Insights

Monthly Market Updates

Time for Value…Now?

05.2020

Value stocks have underperformed their Growth peers by a gap never wider in history, leaving some to suggest it’s time to throw in the towel. But history shows that when the performance on a long-held strategy is at its relative worst, generally speaking, it’s best to stay true to your defined approach. More than hope drives that view. Both the basic premise for Value investing remains applicable, while the vastly expanded valuation gap between the two groups of stocks bolsters our outlook. We thus remain committed to Value as one of the factors we incorporated into our multifactor approach.

Listen to CIO Mark Mowrey introduce this month’s commentary:

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Q1 2020: Quarter in Review

04.2020

The first quarter of 2020 will go down in history as among the more chaotic periods of investable market activity. Though markets may be recovering, they likely will remain volatile as new data clarify the macroeconomic effects of the coronavirus outbreak and the supply tensions/demand drop-off in energy markets. That likely means recession or worse for perhaps part of Q1, most or all of Q2 and potentially beyond. This latest episode of market tumult is another stark example of the market’s ability to amp anxiety, even as we can recognize the events of the first quarter as echoes of similarly turbulent periods in history. We otherwise will seek to remain focused on stabilizing investment paths that route to longer-term financial outcomes.

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In the Thick of It

04.2020

Through the end of March in a pretty remarkable turn of trends, the domestic equity market rebounded 15% over the course of six trading days after the Federal Reserve let loose a rainbow of market support mechanisms and the U.S. Congress passed legislation worth more than $2 trillion in budgeted relief for U.S. businesses and workers. With peak-COVID in the U.S. likely still in the future, and with the macroeconomic impact still only very vaguely estimable, it’s easy to think up reasons to believe the rebound has gotten a bit ahead of the fundamentals. Even so, with the market still well off its February peak, we think history will show that patience amidst heightened volatility was rewarded over time.

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Market Update: Records Set, Tolerance Tested

03.2020

After the day before turning in its fifth-worst day in history—its worst single-day performance in more than three decades—on Friday the S&P 500 turned around to record its tenth-best daily return in history. That it ended on a strongly positive note may have been little relief for the anxious, as the index remains down just under 20% from its February record peak. The two-way volatility we saw last week offered a strong reminder that remaining invested during times of market tumult generally has proved the better course for those with reasonably long investment time horizons.

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Market Update: Bearing the Bear

03.2020

As markets roil, it’s increasingly evident that the eventual depth of this downturn will depend on the breadth and duration of the dual contagions now spreading across the globe: the coronavirus outbreak and the oil price war. With the actual disease threatening human life and macroeconomic growth, potential duress in the energy sector threatens to jump from oil companies into the financial sector and beyond. Headlong into the market plunge, we sought some perspective—and even some reassurance—from history. Though we find a wide range of durations for past market drawdowns, just as obvious from the data is the fact that, in its having reached another peak just a few weeks ago, the equity market eventually recovered from every prior drawdown.

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Market Update: Stockpiling On

03.2020

Investors needn’t another layer of uncertainty, but received one anyway over the weekend after a meeting of members of the Organization of the Petroleum Exporting Countries (OPEC) and its partner countries (together OPEC+) collapsed. Saudi Arabia slashed prices and matched threats from Russia to increase production. Meantime, COVID-19 cases surged in the U.S. and in Europe, with sovereign and local governments implementing increasingly strict measures to contain the spread. With global growth already suffering from coronavirus pressures, contagion took on another meaning as investors began to worry about an oil sector-driven credit crisis. Risk markets tanked around the world as U.S. Treasuries soaked up that anxiety. When we wrote in last month’s commentary that we always should be expecting the unexpected, we didn’t think we’d find so soon such a stark example.

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Novel, But Not New

02.2020

It would seem that investors finally began to focus on the near-to-medium-term potential impact of the COVID-19 virus. Or, was it that the Democratic Party debates were stirring fears of an increasingly tumultuous progression to the 2020 Presidential Election? We might best assume both, even as we respond to the recent dramatic decline in the equity markets by staying the course. That is, to the extent that we always should expect the unexpected as part of the investment process, the longer-term plans we have set before such events likely need not be altered.

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Hypothesizing Retirement, Part 3

02.2020

We closed January’s commentary with the thought that the vagaries of market returns we see in history are likely to persist in the future. While we cannot foresee what shall become of the market over the longer-term future, we can plan to be adaptable to circumstances in the interim. In particular as we begin to withdraw more than we save in our investment portfolios, we may need to balance the longevity of our savings against levels of spending. One also may wish to de-risk portfolios through time as sensitivity to market volatility rises. An advisor can help clients establish and implement plans that take into consideration such details and, over time, assist in digesting new information, altering existing plans where necessary.

