Investment Pulse Fourth Quarter

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

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.

Investment Commentary - September 2014

Clients and Friends,

While much of our communications with you in the last few months have been about The Center’s recent move, our intensive investment focus is always present. The last few months were marked by many insightful conversations with portfolio managers and investment professionals. This reminds me that at our core, our investment process is focused on good old fashioned research whether it comes to the way we construct asset allocation mixes or how we select investments for your portfolios.

Here is some news for you from our investment team:

• We’re more than halfway through 2014 and the financial markets have picked up where they left off last year. Not only are stocks measurably higher this year, but bonds have made a rebound with positive returns as well. We’ve got a new one-page investment dashboard that sums up the current investment world. We’ll update this one-pager each quarter going forward. Let us know what you think of the new look and feel.

• Angie Palacios, CFP® provides a great recap of the Morningstar Investment Conference which is held in Chicago each June. This is a can’t-miss conference each year and 2014 was no exception. She includes notes about employment predictions for the US economy and focus on international as some of the key takeaways this year.

• Our quarterly investment pulse includes recaps from four meetings held here and around Detroit and highlights the extraordinary access we’re able to get to investment professionals because of size and reputation. I particularly enjoyed a meeting with Joseph Brennan and Lee Norton from Vanguard. The discussion was broad and interesting including how Vanguard, known for their preference for indexes, identifies active investment managers for their offerings.  With several other top-notch investors giving us time for lengthy discussion, you can see the quality of discourse we are privileged to entertain.

• Matt Chope shares insight from a conversation with one of his favorite investors – Charles de Vaulx – who is a portfolio manager with IVA.

Do you have investment-related questions for us? Please don’t hesitate to let me or your financial planner know. Thanks again for your trust and commitment to The Center for the opportunity to work with you to pursue achievement of your financial goals!

On behalf of everyone at The Center,
Melissa Joy, CFP®
Partner, Director of Wealth Management
CERTIFIED FINANCIAL PLANNER™

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 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 risks and investors may incur a profit or a loss regardless of strategy selected.

Following Charles de Vaulx for 25 Years

The Center investment committee meets with and interviews dozens of management teams each year. We have face-to-face sessions, conference calls, and trips to company home offices. We recently had a chance to meet with a portfolio manager that we worked with for most of the last quarter century ... Charles de Vaulx. Warren Buffet once said:

A portfolio is much like a bar of soap, the more you touch it the smaller it gets.”

In order to keep portfolio changes to a minimum we spend a lot of time on the front end finding the right minds with an investment philosophy that matches ours.

Charles has represented part of three different teams over the 25-year period, including IVA Funds, but we have followed him. His approach to investing resides in the contrarian, absolute return, low risk, global, alternative asset class emphasis with experience in global value investing.

“The Perennial Bear”

Charles is usually looking at the world with a glass half empty viewpoint. His team was labeled “The Perennial Bear” during the market run up in the 1990’s as the greatest bubble in stocks was building and just before a 12 year bear market in stocks occurred. This was one of the longest bear markets in history. And just before the worst decade of stock returns in U.S. history (not many people realize that Dec 31st 1999 – Dec 31st 2009 produced a lower return in the S&P 500 than the depression period of the 1930s).

According to Charles, it had everything to do with price. People need to pay more attention to the price that is paid for the potential return that can be achieved going forward. That is where the work is done. The rest is patience and time. 

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

---

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Matt Chope and not necessarily those of RJFS or Raymond James.

The Investment Pulse: What we've heard in the Second Quarter

We’re always very busy with research, but this quarter has been full of broad and diverse perspectives.  In addition to off-site conference attendance, we have also met locally with many experts.

