Investment Perspectives

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Asset Flow Watch 2Q 2017

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Contributed by: Jaclyn Jackson Jaclyn Jackson

One of the most common ways to monitor consumer confidence and investor sentiment is to watch fund inflows and outflows. Market analysts use fund flows to measure sentiment within asset classes, sectors, or markets. This information (combined with other economic indicators) help identify trends and determine investment opportunities.

A new trend may be emerging as international fund flows are outpacing US fund flows in the second quarter. The move towards taxable bonds that began in January 2017 continued as investors have handled high U.S. stock valuations gingerly.

Asset Flows: What Investors Did This Quarter

An even distribution of flows went towards taxable bonds and international equities in April. The fear of France’s exit from the European Union dissipated as Emmanuel Macron won the French presidential elections. Accordingly, flows moved into foreign large blend funds. To boot, MSCI Emerging Markets Index returns (13.9%) increased inflows to diversified emerging markets. On the other hand, first quarter GDP growth (0.7%) and political unpredictability sucked life from post-election US equity inflows. 

By May, US equity deceleration evolved into outflows. International equity flows remained strong.  Taxable bond flows continued in spite of raised rates. Republican tax cut plans created municipals bond outflows; likely because investors don’t think federal tax exemptions will be as advantageous as they have been in the past. 

Early quarter trends have continued through June. As of June 21, 2017, US equity outflows were -$1.205 billion, international equity inflows were $1.467 billion, emerging markets inflows were $0.300 billion, and taxable bond inflows were $3.016 billion.

Is the US Equity Run Over?

While the debate about the end of the US equity run ensues among industry professionals, the discussion may be mute among investors. It appears that many investors, figuring the US recovery is further along than the rest of the world, have opted to either “play it conservative” with bonds or invest internationally where there is seemly more opportunity for equity values to grow.

Jaclyn Jackson is a Portfolio Administrator and Financial Associate at Center for Financial Planning, Inc.®

This information does not purport to be a complete description of the securities, markets, or developments referred to in this material; it has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Jaclyn Jackson and are not necessarily those of Raymond James. This information is not a complete summary or statement of all available data necessary for making and investment decision and does not constitute a recommendation. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. 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. Asset allocation does not ensure a profit or guarantee against loss. Past performance is not a guarantee of future results. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. Please note direct investment in any index is not possible.

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Investment Pulse: Q2 Edition

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Contributed by: Angela Palacios, CFP® Angela Palacios

It has been another busy quarter! Check out some of our meeting highlights!

Andrew Adams, Senior Research Associate to both Raymond James Chief Investment Strategist as well as its Chief Economist

The Center had a chance to hear firsthand from one of Raymond James leading research associates. Andrew Adams paid a visit to our office this month to discuss the global market outlook. Andrew discussed how Raymond James believes that the U.S. equity market is still in the middle innings of a longer-term secular bull market that is more reminiscent of the post-WWII era and the 1982-2000 bull market than that of the 2000s decade. In response to questions about how the market could continue to go up without a major pullback, Andrew discussed that although the market pullback in the winter of 2016 was not technically a bear market (the S&P 500, which is heavily weighted towards large-cap tech stocks, only declined 15.1%), the average stock in the S&P 500 did decline 25% during that period. Andrew explained that Raymond James remains cautiously optimistic about U.S. equity markets going forward.

Scott Davis, Portfolio Manager of Columbia Dividend Income Fund

Scott gave us an update on where he sees markets now. Debt has been steadily expanding which indicates to him it is particularly important not to give up on quality at this stage of the market. Eight straight years of equity market gains make this the second oldest bull market since World War II. The run-up in stock prices also makes stocks expensive relative to corporate earnings growth, a potential risk factor going forward in his eyes. As the margin for safety has narrowed, he believes that any miss on expectations is likely to be punished, which makes careful stock selection even more important. That being said, Scott believes the American consumer is in good shape, and an expanding economy continues to provide a favorable environment for the equity market.

