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This blog contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice.  Past performance is no guarantee of future results.  There is no guarantee that the views and opinions expressed in this blog will come to pass.  Investing in the stock market involves gains and the potential for losses, and may not be suitable for all investors.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.
Friday
Dec022016

Portfolio Update 

Today we are selling the gold mutual fund position in all of our managed accounts.  Our indicators on gold have turned negative which means it is time to sell.  This gold position was originally a 10% position in the equity portion of our portfolios.  We sold a portion of this position on July 15, 2016 (near the highs) and rebalanced the position back down to 10%.   For our managed accounts that have had this position from the time we originally bought it, back on March 11, 2016, this has been a profitable trade and we are pleased that our indicators are telling us to sell the remainder of the position at a profit. 

With all the major US equity indexes at or near all-time highs and most major international equity indexes below their all time highs, we have not yet determined what we are going to replace this gold position with.  We are considering several different positions and will let you know when it is replaced.

We hope you enjoy the holidays and feel free to contact with any questions.

Wednesday
Nov092016

Market and Portfolio Update

Last night was a historic night in many respects.  For the first time in several years, the same political party will control both the White House and the Congress.   Could this mean that fiscal reform and economic stimulus could be on the horizon?  Obviously, we have no idea what the new government will accomplish… but for now the fear of the unknown should subside.

Late last night, as the election returns began to indicate that Donald Trump might win, the equity futures were down over 800 points.  Since that low on the futures, the stock market has gone steadily higher.  It would seem that the market is somewhat hopeful that the new Republican-controlled White House and Congress will undertake the reforms necessary to create economic growth.

In fact, according to Sam Stovall, Chief Strategist at S&P Capital IQ, since World War II, the best performance in the equity markets are when the President is a Republican and when Congress is led by Republicans. [i]

Our long-term price-momentum internal indicators continue to be positive.  In addition, one of our short-term indicators, the 50 day moving average of the S&P 500 compared to the actual S&P 500 stock index, closed higher for the first time since September 12th.

As you know we have been fully invested throughout the election cycle in managed portfolios that feature equity positions.  We did, however, out of an abundance of caution, use low-volatility ETF’s for the equity holdings in the portfolio.  While we did see some volatility during the election cycle, this volatility was not significant enough to justify using these low-volatility ETFs. 

We are in the process of adjusting our equity holdings to a more traditional set of ETFs.  These ETFs represent every area of the equity market including small cap, mid cap, and large cap.  We will also weight the portfolio slightly towards growth on the belief that the new administration may foster a “pro-growth” environment.  Furthermore, we are in the process of deploying newly invested assets designated for equity positions.  Those of you with equity positions will be seeing confirmations coming soon.  We will maintain these positions until our indicators signal a negative trend.  Should the market reverse course, our exit-strategy remains firmly in place.

On the Fixed Income side of the equation, we saw the US Government bond touch 2% today for the first time since January of this year.  There is also a lot of speculation that the Federal Reserve will raise rates in December.   The election and the potential for Fed action seem to be putting some minor upward-pressure on interest rates.   The fixed income portion of the portfolios have performed very well this year, with total return in excess of 5%.  We do not see a need to make any adjustments to the Fixed Income portion of the portfolios at this time but we are always monitoring the situation.

For those portfolios with an allocation in Gold (and gold-related companies), our position continues to be profitable.   Recent reductions in the price of Gold and mining stocks have taken a portion of our recent profits, but our long-term indicators remain positive.  We will maintain our Gold position for the time being, rebalancing it to the original allocation.

Regardless of how you feel about the results of the election yesterday, this continues to be one of the greatest countries on earth.  We remain optimistic that our country’s best days are ahead.  Feel free to contact us if you have any questions or comments.

 


[i]  (http://money.cnn.com/2015/10/28/investing/stock-market-democrats-republicans/)

Friday
Jul152016

Current Strategies and Portfolio Update

Since the big dip in the world markets following the Brexit vote, when the S&P 500 lost over 5% in 3 days, the US markets have regained their footing.  As quickly as the markets moved down, they have recovered just as quickly, even touching new highs in recent days.