Vanguard: Active and Passive management discussion

Melissa Joy met with Joseph Brennan and Lee Norton from Vanguard Group in May at our offices. Mr. Brennan runs the Index Equity department. He is responsible for managing index portfolios with the firm. Mr. Norton monitors and reviews management teams on both active and passive strategies at Vanguard. Highlights from the conversation included: 

• With more than $1.5 trillion in index investments, they are one of a very small group of dominant players in the index investing world. We discussed what indexes they decide to make available for investment and how the portfolio review team monitors their internal index teams.
• Vanguard was featured in Michael Lewis’ recent book, Flash Boys. Having read the book, Melissa was curious about their take since they were prominently mentioned. They both acknowledged the real problems uncovered by IEX (a fast growing alternative trading system that avoids dark pools and high frequency trading) which was featured in the book.  They also believed that the desire for an entertaining and appealing financial book may have resulted in some additional hype that might not be warranted.
• We talked about Vanguard’s process for identifying active managers for their funds. Not surprisingly, cost was an important factor in hiring managers. Other factors that were favored included enduring teams, teams from employee-owned firms, and teams with ability to hand off succession from one generation to the next.

JP Morgan: A fixed income discussion

Priscilla Hancock from JP Morgan Asset Management sat down for a conversation about bonds, especially municipal bonds with Melissa Joy and Angela Palacios. We’ve known Priscilla for a while and have heard her speak in 2012. We’ve caught up with her three times since then. She has a great conversational way to talk about bonds and how they typically behave in rising rate environments. With many of the investors we like to speak with, it’s not always the first conversation that brings us the most value – getting to know each other over time provides robust information and is a critical part of our research and monitoring process.  Priscilla shared these perspectives:

• The aging US population is helping to keep bond yields lower. As boomers retire and age, they want more bonds, keeping demand high. Likewise, pensions are working to lock in stock market gains and are snapping up bonds any time rates creep up. It’s an interesting dynamic working against rising rates even though it doesn’t completely compensate for the push to higher rates that will probably occur at some point.
• Municipal bonds were last year’s trash with rising rates and headlines about Puerto Rico and Detroit taking the wind out of the municipal market. We discussed the situation in Detroit and why shifting rules on bankruptcy alarm municipal bond investors. That said attractive tax equivalent yields have increased interest in the municipal bond market and rewarded municipal investors this year.
• Proceed with caution when using passive indexes for bond exposure.  Issuers you want to avoid are the ones issuing the most debt.

Columbia: “Lose less in down markets”

This is not the first time that Scott Davis, Director at Columbia Dividend Income has checked in with us and we find that with time we are able to have more nuanced conversations with the portfolio managers. He noted that although stock prices have been headed north, he’s always reticent. In his words, “I don’t want to party like it is 1999 because it was a hell of a hangover.” He then elaborated saying the time-tested secret of investing is to lose less in down markets. Of concern is increasing merger and acquisition activity. On the more optimistic side of things, Scott says that companies are being run in a manner that’s better than he has seen in his almost 30 year career investing at Columbia. As a dividend-focused investor, Scott reminded us that buying dividends alone without understanding the source of dividends can be a dangerous proposition. He compared it to “picking up nickels in front of a steamroller.”

Water Island Capital: Event-Driven Strategy

Angela sat down with Ted Chen, Portfolio Manager of Water Island Capital’sArbitrage Event Driven Strategy, to discuss equity special situations.  Opportunity can abound here because most money managers don’t understand how to evaluate these situations.  The companies take on a negative stigma creating a potential buying opportunity for someone who specializes in understanding special situations.  We also discussed the volatility in the stock market and how it has become so minimal that the cost of hedging a portfolio is very low right now.

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. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Municipal bond interest is not subject to federal income tax but may be subject to AMT, state or local taxes. Income from taxable municipal bonds is subject to federal income taxation; and it may be subject to state and local taxes. Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax-advantaged status. Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Please consult an income tax professional to assess the impact of holding such securities on your tax liability.

Investment Commentary - 1st Quarter 2014

Dear clients and friends,

We’re four months into 2014 and so far there is not much to show for when it comes to year-to-date investment returns. Markets have treaded water in 2014 so far. Looking further out to the last 12 months, 3 years or 5 years and most investors in stocks or a diversified portfolio of stocks and bonds have been rewarded for their commitment to investing.