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Q4 2019: Quarter and Year in Review

01.2020

One might suggest any hesitancy to be exposed to investment risk at the end of the third quarter proved misplaced, as returns for Q4 2019 show green most places one looks. Then again, one might in response state that misplaced is a poor choice of words, with premature perhaps a better qualifier as relevant risks remain reasonably elevated as we head into 2020. Such is the natural push/pull of acknowledging the past and gauging proper expectations for the future. Our perspective? As always, there are reasons to be both cautious and optimistic. Depending, of course, on individual preference for each.

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Hypothesizing Retirement, Part 2

01.2020

Last month, we discussed the highly variable magnitude of investment outcomes over longer periods of time. The focus was on the accumulation phase of our investment lifetimes, or those years when we tend to be saving much more than we are spending. Markets may prove just as variable when we begin to spend our invested savings, while the fact that we have begun to subtract from invested monies adds a further complication to the math. This month, we want to focus on that math, hoping to provide a bit more perspective for discussions related to the longevity of investment portfolios.

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Hypothesizing Retirement

12.2019

Investment hypotheticals are imaginary scenarios of portfolio returns. Summaries of theoretical past or future circumstances, they may serve as powerful tools for instruction, in particular we think when the goal is as much to convey how the investment math works as it is to convey the results of that math. Helping folks think through the arithmetic of retirement planning is one such effort for which we think examples of and discussions over such what-ifs can be truly impactful. Starting with the “accumulation” phase of investment, this month’s commentary is the first in a three-part series we’ll pen to illustrate that math.

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Time for Value?

11.2019

Depending on how one defines the group, Value stocks have underperformed Growth stocks for a decade or longer. This potential for long periods of underperformance is one of the primary reasons that we “tilt” our portfolios toward Value, while also incorporating multiple factors into the stock selection process. Value’s underperformance, nonetheless, does not dampen our preference for increased exposure to less-expensive stocks. The underperformance has coincided with an expanding valuation gap between Value and Growth stocks. We find that trend bolsters both the premise of our preference for Value and our belief that forward returns may benefit from favoritism toward stocks that have been left behind in this latest market surge.

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Q3 2019: Quarter in Review

10.2019

The third quarter was tense in manners similar to the thrilling, but otherwise inconsequential subplots forced into the hurtling-toward-a-super-bad-outcome narrative of a typical disaster movie. This year’s trade scrap is just one round of many past and likely future struggles that the U.S. will experience as it seeks to come to terms with an ever-surging China. It seems obvious from the market data that investors have eyed the contest closely. But global growth was slowing anyway. As nations seek to deal with a range of long-term growth-sapping pressures, the third quarter presented a fresh reminder to stay observant of the underlying plot, even as exciting side stories may draw attention elsewhere. In the same way, we wish to remind readers that the “plot” on which to focus when it comes to investing revolves around short- and long-term financial goals. Best to leave the otherwise weakly relevant subplots on the cutting room floor.

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Recess[ion] Bell

10.2019

Seems like each day brings a new call that a recession is right around the corner. Or, if not right around the corner, somewhere in the nearer-term future. If not so soon, then likely at some point over the next few years. Or perhaps later. Of course, one of those statements must be true. As always, the timing of that recession is up to the universe to decide. And where timing is considered, we generally caution against shifting target portfolio exposures in light of any “pending” recession. We find the most defensible approach is one that sticks to target allocation that accommodates comfort with the potential market-related ramifications of macroeconomic downturns, while remaining focused on longer-term plans.

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“It’s All Relative”

09.2019

Normally we’re not big fans of the phrase, as it’s often used reflexively rather than with specific intent. On the contrary, we reference relativity often and with specific intent. For example, we regularly remind readers that expectations for greater relative return should be accompanied by expectations for greater risk. This month, we offer perspective on the historical relative returns of a range of mixtures of equity and fixed income using the benchmarks we utilize for our portfolios as the basis for comparisons. The goal of the review is to further support the process of defining client comfort with exposure to market risk and to provide a means to establish reasonable expectations for short- and long-term outcomes.

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Withered Yields

08.2019

Wasn’t so long ago that we were applauding more generous yields among our fixed income exposures for the greater income over the longer term that they may provide. This despite the nearer term drag from the impact that rising rates had on bond prices, the movement of the latter being inverse to that of the former. So much for all that. A conspiracy of waning global growth, declining inflation expectations, rising geo-trade tensions and rather more perilous political turns of tone have seen interest rates near world-round sink on growing pessimism and uncertainty. Investors should be careful, we think, to respond by creeping up the risk curve, as bangs-for-buck remain historically weak among most of the riskier income-focused investment.

