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« Market Update | Main | Portfolio Update »

Portfolio Update

We hope your summer is off to a great start and that you are able to find some time during this season to be with friends and family.  We are writing today to give you an update on portfolio performance and discuss a couple of changes we are making in the portfolio.  As we make the changes in the portfolios that are discussed below, we will also be doing an overall rebalance in all portfolios.  This will get all the portfolio’s back to their original allocation percentages.

The S&P 500 hit an all-time high on April 30, back when the markets expected a favorable resolution to President Trump’s trade wars.  As the calendar turned to May, the markets begin to realize that the trade wars are not over and may be escalating.  As a result, May proved to be a difficult month for equities.    The brewing trade war with China and the threat of tariffs on goods imported from Mexico appeared to be the major reason for the equity market reversal.  The S&P 500 lost approximately 6.5% for the month of May, marking the indexes first monthly decline of 2019. [i]

As of the end of May, our all equity portfolio was down 2.23% for the second quarter, while the benchmark is down 3.34% for the quarter.  This out performance in our all equity portfolio is due to the fact that we have been waiting to invest the last third of our equity allocation.  We are buying this last third this week.  The purchases you will see in your equity allocation, to the extent you have a portfolio that holds equities, includes an additional position in Thrivant Mid Cap Stock Fund and Federated Kaufmann Small Cap Fund and a new position in Calvert Small Cap Fund.  These are mid and small cap funds that are in the top of their peer group and should see performance in excess of the benchmark. 

Speaking of peer group, as you will recall one of the fundamental aspects of our investment philosophy is to only use investment selections that are consistently in the top of its peer group.  We are making a change in our fixed income portfolio because we have had a fund fall out of the top of its peer group.  We are replacing Janus Flexible Fond with Frost Total Return Bond Fund.    The Frost fund has been a top performer in fixed income.  By adding this fund to our bond allocation we are furthering our current fixed income of having high quality, short duration bond funds.  As of the end of May our all bond portfolio is up 3.34% during 2019.  This is a solid return when you consider the year is only 5 months old.

The usually sleepy bond market has had a historically significant development over the last few weeks.     Specifically, we have recently seen an inversion of the yield curve over the last few days.  This is created a significant amount of news and worry in the market.  The yield curve “inverts” when the US 2 month treasury yield goes higher than the US 10 year bond yield.  The following is a chart of the difference between the 2 month treasury yield and the 10 year treasury bond yield:


Historically the inversion of the yield curve has mean that recession is coming.  The grey blocks on the above chart shows the periods of time our economy was in recession since 1977.  On average, the US economy moves into recession 646 days after a yield curve inversion.  However, historically the equity markets go up an average of 40% from the time the yield curve inverts and the time a recession actually starts.  The yield curve has not been inverted long enough for anyone to start the “count down to recession” but it is certainly worth noting and our Investment Committee is looking at this and is monitoring this situation. 

On the macro level, the US economy seems to be strong.   The unemployment rate is very low, inflation is also very low and first quarter GDP was slightly above 3%.  In fact, some have suggested recently that because inflation is significantly below the target rate of 2% and because the markets seem to be “worried” about the trade wars, the Federal Reserve should cut rates.  This potential rate cut could come a great time to help stimulate the markets and the economy.  A Federal Reserve rate cut could also do a lot to reverse the inverted yield curve.   Chairman Jerome Powell has stated the central bank will “act as appropriate to sustain the expansion.”  He noted, however, the Fed does not know “how or when” global trade issues will be resolved.  “We are closely monitoring the implications of these developments for the U.S. economic outlook.”[ii] 

Our Investment Committee continues to meet on a monthly basis and monitor all the portfolios we manage on your behalf.  The Investment Committee consists of four advisors and 2 staff members of Trinity Portfolio Advisors.   This group has been meeting together since the founding of Trinity Portfolio Advisors in 2009 and continues to diligently monitor all portfolios.

As the summer rolls on please know that we are hard at work for your financial success.  We will be opening our next life settlement fund this summer, probably in July.  If there is anything we can do to help you in the meantime, please do not hesitate to contact us.








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