I mention this as we have just passed the five year anniversary of market lows in March 2009. I think it’s a healthy exercise to remember today your state of mind five years ago as an investor. Did you feel it was appropriate to put your faith in investment markets at the time? How do you contrast the stress that you may have felt along with most investors to the feelings related to quite positive stock market returns over the last several years?

The past few weeks marked another milestone as you likely filed taxes. High earners saw the bill from new taxes and rates. While tax burdens have become larger for many, the opportunities to manage taxes are coming to the forefront in the wealth management field. Strategies including asset location, cost basis election, and tax-loss harvesting are employed where appropriate.

If you’re a client of The Center, make sure you send a copy of your 2013 tax return. Information from this is used to evaluate your current tax circumstances and helps us to make more informed decisions on your investments and general financial planning strategies both on a before and after-tax basis.

We’ve done some sprucing up on our investment commentary website. Here are some things to look for this quarter:

• A tactical asset allocation dashboard is available with our investment committee’s latest weightings. Today we have bonds slightly underweight due to the low interest rate environment and stocks slightly overweight. We’re concerned about valuations for small company stocks in the US and have underweighted these positions. We are finding international equities more attractive due to valuations and have increased our allocations from underweight to neutral in the last six months.

• We have launched a quarterly investment pulse which gives you some insight to research and conversations with other investment professionals. Angie Palacios’ first edition of this update highlights our thoughts on municipal bonds, stock market valuations, and a manager departure at PIMCO.

• Investment returns as of the end of the first quarter are available along with Raymond James capital markets review summarizing current economic and investment data.

Whether markets are recently up or down, your commitment to a diligent investment process and focus on overall financial goals is to be commended. Please don’t hesitate to let us know if you have any questions regarding general investment strategies as well as your specific portfolio. Thanks as always for your trust and commitment to the financial planning process.

On behalf of everyone at The Center,

Melissa Joy, CFP®
Partner, Director of Investments
CERTIFIED FINANCIAL PLANNER™

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.

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. 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 Melissa Joy and not necessarily those of RJFS or Raymond James. Past performance may not be indicative of future results. You should discuss any tax or legal matters with the appropriate professional. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The Investment Pulse: What we’ve heard in the First Quarter

At The Center each of us spends a substantial amount of time reading, listening to speakers and attending conferences. The goal is to provide our clients with the best possible advice. Here’s a brief summary of the high points the Investment Department has heard this year so far.

Municipal Bonds

In January, Melissa Joy and Angela Palacios spoke with a Municipal bond specialist from T. Rowe Price. We discussed the current environment and what may affect municipal bonds looking ahead.

• Distressing news from Detroit and Puerto Rico last year caused retail investors to flee from municipal bonds in general, creating what many believed to be an excellent investment opportunity.

• This caused unusual cross-over buying which means that investors that typically only invest in taxable bonds were compelled by valuations and yield to purchase tax free bonds for portions of their portfolios. Banks are even utilizing municipal bonds as part of their liquid investment buckets. These are rare events.

• Tax filing time creates buying opportunities for municipal bond investors as taxes are top of mind in the March/April time frame when checks are being written to pay for taxes due.

Stock Market Valuations

There has been much heated debate as to whether the stock market is over or under valued on the fifth anniversary of the bull market. We attempt to review varying arguments in order to make educated decisions on the allocation of our portfolios. One extreme yet interesting view-point comes from Eric Cinnamond, Portfolio Manager for an Aston/River Road fund. Eric has strict valuation guidelines as to what he will and will not pay for small companies and is willing to hold cash in absence of opportunities.

• He has more cash than he ever thought he would have, currently 70% of his allocation. He feels valuations are very bloated and that for valuations to continue to expand, the U.S. economy will have to continue running at peak profits with no recession indefinitely (he did state that these valuations can continue for quite some time before correcting).

