Investment Perspectives

2018 2nd Quarter Investment Commentary

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Helping our clients achieve their goals is truly a team effort here at The Center.  You may not have met or spoken to the investment team here at The Center, but we are an important resource leveraged to help you achieve your goals.  Watch the video below to learn more about the investment team and how we help you reach your financial planning destination!   We are always here to help so please don’t hesitate to reach out to us! 

Rebalancing

The investment team monitors and rebalances your portfolio, in addition to portfolio construction.  It is equally important to continue to monitor portfolios and their compliance with your investing preferences and objectives as it is to determine what the proper investments are.  Rebalancing is a key part of this process.  See our recent blog post on how to rebalance a portfolio to understand the reasons and mechanics behind the process.  The most important way to be successful is to get invested and stay invested.  Rebalancing your portfolio on occasion will help you stay the course for the long-term.

Market Update

The story has stayed much the same over the past quarter with trade tensions remaining center stage.  Volatility remains, while trade war talks have spilled over into action and interest rates continue to rise.  Synchronized global growth is slowing but is not yet slow; so, do not expect growth to immediately fall off the cliff from a peak to a trough. 

U.S. markets remain in consolidation mode after a strong 2017 as investors waffle between getting comfortable with the lower rate of growth while having a strong economic and earnings outlook.  The U.S. market ended the quarter on a higher note up 3.43% for the S&P 500 despite the ups and downs throughout the quarter with China and U.S. relations.  Despite being up as much as 6.6% and down as much as 4.4% throughout the year so far we are up 2.65% through the end of the second quarter for the S&P 500. 

Bond markets have continued to struggle with bonds giving back what they are earning via interest payments, and then some, as the Bloomberg Barclays US Aggregate bond index is down 1.6% year to date.  Interest rates continue to increase at a well-telegraphed pace by the Federal Reserve with two more increases expected this year. 

In contrast to the U.S. market, international markets are struggling for the year with the MSCI EAFE posting a -2.75% so far.  In stark contrast, domestic small company stocks are enjoying a nice tailwind from the corporate tax reform so far this year.  The Russell 2000 is posting a startling 7.6% return year-to-date, all of which occurred in the second quarter.

Inflation continues its slow creep back into our economy with wages slowly starting to increase.  Just as slowing growth in the economy is not yet slow, rising inflation is not high inflation.  We are still at very low levels of inflation when you look at the history of our domestic economy.  Our investment committee has decided to add an allocation to an inflation-focused real asset strategy.  We want to add exposure within the portfolios to a strategy that would have the potential to respond more favorably than the broad equity markets to rising inflation. 

Preview of exciting changes

The investment team has been working on some exciting developments for your experience.  We will soon have a “Center for Financial Planning, Inc®” app for your smartphone where you can view returns, asset allocation and even your probability of success for your financial plan.  This new portal will be available to all who are interested.  More information and training on how to set up and view information will be coming later this year so watch your inboxes!  As always, please feel free to reach out if you ever have any questions.

On behalf of everyone here at The Center,
Angela Palacios, CFP®, AIF®
Director of Investments
Financial Advisor 

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.


The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and no strategy can ensure success. The process of rebalancing may carry tax consequences. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Diversification and strategic asset allocation do not ensure a profit or protect against a loss. The S&P 500 is an unmanaged index of 500 widely held stocks. The Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. These international securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.

Investor PhD: Harvesting Losses and Avoiding Gains

Contributed by: Angela Palacios, CFP® Angela Palacios

This may sound counter-intuitive, but taking some measures to harvest tax losses on positions and avoiding unnecessary capital gains distributions this time of year can go a long way in improving your net (after tax) returns.

Make sure you are reviewing your portfolio throughout the year for tax losses to harvest.  Stock losses were at their peak during mid-February, but if you waited until this fall to think about tax loss harvesting you have most likely missed the boat as much of those losses have been recovered and moved on to higher highs. The end of the year is rarely the best time of the year to harvest tax losses. 