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Q2 2019: Quarter in Review

07.2019

Yet another quarter has gone by during which, were it not for the actions—or, rather more appropriately, expectations of forthcoming actions—by the Federal Reserve, equity markets otherwise might have turned in a rather more sober tally. With earnings growth waning against a backdrop of elevated valuations, perhaps too much hope rests on a nearer-term future over which the Fed may be able to exert only modest influence. As we wonder which wags which, tail or dog, we remain focused on providing broad means for investors to work with advisors to address any shift in tolerance for the elevated risk and uncertainty of it all.

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Regional Value

07.2019

In last month’s commentary, we sought to support our desire to maintain international equity exposures with an argument in favor of the greater diversification they may provide. This month we want to offer a bit of a boost to the idea using a review that should be familiar. The rather subdued relative performance of international equities has left their valuations generally lower, versus their own historical levels and relative to the U.S. market. While those gaps do not suggest immediate reward is due, in our view they bolster the idea that a portfolio inclusive of global stocks may find relative favor over the longer-term.

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Challenging Our Biases

06.2019

Humans can be faulted for behaviors of all sorts, and our penchants when investing are not immune to such criticism. One of the more powerful biases is our tendency to see the recent past as a fuller record than it is. As went the past few years, so must have been the past few decades, no? Not invariably, perhaps not even often so. The outperformance of the U.S. equity market seems to have many regretting international stock exposure. We find such thinking faulty both for the potential additional diversification a global portfolio presents, as well as what we may expect to prove more rewarding potential longer-term return.

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Don’t Forget to Save

05.2019

Our industry spends a great deal of time thinking about where a portfolio is invested and how those investments perform over time. Perhaps not enough time is spent discussing the force we think most impactful with regard to meeting long-term financial goals: savings. After all, without savings, there’s no portfolio. And no manner of fanciful investment scenario can save a financial plan that focuses too little on dollars put away for far-in-the-future spending.

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Q1 2019: Quarter in Review

04.2019

The first quarter of 2019 provided yet another example of why we think it generally is a good idea to be disciplined in our investment decisions through market tumult. Such discipline should include not only retaining investment exposures when the going gets rough. It, too, should include a thoughtful approach to portfolio rebalancing according to previously established long-term plans. Pushing our own wares here, of course, but we think being able to turn to a coach that is mindful of the sorts of mental challenges market volatility can present can make all the difference when it comes to finding long-term investment success.

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Owning Apple…and So Much Else

04.2019

We continue to believe that, based on our experience and that of the broader industry, a focus on individual stocks and the stories they present at best has a neutral effect on portfolio performance, relative to the market in general. Stock picking, in our view, may even lead to worse-than-optimal outcomes for investors. Far more powerful, we think, is a focus on types of stocks. That is, we seek to establish favorable investment prospects based on commonalities across stocks, rather than the idiosyncrasies of each. Such statements often lead to a bit of head-scratching, so we thought we’d dive a bit deeper in this month’s commentary.

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What to Talk About Today?

03.2019

Never ceases to amaze us the ways financial market media will torture market data in order to come up with fresh content. Suppose that’s the beauty of data…always another way to look at them. We caution folks not to find too much meaning in all the slicing and dicing of near-term market moves. It’s meant to glamorize and mesmerize, not necessarily to provide you with useful insight. That’s not to suggest market data can’t be of great use. More valuable insight, though, can come from reviews of the rich history of information investible markets have generated, not the last few moments of market time.

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Since you asked…

02.2019

We generally seek to provide in-depth reviews of themes supporting our approach to investment management each month on these pages. We understand, though, that a brief overview sometimes can prove an effective refresher of the fundamental tenets of our work. This month, we will revisit a range of those themes in a “frequently asked questions” format.

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Q4 2018: Quarter and Year in Review

01.2019

For the first time in a decade, the S&P 500 Index posted a calendar year loss. Meantime, the domestic investment-grade fixed income market barely managed to turn positive for the year, the primary savior likely having been a flight to safety wrought by the equity market’s decline. The recent, rather sharp rebound in equities has us thinking investors found the selloff overdone. Still, we’d hesitate to offer the all’s clear. But, while we do find a range of reasons for going-forward caution, neither further volatility, nor a reasonably positive gain for 2019 will surprise us.