• When we get to these points in the market cycle, you start to hear the question, “Is it different this time?” Cinnamond says he is getting this question a lot lately because of his contrarian viewpoint.

• He will continue to hold cash as dry powder to deploy in the event of a market pull back and stands by his process.

Bond Giant Woes

In mid-January, PIMCO announced that Mohamed El-Erian resigned his role as co-Chief Investment Officer and Chief Executive Officer for PIMCO funds. While he had only an indirect impact on our PIMCO holdings we are continuing to watch further developments at PIMCO. Bill Gross & Rob Arnott remain the key managers to the PIMCO strategies we utilized for clients. While it currently appears Bill Gross is a difficult personality to work with he continues to provide excellent returns compared to the bond market in general.

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. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Municipal bond interest is not subject to federal income tax but may be subject to AMT, state or local taxes. Income from taxable municipal bonds is subject to federal income taxation; and it may be subject to state and local taxes. Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax-advantaged status. Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Please consult an income tax professional to assess the impact of holding such securities on your tax liability.

Investment Commentary - 4th Quarter 2013

What goes up... 2013 has been a year of extremes. The stock market[i] has produced dramatically positive total returns. Meanwhile bonds[ii] are suffering their worst losses in almost 15 years. Whether rate rise result in the advent of a new “rising rate regime” where returns have more and more headwind over time is yet to be determined. Meanwhile, stock returns have been so strong (north than 25% as of November 19th) that market watchers are increasingly debating the sustainability of continued positive returns.

Here are full asset class returns through the 3rd quarter. Of note: we have marked the five-year anniversary of Lehman Brother’s collapse – an infamous period in American market history and also a reminder of how far portfolios and personal balance sheets have come since that time.

Economic Update

The extremity of returns is being accompanied by more unexceptional economic growth. While a desirable recovery growth rate might be 4%, the real gross domestic product was most recently measured at 2.8%[iii]. What growth there is has come without a hiring bonanza that Main Street and the Fed are craving; unemployment continues to get better but at an unimpressive pace. There are, however, quite a few bright spots in the economy.

What are the bright spots?

• Always a critical factor to economic growth, housing prices are coming off a strong year of recovery with a tight supply and rising demand. Affordability of home ownership still seems to be reasonable due to low borrowing rates for those who can qualify and rising rents. While we don’t think the high pace of recovery can be sustained, we do think the housing picture will continue to look more positive.
• Corporate profitability continues to be near historic highs. Companies, like households, did a lot of belt-tightening over the last five years. The question today is when will companies start to spend some of their cash war chest they’ve accumulated on capital expenditures or hiring?
• Surprises have come to the economy through an energy renaissance that is welcomed by US capital markets but reviled by those concerned with environmental impact of shale drilling. An underreported note is that new energy production is accompanied by continued muted demand which may be the result of slower recovery but also changes in behavior through more efficient energy usage. We will continue to keep our eyes on this development for potential positive feedback to housing and US manufacturing.
• Foreign markets have been less cheers and more jeers for much of the past few years. A recurrence of growth in Europe and introduction of new stimulus in Japan has meant that investors saw better returns[iv] in 2013. We still see attractive valuations relative to US stocks and bonds in some instances.

Valuations Today

Rather than taking a victory lap, investors are asking what’s around the corner and whether the strong returns of 2013 might be leading into a new bubble. Stock market valuations (measures of whether stocks are more or less expensive) seem to be in the fair value range – trading around a price-earnings ratio between fifteen and sixteen times[v]. We agree that what goes up may at some point come down – there has been very little pull-back in the US market this year and at some point, bigger drawdowns are probably likely.

On the plus side, much of the 2013 sequestration may be behind us, depending on the results of Washington DC negotiations on the budget and debt ceiling. Also, many have kept cash on the sidelines waiting for drawbacks to occur so they can buy at lower prices. We think this “cash on the sideline” may be part of the reason drawbacks have been so shallow this year and there is more cash where that came from. When you couple that cash with the huge pile of bonds people have purchased in the past five years with very low prospects for future return, there may be more fuel for the stock market fire.

