for the equity markets turned negative back in December.  As a result, we sold the equity positions in all the portfolios and have held those proceeds in all accounts in a money market fund earning a modest return.  As of Friday, we now have a confirmed cross to the positive of our long-term indicator in the equity markets.


We will be buying the equity portfolio in all portfolios that contain equities over the next few weeks.  We are very pleased with the portfolio we have put together.   The equity allocation contains all mutual funds for the first time in the last few years.  We believe there has been a shift in equity management from passive (ETF’s) management to active (Mutual Fund) management.   In a recent paper published by Morgan Stanley[i]:

“Quantitative Easing and secular stagnation provide a unique set of tailwinds (low volatility, tepid growth, and high correlations) for indexing and passive management, that after seven years now appear poised to fade.”

This Morgan Stanley report went on to say,

“we are in the early innings of a major regime shift in markets driven by the hand-off from monetary to fiscal policy and from deflation to inflation.  These features strongly favor active managers ….” 

While we tend to believe the general sentiment that there has been a shift from passive investment management to more active investment management, we had to prove it to ourselves.   We asked Morningstar to tell us how our new equity mutual fund line-up has performed over the past 10 years.  Specifically, we measured this new mutual fund line-up against the benchmarks (which are similar to an ETF performance) over the last 1 year, 3-year, 5 year and 10-year periods.  In every time period our new equity mutual fund lineup out-performed the benchmarks by more than 2% per year.  The strongest outperformance was the 3-year period where the new lineup outperformed the benchmarks by almost 6% per year[ii].

This new equity fund allocation represents a very diversified group of six different funds.  These funds will mean that the equity portion of our portfolio has exposure in every area of the market, including international.   Once this portfolio is in place in the model portfolios, we will continue to monitor the performance of each fund as it relates to its peer group and make changes as necessary.

Today we are buying the large cap and international portion of the portfolio.  This allocation will represent approximately 36% of the overall equity allocation.  The mid and small cap portions of the portfolio will be added as additional indicators tell us it is time to put that portion of the portfolio to work. 

As always, if you have any questions or comments please do not hesitate to contact us.


[i] Morgan Stanley Client Conversation & Primers; When to Invest in Active vs. Passive, page 2 paragraph 3


[ii] Morningstar Portfolio Snapshot – TTAP Aggressive Growth based on Portfolio Value of $1,000,000

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