Harvesting losses doesn’t mean you are giving up on the position entirely. When you sell to harvest a loss you cannot have had a purchase into that security within the 30 days prior to and after the sale.  If you do you are violating the wash sale rule and the loss is disallowed by the IRS. Despite these restrictions, there are several ways you can carry out a successful loss harvesting strategy.

Loss harvesting strategies:

  • Sell the position and hold cash for 30 days before re-purchasing the position. The downside here is that you are out of the investment and give up potential returns (or losses) during the 30 day window.

  • Sell and immediately buy a position that is similar to maintain market exposure rather than sitting in cash for those 30 days. After the 30 day window is up you can sell the temporary holding and re-purchase that original investment.
  • Purchase the position more than 30 days before you want to try to harvest a loss. Then after the 30 day time window is up you can sell the originally owned block of shares at the loss. Being able to specifically identify a tax lot of the security to sell will open this option up to you.

Common mistakes some people make when harvesting:

  • Dividend reinvests count!!! So if you think you may employ this strategy and the position pays and reinvests a monthly dividend you may want to consider having that dividend pay to cash and just reinvest it yourself when appropriate or you will violate the wash sale rule.
  • Purchasing a similar position and that position pays out a capital gain during the short time you own it.
  • Creating a gain when selling the fund you moved to temporarily that wipes out any loss you harvest. Make the loss you harvest meaningful or be comfortable holding the temporary position longer.
  • Buying the position in your IRA. This will violate the wash sale rule just like if you bought it in your taxable account. This is identified by social security numbers on your tax filing. So any accounts held under those same tax payer IDs are not allowed to purchase the security in that 30 day window of harvesting the losses.

Personal circumstances vary widely so it is critical to work with your tax professional and financial advisor to discuss more complicated strategies like this!

Angela Palacios, CFP® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.


The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

The Most Hated Bull Market

Contributed by: Angela Palacios, CFP® Angela Palacios

Investors seem to be skeptical of the second longest bull market run since World War II. For a refresher, a bull market is when share prices consistenly rise. Below, we see a comparison of the longest bull markets since World War II. The green line is our current bull market run. We have now surpassed the duration of the run in the early 1950’s but aren’t even close to the longest run that occurred through the 1990’s. 

The past 18 months have brought a fair share of hiccups in the market exhausting bullish sentiment, which is the percent of investors who have a bullish outlook for the coming six months. The S&P 500 has rallied strongly since the lows reached in February erasing negative returns for the year as of the writing of this piece. The following graph illustrates market sentiment among investors. The red line represents the S&P 500 while the blue line represents the percent of investors who are bullish (expecting upward price movement in the market). What’s unusual is that despite the recent rally investors remain skeptical and this usually isn’t the case. When markets rally this strongly bullish sentiment usually rises.

Market peaks don’t usually happen when bullish sentiment is this low.

Bull markets don’t simply die of old age.

Regardless of whether this market is loved or hated, the Center’s investment team  continues to monitor the markets and the economy closely for signs of recession while remaining committed to a diversified investment strategy.

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.


Any opinions are those of Angela Palacios and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

Diversification does not ensure a profit or guarantee against a loss. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

Political Parties and their Impact on Your Portfolio

Contributed by: Jaclyn Jackson Jaclyn Jackson

Primary season could be worrisome for some investors as they try to figure out who will become our next president, how that person’s political ideologies will influence stock markets, and ultimately how that may impact their investment portfolio performance. I’ve explored the most common myth about political parties and its effect on the US stock market - the result is pleasantly surprising. 

Myth:  Big government ideologies held by Democrats make them worse for the stock markets while small government and small business driven ideologies make Republicans best for the stock markets. 

Bust:  Whether a Democrat or Republican is elected, historical data indicates that it has no statistically significant bearing on US equity markets. Illustrated below, both parties have experienced a similar amount of presidential terms with positive equity returns based on the Dow Jones Industrial Average from 1900-2012. 

 Sources: Bloomberg, Oppenheimer Funds. As of 12/31/14.

Sources: Bloomberg, Oppenheimer Funds. As of 12/31/14.

 

Even though Democrats edge out Republicans by return percentage, there really isn’t much difference once you adjust for the normal variation in stock market returns. The results are reassuring; markets aren’t largely swayed by the president’s political party. 