Portfolio Construction Today

We have continued to underweight core bonds in investment portfolios, overweighting multi-sector bond diversifiers and equities in their stead. While reduced in our allocations, we feel there is an enduring role for bonds in many personal investment portfolios. We maintain a neutral weighting to US stocks, have increased our underweight in international stocks to neutral, and maintained an overweight to flexible-tactical managers who can choose between asset classes based upon the changing dynamics of markets. At all times, we recommend that you maintain a rebalancing process and invest with attention to anticipated liquidity needs, tax situations, etc.

We continue to ask you to stick with the discipline of diversified, balanced investing. In some years, you may ask us why we didn’t hunker down in cash because markets declined. At other times, you might be kicking yourself because a pure stock portfolio is up north of 25% and your diversified returns seem less impressive. Our experience leads us to recommend a broadly diversified portfolio to meet your financial goals and objectives. Thank you for your trust in letting us work with you to meet those goals.

On behalf of everyone at The Center,

Melissa Joy, CFP®

Partner, Director of Investments

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011 and 2012, Melissa was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent 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.

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 Melissa Joy, CFP® and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any investment referred to herein. Investments mentioned may not be suitable for all investors. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 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.

[i] As measured by the S&P 500 index

[ii] As measured by the BarCap Aggregate Bond Index

[iii] US Department of Commerce Bureau of Economic Analysis

[iv] As measured by MSCI EAFE NR USD

[v] Source: JPMorgan Weekly Market Recap 11/18/13

Investment Commentary - 2nd Quarter 2013

While excellent equity market returns coupled with very low volatility have been the name of the game for much of this year, volatility has become the theme in recent weeks as returns across markets have varied quite widely.  Despite this recent volatility Equity returns still look strong to date this year as well as for the past year while bonds and commodities continue to struggle.

In recent weeks the Federal Reserve Bank (the FED) led by Ben Bernanke has been busy!  At their meeting in mid-June they started to give some guidance in which the seemingly unending stimulus that was termed “QE3” (Quantitative Easing) would start to be tapered off.  In September 2012 the FED started buying $40 billion per month of mortgaged backed securities, accelerating that buying to $85 billion per month in December 2012.  Their continued purchasing of this debt was pending the economy improving as measured by the Unemployment rate.  Recently Bernanke stated:

The Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year; and if subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains – a substantial improvement from the 8.1% unemployment rate that prevailed when the Committee announced this program.

Bernanke also stated that the federal funds rate would be kept in the current 0-0.25% range until the unemployment rate headed below 6.5%.  Immediately after this announcement the markets, all markets, sold off.  Domestic and International Equities, Bonds and commodities (most notoriously Gold) all sold off as investors sold first and asked questions later.  Interest rates on the much quoted 10 year Treasury note shot up significantly in the past month.

The selloff in the fixed income markets seemed justified to us, although maybe not across the board.  For the stock markets the reaction seemed  rather extreme because over the course of two days, June 19^th and 20^th, the S&P 500 was off more than 3 times what the Barclays US Aggregate Bond Index was off, ‑3.84% versus -1.21%. 

Since then positive news has been negative for markets while negative news has been positive.  Signs of an improving economy are met with negative returns because people fear this will accelerate the tapering schedule the FED has laid out.  On the other hand stocks have rallied into poor economic data headlines such as “1^st quarter GDP revision of economic growth going from 2.4% to 1.8%.” As equity markets find their footing again we would anticipate this to be a short term anomaly and an improving economy should be met with a positive note by markets going forward but only time will tell.

The bottom line is that QE3 was one of the largest forms of stimulus the FED has applied in its history.  Although 2008 is not yet a distant memory for most, the economy has been improving consistently now for four years.  When put that way it is hard to rationalize these extreme QE measures for too long.  We applaud the FED for its transparency as uncertainty is usually a more negative force in the markets than the actual facts.