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Perspective in Crisis

01.2019

For the past two years, we’ve made a point to highlight the natural ebbs and flows of global investible markets. A major part of the rationale was that over the past couple of years markets have been much less ebby and flowy than history suggests is possible…normal. Acknowledging that market-related headlines have turned qualitatively ugly over the past few months, we wanted to attempt to pull perspectives into the future. Before the latest ills, with time global equity markets always have recovered from whatever near- and medium-term chill they caught. While investors should regularly gauge their tolerance for medium-term drawdowns, they may find some solace in the understanding that the years ahead may still prove gainful.

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Market Update: Worries Pooling

12.2018

Usually not so many at once. While international equity markets have been pressured most of the year, U.S. equities are sharply lower since the end of September. While it’s generally usually more than a bit of a guessing game establishing causes for such shifts in market performance, we think the sudden severity of the recent decline left us thinking that such a review was worth exploring.

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Diversity’s Differences

12.2018

International stocks have strongly underperformed U.S. stocks this year. Such a large gap may lead many to questioning the value of owning stocks outside the U.S. As part of our investment approach, we see the inclusion of international equities as a natural extension of the diversification we pursue in all our portfolio exposures. Indeed, we see diversification across a range of historical periods as having allowed stronger performance among particular segments of the equity universe to offset weaker returns from others. The range of differences in performance and shifts in ranks among the segments over time may surprise some readers. That surprise is chief among the rationale for our pursuit of diversity.

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So Much Sideways

11.2018

For the second time this year, the S&P 500 Index has experienced a 10%-plus dive from its near-term peak. As those near-term peaks were also all-time peaks, the plunges have generated an extra amount of drama in regard to their meanings. A range of obvious pressures remain: healthy-at-the-present but unknown future macroeconomic performance against a backdrop of growing global trade burdens, local- and geo-political angst and historically stretched domestic stock valuations. And we can point to those troubles as rationale for recent market throes. But, we believe still generally healthy global macroeconomic growth, steady-handed global central bank policy efforts and reasonably good corporate fundamentals should prove more informative in regard to medium-term market movements.

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Q3 2018: Quarter in Review

10.2018

Thinking about the past three months, the word divergence comes to mind. Within equities, U.S. stocks continued to pull away from global peers as the U.S. economy furthered similar feats of distinction. Beginning later in the quarter and hastening in the current one, the domestic bond market sank anew, representing for many a departure from the conventional view of bonds as a source of relative safety. Despite the scale of these near- and medium-term shifts, we continue to believe that most portfolios may benefit from the additional diversification global equity exposures provide. And while the rising-rate environment may continue to weight bond returns in the nearer term, we remain confident in the belief that fixed income may provide appropriate portfolio ballast for those wishing to dampen equity-driven volatility.

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Bonds Burdened, Not Busted

10.2018

A fact of investing, bond prices generally fall as interest rates rise. This happens as holders of existing bonds sporting lower yields (which is the coupon paid divided by the price of the bond) sell them in favor of newly issued bonds carrying now higher going-forward yields. As the prices of older bonds fall, their yields rise. Initiated more than two years ago, a generally sustained upward shift in interest rates has pressured the broader bond market. But, those rate rises have left going-forward yields on fixed income investments materially higher. Further, continued strength in the broader economy has lifted equities, potentially offsetting drops in the fixed income side of portfolios exposed to both major asset classes.

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Mileage Varies

08.2018

Lots of folks talking about how long-in-the-tooth is this bull market. Some conclude the end is near. Others see room to run. Regular readers hopefully can guess what we think. Regardless how one determines bull markets, neither its eventual length, nor the length and depth of the drawdown that succeeds it are determinable in advance. Calling a bull-run “old” gives it an unwarranted sell-by date. Implying there’s great room to run similarly disregards market unpredictability. Bull-market variables like duration and magnitude do not have natural ranges. Cyclical bull/bear outcomes are further examples of market randomness. Suggesting otherwise serves little good in assisting clients in their pursuit of financial goals.

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OK Missing Out

08.2018

Fairly common to hear folks gabbing about how great a stock they own has performed. Common, too, having missed out on the run to the peak, the schadenfreude of those who avoided the downfall of former big winners. A recent example, we all might like to have seen our individual portfolios achieve gains like the shares in Facebook have seen since the company’s IPO in 2012. But, with this latest swoon yet another example, there’s been more than a bit of drama in the course the shares took to arrive at their current level. We think that’s true for all individual stocks and find that portfolio diversification in all its forms, while offering no guarantees, helps to avoid such duress.