James Cook, Equity Specialist from Hermes Investment Management in London

This was our first conversation with the London-based firm. We were excited to discuss their Emerging Market strategy. This is the only dedicated Emerging Market strategy with an ESG (Environmental, Social, and Governance) mandate available to us. He spoke to us about the importance to remember that Emerging Markets aren’t a homogenous region. The sector is made up of very different countries spread all over the world that are driven by dissimilar factors. Many investors think that it is a space highly correlated to movements in commodities, which is true for some countries and company’s but not all. They apply research held to a developed market standard that they apply to emerging markets giving them a bias for high-quality positions.

That’s what our Investment Department has been up to for the second quarter of 2017. Please stay tuned to other insights throughout our Investment Week!

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

Raymond James is not affiliated with and does not endorse the opinions of Scott Davis or James Cook. The foregoing 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. Expressions of opinion are as of this date and are subject to change without notice. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Please note that 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. Investing involves risk and investors may incur a profit or a loss. There is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.

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Talking Bitcoin

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Contributed by: Nicholas Boguth Nicholas Boguth

What is it?

Think of Bitcoin as internet cash. It is a currency that does not exist in a physical form - a cryptocurrency.

It is decentralized which means that there is no central authority that manages it. Instead, there is a set number of Bitcoin in the market. The creator of Bitcoin created 21 million bitcoins, and no more will ever be created.

Each transaction is “peer to peer,” and each peer or “user” is anonymous. There is no middlemen such as banks or credit card companies that monitor and clear each transaction. Instead, there are companies, groups, and private individuals who reconcile transactions and are awarded bitcoins in exchange.

“$100 in bitcoin in 2010 is worth $75 million today.”

I love these headlines. Here is another fun fact: the first material items purchased with bitcoin was two pizzas. The “user” paid 10,000 BTC – about $25 at the time. In today’s dollars (6/15/17), that pizza cost over $22,000,000.

You may have seen these headlines, but what drove this value increase? To put it simply: demand. Demand is affected by a number of things (who accepts it as a form of payment, transaction volume, liquidity, tax treatment, security, news articles, etc.), but the demand has rose significantly since 2010 which has driven the price increase. As I mentioned before, there are a set amount of 21 million bitcoin, so the currency is designed to be deflationary. As its demand increases, its price will increase.

Investing in Bitcoin

While the headlines are fun to read, it is difficult to give investment advice regarding the currency. It is relatively new (created in 2009). There are very limited laws and regulations with regards to bitcoin. It is not widely accepted as a form of payment. There has been high volatility in the past. Ultimately the future of bitcoin is still very uncertain, but we will be staying up to date with the currency to keep you informed.

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

Any opinions are those of Nick Boguth and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. 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. 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. Past performance may not be indicative of future results. Sources: https://www.washingtonpost.com/news/on-small-business/wp/2017/05/23/100-of-bitcoin-in-2010-is-worth-75-million-today/?utm_term=.cce93f146de2 http://www.businessinsider.com/bitcoin-pizza-day-passes-2000-20-million-2017-5

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Webinar in Review: 2017 Mid-Year Investment Update

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Co-Contributed by: Angela Palacios, CFP®Angela Palacios and DewRina Lee DewRina Lee

On June 15, 2017, our Director of Investments, Angela Palacios, CFP®, and Portfolio Administrator, Jaclyn Jackson, covered some interesting topics on the current state of the economy, markets, and politics. Overall, it has been a quiet year with markets marching upwards steadily, with a bit of volatility creeping into technology stocks over the past week.

Here is a recap of key points from the “Mid-Year Investment Update” webinar:

  • The Fed Meeting Last Week

    • The Fed approved its second rate hike of 2017 even with inflation running below the central bank’s target of 2%.

    • Diversification remains important in fixed income portfolios.