There is much discussion in the industry over why the market cannot sustain a correction.  As usual, politics are at the forefront.  The Bank of London hinted this week that more monetary stimulus is on the way, and that no rate hike is forthcoming.  Many predict even lower rates.  Bank Governor Mark Carney has said that the bank stands ready to act, meaning they are ready to do whatever is necessary to ward off recession and reassure the markets.  In a recent Rueters Poll, the consensus among economists is that the bank will expand its asset purchase program (printing money) beginning in August, or at least by the end of the year.[1]

Great Britain is not alone.  The US Fed, along with the G7, has shown a propensity to act to prevent a correction.  Following the Brexit vote, G-7 ministers said that central banks "have taken steps to ensure adequate liquidity and to support the functioning of markets. We stand ready to use the established liquidity instruments to that end."[2]

The markets love this rhetoric.  It means more money-creation is on the horizon.  While we contemplate the long-term harm this may cause, such intervention has buoyed the stock market so far.  But the run-up may e artificial and not based on fundamentals.  On Thursday, Larry Fink (CEO and Chairman of Blackrock, the world’s largest asset manager) stated that there is “not enough evidence to justify these levels”.[3] 

In such uncharted territory, where the equity markets are elevated based on government intervention rather than economic growth, it is a challenge to quantify risk.  How do you measure risk when price levels are unjustified?  We believe that to invest in this environment, we must proceed cautiously, remain nimble, and seek opportunity using focused strategies.  Here is a summary of our current strategies as they pertain to particular categories:

For aggressive investors where equities are suitable, we are adding some additional equity ETF’s to move the portfolios to a fully invested position.  As you may be aware, we have not been fully invested in the equity portion of the portfolios since the first quarter of 2016.   With recent market activity where indexes have moved beyond the top end of a fairly established trading range and with the central banks around the world effectively assuring a continued increasing market, we are investing the remaining equity positions that have been in cash.  We remain committed, however, to moving to the sidelines when the trends turn negative 

Furthermore, we believe that we can enhance yield by controlling costs.  In recent years, more expensive mutual funds have underperformed indexed funds and ETFs, mainly due to costs.  Our recent strategy has been to move away from expensive and underperforming mutual funds, and move into less expensive ETFs that capture market gains without sacrificing yield due to excess costs.

While the overall direction in equity markets seems to be ready to continue an upward trend, we are concerned that this upward trend may be particularly volatile.  Interestingly, there are certain ETF products that target less-volatile equities.  In researching and monitoring these funds, we are discovering new ways to limit downside risk during periods of volatility and still remain invested in equities.  These funds are designed to outperform the benchmarks when the market is volatile.   The additional equities we are in the process of adding currently have been chosen with an eye towards limiting volatility.

For our fixed-income positions, we believe in remaining in short duration and high quality bond allocations.  While the yields are modest, the downside risk is measured.  Our investment grade bond fund has prformed as we hoped, and we are currently in the process of taking profits in this position and rebalancing our bond allocations accordingly.

Our gold position has done very well.  We initially purchased the position in gold and gold-related companies last February at around $32 per share NAV.  On Thursday, it closed over $46, a gain of over 40%[4].  Due to its growth, we are now a bit over-weighted in gold.  We are in the process of taking profits and rebalancing that position back to its original allocation.

As always, we would love to hear from you.  Call us anytime with comments or questions.  Have a great weekend!

 


[1] http://finance.yahoo.com/news/bank-england-cut-rates-thursday-ward-off-recession-130919066--business.html

[2] http://thehill.com/policy/finance/284760-fed-monitoring-markets-after-brexit-vote

[3] http://finance.yahoo.com/news/blackrocks-fink-us-stock-market-110922005.html

[4] http://data.cnbc.com/quotes/TGLDX

Monday
Jun272016

Market Update: Positioned for Brexit

America woke last Friday to some shocking news, but it was news that should not have come as a surprise to prudent investors.

After several years of debate, the United Kingdom held a referendum last Thursday on whether to exit the European Union (the EU).  This issue was called ‘Brexit’, a play on a ‘British Exit’.  In the end, a close vote determined that the UK would indeed exit the EU in the coming years.

Much has been written about this issue, but the following is a very brief summary, along with a broad view at our current strategies.

The EU was established after World War 2 to provide a standard method of interaction between European countries.  It was believed that by uniting together with free trade and unencumbered travel between union nations, peace and prosperity would become a way of life.  Though not exactly the same, the EU operated much like the 50 separate states working together in the USA.  For several decades, it has seemingly worked.