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Q2 2018: Quarter in Review

07.2018

The second quarter proved mostly unexceptional. Sure, we could point to headlines and such, intimating at some connection between how markets reacted and reflecting on the performance of our models amidst those reactions. But, as we often note, such comments would be more conjecture than conviction. Besides, there really wasn’t much in the way of highlights (aside from one we’ll soon review). Although market volatility has risen, we might concede that markets are beginning to “work” in a manner more like that expressed in their pre-Financial Crisis past, a welcome return to ordinary.

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Duck on Water

07.2018

We attempt as often as we can to resolve many of the mysteries surrounding investment management and our version of it. Not always an easy task, as popular culture has left many with impressions far removed from the normal day-to-day activities that comprise our work. Rare is the frantic emotion suggested by cable financial news. Even rarer is agitated activity. By design, our work focuses on the client, who in our view generally doesn’t benefit from any such bustle. Rather, our approach is founded on the idea that the client is best served when investing is approached with calmer hands and longer-term goals in mind.

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A Future None Divined

06.2018

With the large-cap-stock focused S&P 500 Index now up 4.8% year-to-date, after its 21.8% jump in 2017 and its rarely interrupted run since the depths of the Great Recession, admonitions regarding the unsustainability of domestic equity market valuations are growing in number and volume. While we cannot argue statements of fact—that the immense gains have left U.S. markets nearly without precedent in regard to valuation—we can argue the implications. Certainly, there is meaning in stock valuations, and a present reading set against investment theory suggests future equity market returns may fall short of historical norms. Even so, the nature of market history suggests even more strongly that no metric, valuation-based or otherwise, can foretell future market movement. We thus continue to believe the best approach to managing exposure to market risk is one that focuses more on levels of market exposure appropriate for individual investment situations, rather than one that seeks to foretell and act in advance of market shifts.

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Range of Outcomes

05.2018

Fundamental to our approach to investment management is the acknowledgement that with most any increase in expected return, we also must expect an increase in risk. It is the balance between the two that we seek to match with client financial situations and goals. To help find that appropriate balance, we often turn to historical market data, which provide ample evidence for this simple rule. While we can’t be sure what the future will hold, we at least may seek to set proper expectations for what we might encounter. Such preparation we find goes a long way in supporting our endurance against whatever storms we may face and fostering our benefit from whatever good fortune markets may bring.

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Q1 2018: Quarter in Review

04.2018

Markets rose into the new year upon approval of sweeping tax reform in the U.S. Fortune turned in late January, though. Where investors once sought stronger inflation, it seems fears of too much of it saw perspectives flip. Compounding caution, increasingly contentious and sometimes erratic gestures from administrations around the globe left strategists warning of rising geopolitical tensions. Though the two forces had mixed effects on domestic bond prices, pressures from rising rates prevailed and fixed income returns were broadly negative in the quarter. Both trends lifted investor uncertainty to levels not seen in a few years, reminding many of the saw—past performance is not guaranteed—and leaving most segments of the equity universe in the red. Zooming out, equity investors may still find content in year-over-year gains easily in the double-digits, with now-higher yields potentially boosting bond returns going forward.

 

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Risk in Context

04.2018

With interest in and media coverage of investible markets so expansive, market volatility has become much more of a shared experience. Actual exposure to that volatility need not be. The design of our models acknowledges as much, with the range of exposures to investment risk they present offering flexibility to address specific needs of unique investors. While we utilize fixed income holdings to offset equity market risk, bonds are not without risks of their own. Still, the bond segments in which we invest generally are more stable than equity investments, offering the tools we seek to balance desired return with commensurate risk.

 

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Rising Rate Review

03.2018

More than a few folks are worried that interest rates are on the rise. Leaving aside the fact that rising rates generally are a signal of an improving economy, the concern may be warranted given the fact that bond prices generally fall as interest rates rise. Here as in so many other facets of investments, though, the perspective of time matters. As yields increase, we look to the potential for income from bonds to offset capital losses (as bond prices fall), a feature facilitated by the now higher yields on those bonds. Those concerned about the medium-term effects of higher rates on the bond portions of their portfolios may find some solace in this month’s review of past rising-rate periods.

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Market Update: All of a Sudden

02.2018

One of the several risk-oriented messages we hope has resonated with readers of our commentaries over the last year is that we have maintained a strong belief that the absence of volatility in equity markets did not in any way diminish the potential for volatility. Today’s turn of trend is a forceful reminder that markets can and likely will turn negative at times. These shifts can be abrupt, and they may arrive with no obvious catalysts. They may prove ephemeral or may herald a longer-term downtrend. Today’s result was quick to form, and we’ve read no singular explanation for its occasion. Unsettling for sure, it still was far from the worst seen in history. And though one may wish to turn and run for fear of more to come, it may not portend an extended decline. Longer-term goals perhaps better served, the plunge represents an opportunity for investors to revisit comfort with interim market losses via a discussion with a trusted advisor.