Tips for Politic-Proofing Your Portfolio

While political parties don’t necessarily dictate market performance, they do generate policy plays that influence the economy. Divergent policy priorities around issues like individual taxes, the environment, healthcare, financial regulation, Fed policy, etc. could affect specific market sectors (i.e. healthcare, energy, utilities, and financials). 

Yet, investors can be confident in deploying two key strategies to help armor their portfolios against sector specific market fluctuations: diversification and long term investing. Diversification works to improve portfolio risk return characteristics by spreading investment exposure across different asset classes. In other words, it can assist in buffering your portfolio from concentrated portfolio swings to help achieve better risk-adjusted returns. Likewise, long term investing generally guards against short term sector movements by providing those who stick to their investment strategy less volatile returns over time. When you have a well suited, diversified long term investment strategy, you don’t have to fall into the trap of investing based on the political climate.

For more information of the benefits of diversified investing, click here.

Jaclyn Jackson is an Investment Research Associate at Center for Financial Planning, Inc. and an Investment Representative with Raymond James Financial Services.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Diversification does not ensure a profit or guarantee against a loss. Holding investments for the long term does not insure a profitable outcome.

Sell in May and Go Away, Revisited

Contributed by: Angela Palacios, CFP® Angela Palacios

Questions arising during this election year have prompted me to revisit an old topic. This election year seems anything but average (or at the very least entertaining), but what happens when you layer in the old debate of whether it is a good idea to, “Sell in May and go away.” Will this election year be different? 

Markets tend to have their stronger performance between October and May, which, despite a major bump in the road during January and February this year, has certainly held true in the past year. 

 This chart is for illustration purposes only.

This chart is for illustration purposes only.

There are many theories as to why this could be true:

  • Investors tend to fund their IRA accounts either early or later in the year.
  • There could be lower summer productivity for business.
  • And the most obvious, people prefer to be outside rather than inside investing their money (especially in Michigan).

However, this year could be different. If you look at monthly returns in Election years the above picture is contradicted.

 This chart is for illustration purposes only

This chart is for illustration purposes only

Strategies involving the short-term timing of the markets usually end up hurting investors rather than preserving or boosting returns, so take caution.

I am often asked if investing should be held off until after the election during years like this. However, I believe experience teaches us that we are better off if we keep our voting and investing decisions separate.

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to The Center blog.


Source: The Big Picturehttp://www.ritholtz.com/blog/

Any opinions are those of Angela Palacios and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

Investor Basics: Bank Loans, Interest Rates, and Game of Thrones

Contributed by: Nicholas Boguth Nicholas Boguth

In the spirit of preparing for season six of Game of Thrones, this set of Investor Basics and Investor Ph.D blogs is aimed to discuss bank loans and interest rates with respect to the increasingly popular adventure/fantasy television series. Check out our Director of Investment’s blog “A Game of Negative Interest Rates” HERE.

There are three types of bank loans – 1: Central Bank Loans, 2: Interbank Loans, and 3: Consumer Loans. Each loan is between different parties and has a different interest rate.

Central Banks require commercial banks to meet reserve requirements to ensure their liquidity. At the end of every day, after all of a commercial bank’s clients deposit and withdraw money, if that bank has less than the reserve requirement then it has to borrow money to raise its reserves.

If it has to borrow money to raise its reserves, it has two options. It can either borrow from the Central Bank at the discount rate, or borrow from a fellow commercial bank that has excess reserves at the end of its business day. Commercial banks borrow from each other at the federal funds rate. Currently the discount rate is 1% and the federal funds rate is 0.5%. Obviously, commercial banks prefer to borrow at the lower rate, so interbank lending is much more common than borrowing from the Central Bank. Borrowing from the Central Bank is more of a last resort for commercial banks.

The third interest rate that banks deal with is the bank lending rate. This is the rate that we, the consumers, see when we walk into a commercial bank and ask for a loan. The discount rate and federal funds rate affect banks’ lending rates, but it is also influenced by how creditworthy the customer is, the banks’ operating costs, the term of the loan, and other factors.