But alas, many citizens in the UK became frustrated with the direction of the EU.  They felt as though EU officials (based in Brussels) were not acting in the best interest of the UK through what they perceived were intrusive eonomic polices and soft immigration policies.  The recent immigration crisis further inflamed the frustration. 

Add to that fact the global economic slump, and Brexit supporters became more vocal.  Interestingly, polls suggest that older voters overwhelmingly voted to ‘exit’, while younger voters overwhelmingly voted to ‘remain’. [1]

Now that Brexit has passed, it will take years to unfold.  Prime Minister Cameron announced his intention to resign.[2]  New trade agreements must be established.  It is feared that several corporations will leave the UK to establish headquarters in EU countries.  If so, jobs will be lost.  Commerce may become more difficult.  Now Scotland may revisit the proposition of exiting the UK, and other countries may call for separatist referendums.  There is much that is unknown.  As a result of these unknowns and the fear of negatives within the European economy, the markets took a big hit last Friday.  The S&P500 was down over 4% in one day.  Already this morning, the US markets opened with another drop.[3]  Markets around the world have also moved significantly downward.[4]

Fortunately, our portfolios were well positioned for this possibility.  It appears our patience and indicators have served us well over the past several months.  Our equity positions are only partially invested at about 15% exposure in our Moderate Portfolio.  Our Fixed Income positions that round out the portfolios are positive and have performed well YTD. 

Furthermore, the Gold position we bought during the first quarter has performed better than expected.  We initially took the position in a fund (which invests in gold and gold-related companies) at around $32.  Last Friday that position closed over $41.[5] After Friday, this position is up over 30% since we purchased it in March of this year.

As the year progresses, we continue to diligently monitor current events and the momentum of the markets.  We feel that caution is still in order, while looking for positive opportunities.  If you have any questions or would like details about our specific strategies in this environment, please call us anytime.

 

 

 


[1] http://www.bbc.com/news/magazine-36619342

[2] http://www.bbc.com/news/uk-politics-36615028

[3]http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#{"range":"1mo","allowChartStacking":true}

[4] http://www.bloomberg.com/news/articles/2016-06-27/battered-british-government-seeks-unity-to-soothe-brexit-nerves

[5] http://finance.yahoo.com/q?s=TGLDX&ql=1

Monday
Apr182016

Portfolio Update

During this unfortunate time of year (tax season), we thought we would give you a brief update on the markets to ‘cheer you up’!

So far this year, the fixed income portion of our portfolios is doing well, as is our position in gold and gold-related companies.  The bond markets have done well, and our bond portfolio has enjoyed positive returns.

On the other hand, the equity markets continue to be mired in a trading range.  For going on two years, it seems the S&P500 is unwilling to break out of the upper level resistance near 2100, or the lower level support near 1850.

 

Interestingly last year, the S&P500 traded at 2095.84 on April 14th, 2015.  And on April 14th, 2016, the market closed at 2082.78.  As you can see, the market has gone up and down within a range, but has virtually gone nowhere for an extended period of time.[1]

The challenge is identifying a trend in this environment.  (Actually, the 18-month trend is ‘sideways’.)  Based on fundamentals, the markets cannot justify growth based on recent economic developments both here and abroad.  But on the other hand, we have seen over recent weeks an inordinate amount of aggressive monetary policy from the central banks all around the world, which has successfully prevented a new downtrend or ignited a new uptrend.  So while overall commodity prices are at recent historic lows, and economic growth is virtually nonexistent, equity prices have not suffered correspondingly.

According to our price-momentum indicators, only the Large-Cap areas of the market have seen enough recovery recently to justify an investment.  Both Small-Cap and Mid-Cap areas are still negative.  For now, w are taking a small position in Large –Cap only (alongside our current gold-related position) in the equity portion of our portfolios.  If the Large-Cap area turns negative, we will adjust accordingly.  We are refraining from Mid and Small Cap areas until we see more positive stability in those areas.

Investors in retirement plans, or other products where quick action is not possible, may wish to remain conservative until the market breaks out of this current trading range.  We don’t feel the market will go sideways forever, but it is unclear if it will finally break positively or negatively from this range.

Based on the recent economic numbers, we feel that to invest in equities in this environment, a disciplined exit-strategy is imperative, along with an ability to move quickly.  While going-to-the-sidelines may not always precede a correction, we feel that given the current economic landscape, it is wise to have this continued discipline in place.

Have a great week.

The CCA Team

 

 


[1]http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#{"range":"2y","allowChartStacking":true}

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