On behalf of everyone here at The Center,

Angela Palacios, CFP®

Portfolio Manager

On a lighter note, as many of you know Melissa Joy, Partner and Director of Investments here at the Center, generally brings you our investment commentary.  However, she is taking a much deserved maternity leave after the birth of Josephine Pearl on June 18th!

---

Required Disclaimers: 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. Investments mentioned may not be suitable for all investors.

There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Please note that international investing involves special risks, including currency fluctuations, different financial accounting standards, and possible political and economic volatility. Commodities may be subject to greater volatility than investments in traditional securities. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.

Markets Welcome the New Year - 1st Quarter 2013

“Happy New Year!”  At least that’s what stock markets seem to be thinking. While 2012 posted solid returns across asset classes, 2013 has had a more exaggerated “off to the races” feeling for stocks. Money which was piled up on the sideline, whether from fear of the fiscal cliff or general concerns or fatigue, seems to be rushing back in to riskier investments like stocks.

Who hasn’t been happy in the new year? Government bond holders have a slight taste of potential negative returns as interest rates rose. The Barclay’s Capital Aggregate Bond Index returns fell by 0.70% through the end of January. Interest rates have risen in several small periods over the past year with some corresponding bond losses, but a clean slate of fresh “Year to Date” performance numbers may highlight these negatives more easily than hiccups buried within the year.

US GDP growth from the 4th quarter was markedly lower than expected falling by 0.1% as reported by the Commerce Department. What was ailing the US economy? Much of the blame goes to reduced spending, especially in the defense sector as there was anticipation of spending cuts related to the fiscal cliff. This is likely to be revised upward, though, because the trade deficit narrowed unexpectedly during the end of the year.

Washington’s grip on business page headlines is not done, but an agreement to avoid the so-called fiscal cliff as well as delay the debt ceiling limits seems to have been a welcome break from posturing and threats for a few weeks. We still have spending cuts to deal with in the next couple months so the respite may be short-lived. We are not fans of can kicking, but we also do not want government dysfunction to hijack the investment realm. We’ll keep you posted as developments unfold.

While growth has been muted, employment numbers continue to slowly look better as more people return to look for jobs and less new unemployment claims are registered. These numbers are an important factor in our economic picture today and while the US unemployment recovery is certainly sluggish, the direction of the numbers (more jobs, less unemployed) remains critical. In tandem with unemployment is housing which has been a major drag to the economy since 2008. Encouraging positive numbers have been reported from 2012 into 2013 for both housing prices and activity. This is a welcomed trend!

US economic reports aren’t the only positives. The notion of recovery is starting to be contemplated in Europe and while the Euro economies certainly aren’t out of the woods, the Euro itself seems more viable. In China, new leadership has also allayed fears of a hard landing in Asia. In the US, corporations continue to post strong earnings and a new reality in domestic energy production is starting to change some dynamics for US competitiveness.

January’s buying stampede cannot sustain itself for 12 months and we’re sure 2013 will have its investing ups and downs as does any other year. That said, those who continually forecast doom and gloom for US markets would be hard-pressed to explain the rising tide we’ve witnessed since the beginning of 2012.

Things are never as good or as bad as they may appear. Better returns may tip the investing scales from fear to greed. Don’t get too excited chasing returns of yesterday. We still recommend a prudent, diversified and consistent approach to investing as you strive to reach the finish line for each of your personal financial planning goals.

On behalf of everyone here at The Center,

Melissa Joy, CFP®

Partner, Director of Investments

Required Disclaimer: 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 Melissa Joy, CFP® and not necessarily those of RJFS or Raymond James. Investing involves risk and diversification does not ensure a profit or protect against a loss. 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. The Barclays Capital Aggregate Bond Index is a broad base index maintained by Barclays Capital and is often used to represent investment grade bonds being traded in United States. 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.