For all you Game of Thrones fans, you can think of the Central Bank like the Iron Bank of Braavos. It is the most powerful financial institution in the world, but it only lends to those that can repay debts (e.g. the Central Bank only lends to commercial banks). Not just anyone can borrow from the Central Bank, but the Lannister’s can because “A Lannister always pays his debts.”  SPOILER ALERT coming for anyone who has not made it through season 5: Remember back to season 5 when the Iron Bank is forcing the Iron Throne to repay one-tenth of their debts? Lord Mace offers that House Tyrell could lend the Lannister’s some money so that they could meet the Iron Bank’s “reserve requirement” of one-tenth. This is interbank lending! Thankfully for us, the cost of borrowing money in real life is only the interest rate, whereas in Game of Thrones it could be one’s life.

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc. and an Investment Representative with Raymond James Financial Services.


This material is being provided for information purposes only. Any opinions are those of Nick Boguth and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

Chinese Stock Market Manipulation

Contributed by: Angela Palacios, CFP® Angela Palacios

Since last summer the Chinese government has played a very active role in manipulating their own stock market. Which markets are affected can be very confusing as there are many different exchanges and types of shares that can be purchased.

Chinese Equity Markets: A Tutorial

The Shanghai exchange houses the A share stock market. These are the shares of Chinese companies that are available mostly to domestic Chinese investors (who in most cases are prohibited to invest outside of this market) and institutional investors granted special permission by the Chinese government, denominated in their local currency, the Renminbi. This currency is no longer pegged to just the U.S. Dollar but rather to a basket of currencies. See my colleague, Nick Boguth’s blog regarding the state of China’s Currency.

In contrast, the Hong Kong exchange houses the H share market which is shares of Chinese companies available to investors outside China and can be freely traded by anyone. H shares trade in Hong Kong dollars. In contrast to mainland China, Hong Kong dollars are still pegged to the U.S. Dollar.

B shares, while lesser known than A & H shares, are also available and these are Chinese companies with a face value in Renminbi, but trading in U.S. Dollars on the Shanghai exchange. These are available to foreign investors as well as Chinese investors who have foreign currency accounts.

There has been a huge difference in company prices that trade on both A and H share exchanges and there is no channel to arbitrage this away. A shares ran up coming into the summer of 2015 causing a huge imbalance when compared to the H share market. This means investors in the A share portion of the market were paying far more for a company than investors in the H share market. On the flip side the A shares have declined much more sharply than the H share market as well.

The Pressure in China Picks up

China is nearing the end of incredible growth. It built up far too much capacity and credit. As the economic slowdown in China began to accelerate, volatility in the stock market started to pick up in the middle of 2015 spilling over into our markets here in the U.S. The Chinese government has had to step in to stem the bleeding created by A share sellers. 

A Timeline of Market Manipulation

The government became a buyer of shares on the weakest days and then took even further steps last July suspending the holders of 72% of A share stocks the ability to sell their stock for six months. Investors that held at least 5% of a company’s outstanding stock was simply no longer allowed to sell it. Communism at its best! 

In early January 2016 this ban on sales was set to expire and there was much worry that volatility would come back, which it did. At this point, January 4, 2016, the government put controversial breakers in place to halt trading in case of extreme selling on the A share market, disbanding them only four days later after the widespread panic this caused. They ended up suspending/halting trading twice in this short time. In contrast, H share markets were down also on these days but far less than the A share markets before the halt.

In place of the circuit breakers, China came up with a plan to restrict stock sales again by these large shareholders. At this point a stockholder who owns more than 5% of a company is required to sell shares only through private transactions to help avoid shocks to the market.

With so much intervention we are left wondering if a free market even exists over there and if there ever was one to begin with. Thankfully the selling pressure has slowed and markets both there and here have quieted down a bit. As always though, it will be interesting to watch how events and markets unfold the remainder of this year!

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well as investment updates at The Center.