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Rates in Motion

02.2018

With the equity market plunge the talk of the trade over the first week in February, pundits offered a diversity of explanations as to why stock prices had turned so suddenly and a range of expectations for what’s to come. Though many pointed to the surge in interest rates as a reason for the downdraft in equities, less discussed was the impact on the rate shifts to fixed income investors. Though the sharp decline on February 5 led to a flight to relative safety in bonds, we acknowledge that the recent spike in yields still has negatively impacted fixed income returns in the near term. Even so, we continue to welcome higher rates as both a signal of a more properly functioning economy and as means for more fruitful long-terms returns for bond investors.

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Q4 2017: Quarter and Year in Review

01.2018

To call the past half-decade of domestic equity markets gains robust is assuredly an understatement, with such a strong and even-tempered march higher rare to uniqueness in history. The centers of investor attention, global central banks maintain steady and resolute control over modest shifts in monetary policy, while global macroeconomic dynamics remain firmly on the side of positive. Investors seem devoid of undue stress that errors in judgement or errant drifts from trend will disrupt the present lack of tension. Still, with caution sourced from history fraught with storms succeeded by such calm, we’ll note that the future holds equivalent potential to delight and disappoint. While we welcome a new year already off to a strong start, we will remain vigilant of shifts relevant to our portfolio positioning and offer the friendly reminder that peace and patience with market exposure is unique to the individual and well-worth regular revisits with trusted advisors.

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Onward. Upward?

01.2018

Market peaks may seem particularly frightening. Like the crest of a roller coaster, they may incite panicked concern that the only course from here is down. Unlike roller coasters, though, such anxiety is unattached from observable truth. While we can see the coaster track, there is no rule in investing that determines future trajectories. Nonetheless, we may find comfort in market history. Though the answers to “by how much?” and “for how long?” only may be determined in hindsight, we may use market history to show probabilities of future outcomes given starting circumstances. For those wary of the fact that December 2017 marked yet another peak for the S&P 500 Index, this month we look to provide detail as to what the future held for past market peaks in hopes that these data will prove comforting support for a chosen level of market exposure.

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Future Fret

12.2017

As the year comes to a close, prognostications for 2018 already are filling up our inboxes. We hope to spare readers another choice of whom to believe. Any meaningfully specific views we might share are no more likely to come true than the various others we’ll read over the next few weeks. The question on many minds, of course, is, “how will my portfolios perform next year?” We can only be abundantly honest and suggest that it’s impossible to know in absolute terms. Instead, we think a better idea would be to establish a level of ease with a range of market outcomes and align portfolios such that they might fall within that zone of comfort. Though the if-we-only-had’s are somewhat unavoidable, acknowledging potential fears and regrets in advance may leave us better off in the longer run and more relaxed in between.

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Time Can Mend

11.2017

To date, the U.S. equity market has recovered from all major and minor downturns. Even so, a time will come again when we are in the middle of an extended downturn. That presents a conundrum: How do we prepare otherwise risk-tolerant individuals to remain in markets that have treated them badly? We think the answer includes regular reminders about past market volatility as well as the illustration of the idea that the achievement of long-term gains may well require enduring stretches of heightened market volatility and extended declines. In this month’s commentary, we seek to revisit the worst of what we’ve experienced over the past few decades. Our intention is to remind readers about past market tumult and those subsequent recoveries. The upshot is that our investment time horizon is an important consideration when estimating our tolerance for market risk.

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Q3 2017: Quarter in Review

10.2017

With few grand shifts in themes over the past three months, global investible markets provided reasonably generous returns for the inherent risks they present. Solid gains seen across the board, broad-market investors may have been pleased with the results, driven by coordinated global macroeconomic growth and durable corporate fundamental strength. It seems many continue to believe great risks lie just around the corner, and that markets will turn quickly and furiously once those risks come into view. With more than a few major market meltdowns in our mental history books, we know there are reasons to be both optimistic and vigilant. But, such always is the case, in our view. That thinking driving our approach to investment management, we continue to recommend careful review of tolerance for market risk. The intention of such reviews is to provide a source of confidence that, whatever path markets will take, we may participate in a manner appropriate to our individual goals for growth and appetites for volatility.