“The ABCs of China’s Share Markets by Mark Mobius http://www.cnbc.com/id/

http://www.voyagercapitalmgt.com/an-update-on-china/

http://www.bloombergview.com/articles/2015-07-09/china-shows-how-to-destroy-a-market

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. Opinions expressed in the attached articles are those of the authors and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Please include: Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Investment Commentary - January 2015

2014 was highlighted by the continued dominance of America’s large cap stock bull market and a bond surprise with US treasuries providing returns to investors. We like to think of markets in cycles and you may be feeling more and more used to stock returns as it’s been more than five years since we had negative returns in US large company stocks (generally). Moreover, you may wonder why you would own anything but US stocks and bonds given a divergence of returns between US large companies and almost everything else.

The Curse of Diversification?

If you have a diversified portfolio of different types of stocks and bonds as we recommend through asset allocation, it may to be frustrating to see the largest US benchmarks with double-digit returns while other different types of stocks have been more mediocre. Using 2014 as an example, small cap stocks as measured by the Russell 2000 were up 4.89% vs. 13.69% for the S&P 500. Meanwhile, foreign stocks as measured by the MSCI All-Cap World Ex-US were down for the year return -3.87%.

As you can see from the chart below, the drop-off was precipitous. While we have made some adjustments to our recommended mix of stocks, we continue to recommend a commitment to diversification.

It is difficult to overstate the power that diversification has in terms of long-term investment returns. By long-term, we don’t mean one year or three years but over decades which is ultimately the time horizon for most of our clients at least for some of your money. Indeed, the SEC refers to “The Magic of Diversification” on their website educating investors. They go on to note, “The practice of spreading money among different investments to reduce risk is known as diversification. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.” Source.

Bond Redux

While we have been amongst the majority of investors who have been concerned about rising interest rates over the next five to ten years, bonds reiterated their unwillingness to be predictable in 2014 by returning close to their lows in terms of yields. The ten-year treasury yields 1.93% today (January 12). That number seems impossibly low, likely manipulated by a very accommodating federal reserve. It’s not difficult, though, to see why it may stay that low for some time when you notice that the German ten-year bond yields 0.47% and a Spanish bond – much less creditworthy than Uncle Sam – pays just 1.64%.

Predicting short-term bond returns is a fool’s errand. That said, the very low bond yield – about the same as inflation – coupled by forewarning from the federal reserve that rates may go higher this year means our outlook is unchanged. From year-to-year we can’t predict the returns of bonds, but over the next several years, yields will likely go higher. This march higher would be likely to accelerate if there were signs of inflation which seems to be the farthest thing from reality with CPI less than 2% right now. As with all things, it’s healthy to not assume anything.

We have more to share in our investment commentary website http://centerinvesting.com.

You will not find us making predictions for investment returns in 2015. We can predict that your commitment to financial planning coupled with a long-term outlook when working with us to make investment decisions will have a positive impact on your ability to meet your financial and life goals. We appreciate your partnership and trust in allowing us to work together to meet your needs.

As always, please don’t hesitate to contact us for any questions or conversations.

On behalf of everyone here at The Center,

Melissa Joy, CFP®
Director of Wealth Management

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2013, Melissa was honored by Financial Advisor magazine in the Research All Star List for the third consecutive year. In addition to her contributions to Money Centered blogs, she writes investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.


Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Melissa Joy & Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. C15-001750

Investment Pulse Fourth Quarter

invcom_20140417b.jpg

While the end of the year is busy with processing RMD’s, charitable gifting and loss harvesting we still find time to dedicate to research.  In the last few months of the year we heard from a wide variety of money managers and got their take on the markets.

Kathleen Gaffney, Portfolio Manager for Eaton Vance

  • Kathleen feels like they have reached an inflection point in the bond market, even though fundamentals for the economy are still positive, high yield is selling off and investors seem to be bracing for higher rates to come.
  • She feels the risk worth taking at this time is found in the equity markets in companies with good fundamentals.
  • There is so much cash on the sidelines now that every time there is a selloff in bonds causing rates to rise there are many buyers swooping in to buy up the bonds bringing the rates right back down.

Joe Zidle of Richard Bernstein advisors

Often seen on CNBC, Joe came to Detroit to share some of his company’s views of the markets in general.  They have many interesting and often differing viewpoints from the consensus. 

  • He describes the market now as a secular equity bull.  “Bull markets don't end with skepticism, they end with euphoria.  Markets can't be overvalued if people are uncertain.”
  • There is still a lack of capital spending by U.S. companies to invest in the future of their businesses.  94% of S&P 500 companies are putting money into share buybacks and dividends rather than in capital spending. 
  • He says we are still early in the business cycle.  Business cycles start here in the U.S., go to Europe and then finally the emerging markets.  They see the emerging markets and China as still “in a bubble” while Europe is still correcting.

Jeff Rosenburg CIO of Fixed Income for Blackrock

Jeff is another expert who is often seen on CNBC.  Jeff stopped worrying about bonds and learned to love them in 2014.

  • According to Jeff, where you hold your duration (by maturity) matters as much to returns as how much duration you own.  Active management can help a portfolio by managing this.
  • He says high-yield bonds will take on more interest rate sensitivity.   They tend to be shorter maturity bonds as these companies aren’t trusted enough to loan to them for longer periods of time. This will subject them to more interest rate sensitivity than normal when short rates start to rise.

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Angela Palacios and not necessarily those of RJFS or Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Investment Pulse: What we’ve heard in the Third Quarter

invcom_20140417b.jpg

While the quarter started quietly, as summer was in full swing, it ended with a bang as Bill Gross announced his departure from PIMCO.  As summer travel and vacations died down, we ramped up our travel to collect insights from some of the world’s largest money managers.

Socially Responsive Investing with Neuberger Berman

In early August The Center’s Investment Committee had the opportunity to speak one-on-one with the management of Neuberger Berman’s long-time successful Socially Responsive Investing (SRI) strategy.  Since this is an area that seems to be gaining in interest from our clients, we talked with some of the most successful investors to get their take on how they do it.

  •  Process: They look for areas of business that have tailwinds and find the best positioned companies.  They analyze the companies for 13-15 months.  Once a company meets their expectations, it is added to their prospect list (173 names currently).  When looking to buy they ask, “Why is the price attractive?”; “Is something broken (based what they know about the company)?”; “Does the stock have value criteria?"
  • SRI has five avoidance points:  alcohol, tobacco, weapons, nuclear power, and gambling.  The investment team wants a management team that makes thoughtful, long-term, fundamental decisions.

Steve Vannelli, CFA, managing director of GaveKal Capital

On a trip to Denver, CO to visit clients, Matt Chope, CFP®, Partner, spent an afternoon in September with Steve Vannelli, CFA, Managing Director of GaveKal Capital. Matt and Steven discussed many aspects of investment markets, interest rates, and the state of the economy.  Steven shared GaveKal’s proprietary approach to finding what he calls "knowledge leaders" or firms with an R&D intensity greater than that of the industry they are a part of.  He finds a correlation to these innovative companies of higher future sales growth, higher future Return on Assets, and higher market share as well as lower variability to earnings and stock returns.

Steven described how to better understand the intangible investment that many of these companies make, which he says is the key missing element in understanding the true company value. In that, he says, lies the misunderstood inefficiency in the marketplace.

Matt also learned about their proprietary quality models that scrubs the balance sheet, reviews financial leverage, calculates net debt as a percent of capital, and, most notably, intellectual property as a percent of assets of 1600 companies around the world.

Goldman Sachs, Blackrock and JP Morgan on-site visits

Matt continued his busy schedule with due diligence meetings in New York City.  Global macro themes were the main takeaways from his discussions.  Topics ranged from deflation in Europe to the energy revolution in the U.S.

While many of these companies do not currently have representation in our portfolios, the discussions with management are key to us in the overall management of our clients’ investments.  One of the worst risks you can have is the risk you don’t know about. Discussions like those we had in the 3rd quarter help us to understand where potential risks could be coming from.  While we at The Center can’t be on the ground in 20 different countries every year, we have the opportunity to leverage many experts and listen to their sometimes conflicting viewpoints.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios, CFP®, Portfolio Manager and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.