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Progress Documented

10.2017

Managing client investments since 2007, Signature Resources Capital Management has generated nearly a decade’s-worth of investment management results. Chronicled in a series of individual total return histories, called composites, those past results may be viewed as representative of the market-relative performance of our style of investing. While not necessarily indicative of what returns we may expect to see in the future, we present our composites as demonstrative of the virtues of our investment philosophy and methodology.

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Gliding Home

09.2017

Risk is as much a part of investing as is return. Two sides of the same coin. In many cases, it is likely that individual tolerance for market risk will wane over time. Often due to age-induced pragmatism, we might like our portfolios to become less volatile as our demands for the security of the amount of those funds we have managed to accumulate grows. A progression in portfolio exposures from higher to lower overall expected portfolio risk can be labelled a “glidepath.” This glidepath expresses the past and potential future mix of exposures in the portfolio in order to set expectations for relative potential risk and return. In this month’s commentary, using the more recent past performance of U.S. equity and fixed income investments as a guide, we seek to show the relative potential risk and return impact of incorporating a glidepath into an investment process.

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Horizon Beyond the Peak

08.2017

All the talk about record market highs makes for a bit of discomfort. It can only be down from here, right? In truth, we can never be sure what the markets will do tomorrow, next week or next year. That in mind, we believe the proper approach seeks to invest according to an individual’s investment time horizon and comfort with market risk. With longer time horizons, in particular for those with continued future expected savings, even substantial near- and medium-term downturns may be resolved with time. And the prospects of missing out on additional gains may be seen as just as harmful to potential future wealth.

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Q2 2017: Quarter in Review

07.2017

The second quarter of 2017 proved fruitful as political trends in Europe were more favorable than some had feared, while aspirations for global macroeconomic growth remained positive atop seemingly more auspicious public policies. Risks both obvious and unknowable abound, but so do reasons for optimism with regard to the supports for potential further investment gains. Even so, such progress leads us to remind readers that returns do not come with guarantees and that now is as good a time as ever for an examination of portfolio allocations in the context of risk tolerances and investment time horizons.

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Enhancing Tilts

07.2017

The SRCM Investment Team maintains a vigilant watch over the mutual fund and exchange traded fund (ETF) landscape to ensure that we may maintain what in our view are the most relevant and cost-effective investment exposures within our portfolios. In that tradition, the Team has identified a range of exposures that provide more attractive positioning, a more favorable overall expense proposition or both. As we move forward through the year, our Advisors will be happy to discuss these incremental shifts with readers. While we remain true to our long-term, risk-conscious, fully invested investment philosophy, we believe that both watchfulness regarding present portfolio exposures and mindfulness to identify potentially more advantageous portfolio positioning should continue to benefit our clients.

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Maintaining Perspective

06.2017

On May 17, the S&P 500 Index dropped 1.82%. Day-after headlines were hardly subtle as breathless TV anchors whipped up anxiety like so much fresh cream. Compared to what’s proved a relatively tranquil year or so, the drop was noteworthy. But, while it might not have seemed such at the time, the day’s decline was not so far out of the ordinary as to be considered extreme in the context of the last near century’s-worth of market activity. This month’s commentary seeks to offer some of that longer-term context as a reminder that markets do sometimes experience substantial declines and that it’s been some time since we have experienced an onerous level of red. Though we may find solace in the equity market’s long-term positive bias, the shift in tenor highlights the need for regular reassessment of comfort with market risk.

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Comforting Numbers

05.2017

Experts agree: What tomorrow holds no one knows. Most experts, anyway. As we discussed last month, some folks appreciate more, some less, of the volatility that comes with an unknowable tomorrow. Still, market history has shown ways one can reduce the overall level of risk for a given level of return. A foundational tenet of our approach to investing, enhancing diversification, is one method to deploy while seeking to dampen the impacts of uncertainty in our day-to-day investment experience and potentially increase total return. For us, that means not only buying myriad U.S. stocks of all sizes and sectors. We also can seek diversity overseas. After a long spell of U.S. equity market outperformance, however, the chorus of investment isolationists has grown larger, their refrain louder. Nonetheless, while domestic stocks and bonds are likely to remain the core of our holdings for the foreseeable future, we continue to believe there are benefits to come from global-minded investing.

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Q1 2017: Quarter in Review

04.2017

It did not take long for the post-election euphoria to wane. Ostensibly created by the expectations for growth-oriented legislative and regulatory shifts, investor enthusiasm was met with the reality that the outlook for investible markets remains a bit muddy. The world is not as safe as it has ever been, equity markets are not as inexpensive as they ever have been and central bank policy, while suggesting stability going forward, still might be cause for disruption. And yet, while the jubilation may not be as widespread, investors do not seem to have turned to dismay. Indeed, first quarter performance proved rather fruitful and there are reasons to be a bit more positive from a fundamental standpoint as we head further into 2017.

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Expect Return? Respect Risk

04.2017

With investing come no guarantees. Nonetheless, a few reasonably sound principles so far have stood the test of time and form the core of our Investment Approach. The first element of our approach involves the mapping of combinations of broadly diversified global equity, fixed income and other exposures to specific risk-tolerance levels to formulate our range of investment solutions. Reiterating that return and risk are two sides of the same coin, this month we want to demonstrate how this component of our investment approach translates into the asset allocation decision.

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Labels Can Be Misleading

03.2017

We’re never surprised to see several “growth” exposures in prospective client portfolios we review. Naturally, Growth sounds so much more interesting than Value. But these names, which we’ll define shortly, can be deceiving. In fact, the return series for Growth-oriented portfolios generally are not as attractive as those built to emphasize less-expensive stocks. What might seem a more fashionable label often ultimately isn’t so functional when it comes to meeting long-term financial goals. Function is our sole focus when building investment solutions.

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One Strategy for All

02.2017

With changes in weather, we change our clothes. The more wide-ranging and unpredictable the patterns, the bigger our closets. So it goes with our investments. Markets never fail to press for change of fashion and function, as shifts from balmy rally to stormy correction can come swiftly. And our natural response to an abruptly changing environment, depending on the direction, is to duck and run for cover or to drop the coat and umbrella for shorts and sunglasses. But, what if we build our investments with an all-weather attitude in mind? That basic mindset defines our investment approach.

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Q4 2016: Quarter in Review

01.2017

The U.S. election seemed to dominate capital market movement during the fourth quarter of 2016, as investors first withdrew from risk markets leading up to the decision then embraced them after Donald Trump succeeded in defeating Hillary Clinton to become America’s 45th President. While strength in the U.S. dollar masked otherwise robust global equity market returns in the aggregate, our tilts to relatively inexpensive (known as, “value”) and to small-capitalization stocks boosted portfolio returns, versus the broader markets. While equity markets were positively affected by optimism regarding a Trump administration, fixed income markets were adversely affected by concerns regarding potential policy shifts. Investors began to anticipate higher macroeconomic growth mixed with higher inflation and higher domestic government debt, as well as a less accommodative monetary policy stance from the Federal Reserve. Longer-maturity bonds suffered the most, while corporate exposures fared better on account of the potential for faster growth to boost business activity and profit.

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Returns Commensurate with Risk

01.2017

Capital markets may always reflect the aggregate expectations of investors, but those individual expectations can and will change. Sometimes those changes can come quickly with the resulting market impacts at the same time dramatic and confounding. The final months of 2016 brought with them ample reminder of these truths. Market trends after the November Presidential election left many wondering whether their portfolios should adjust to some new realty, particularly on the fixed income side of the ledger. As we wrote in last month’s commentary, we do not presently believe any marked change in expectation or allocation is warranted. Furthermore, for those still worried about the future for their bond investments, we take the opportunity this month to provide some additional perspective on the important role fixed income can play in a portfolio.

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Unexpected. Not Surprising

12.2016

With all matters investment related, we seek to avoid surprise when the unexpected happens. This objective promotes a healthy skepticism of the consensus view and supports a calm demeanor in the presence of market instability. Even more, measured thinking encourages a heavy emphasis on risk measurement and control, a central tenet of our approach to investment management. Though the approach is not fail proof—we are human, after all—the intention at least ensures we maintain a proper perspective in all our work.

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A Signature Discipline

11.2016

Our approach to investment management seeks pragmatism in concept and efficiency in practice. It is grounded upon more than a century of market history and informed by our collective decades of investment and advisory experience. Executed with cost effectiveness and practicality in mind, our methodology acknowledges the give and take of return and risk inherent to all investments and is designed to be applicable to a very wide range of individual investment scenarios.

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Themes in Review

10.2016

Capital markets entered the third quarter of 2016 recovering from the turmoil impelled by the United Kingdom’s surprise vote to depart from the European Union. Nonetheless, equity markets generally saw reasonably strong gains in the third quarter, with fixed income markets generally tracing a path to green as well. Helped that fears of “Brexit” contagion quickly subsided, as broader hopes of further accommodation from global central banks and twinkles of light among various global and regional macroeconomic indicators instilled greater calm. Monetary policy followed through on those hopes, generally speaking, while trends in macroeconomic data provided a generally stable to modestly positive backdrop for equity markets to retain a positive bent. This, despite continued weakness in corporate profits, which intensified the upward pressure on equity valuations.

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