  • Auto Industry

    • Despite record auto sales last year, the vehicles on car-dealer lots remained near record highs earlier this year.* The first quarter of 2017 saw nearly a three month supply sitting on lots.

    • Some producers have already offered buyout packages or announced shutdowns over the summer.

    • The automotive industry is known for its volatile nature, and even now is experiencing a lot of disruptions—electric vehicles, driverless vehicles, and companies like Uber are changing the auto industry.

  • Markets

    • Are there any indications of an approaching recession? The index of leading economic indicators has been steadily growing since 2009 with no trend of flattening that you normally see when headed into a recession.

    • Markets have been said to be expensive.

      • Valuations of the S&P 500 are slightly above average for the past 25 years (17.5 versus 16 on average).

  • Fiscal Policy

    • If tax cuts and infrastructure spending were to occur, they could offset the potential drag that rising interest rates may have on growth in the U.S.

    • How can this be achieved? Tax reform requires 60 votes (the majority vote is currently at 52) or through budget reconciliation, which can only be done once per year.

  • Active/Passive Discussion

    • Not an all or nothing choice. The Center utilizes a blend of lower-cost index investments and we select active managers to complement the core investments to achieve a specific goal such as adding potential outperformance or reducing risk.

  •  Trade settling cycle will shorten from 3 to 2 days in September.

    • Reducing credit and counterparty risk, increased market liquidity, lowering collateral requirements.

If you missed the webinar, take twenty minutes and please check out the replay below. If you have questions about the topics discussed, please give us a call!

 

 

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

DewRina Lee is an intern at Center for Financial Planning, Inc.®

Any opinions are those of Angela Palacios, CFP®, and DewRina Lee and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. *Sources: https://www.edmunds.com/car-news/auto-industry/new-vehicle-inventory-swells-in-february.html

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What are Investment Policy Statements?

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Contributed by: Angela Palacios, CFP® Angela Palacios

Each investor is unique. You have your own attitudes, expectations, objectives, and guidelines for your investments. These factors are important to communicate to, not only your team of investment managers, but also to your family if needed (not to mention to remind yourself during turbulent times). An investment Policy Statement (IPS) that is revisited regularly can keep everyone on the same page.

We carefully craft a tailored Investment Policy Statement with you and review and update it each year or when something changes. We first define an asset allocation target (ratio of stocks and bonds) for your portfolio that is appropriate to help you achieve your goals while balancing your tolerance for risk. Also important is the amount of cash you need to hold within each account, carefully evaluating potential withdrawal needs coming in the next year. Lastly, we add your goals and unique preferences we should take into account while managing your investments. 

Unique preferences could include holding a position in a taxable account because selling would cause you to incur a large capital gain. Or, it could mean incorporating socially responsible (ESG) investment strategies into the portfolio. It could also mean excluding any investment strategies you prefer not to have included in your portfolio, like real estate, for example.

Laying out your goals and objectives is a great way to focus on and determine future success. Success in financial planning and investing goes far beyond beating a benchmark. Goals like making sure you can travel during the first 10 years of retirement or obtaining sufficient health coverage during the early years of retirement are things that cannot be measured by a stock index. These goals become personal benchmarks that you can track achievement of over the years.

It is not expected that the IPS will change frequently. In particular, short-term changes in the financial markets should not require adjustments to the IPS. Major life events, however, can prompt an update. For example, marriage or divorce, retirement or deciding to extend your working years, entering a nursing home or receiving an inheritance are examples of reasons that could prompt you to update your IPS.

Investors who fail to plan may then plan to fail! Developing an IPS is an important step to take in order to help you make rational decisions about your investments no matter what the markets may tempt you to do! If you have questions about or wish to update your Investment Policy Statement, please contact your planner!

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

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios, CFP®, and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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First Quarter Investment Commentary

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Contributed by: Angela Palacios, CFP® Angela Palacios

U.S. markets continued to enjoy positive returns for the first part of the year as the Trump rally extended through February. We began to see a small amount of volatility creep back into the market as March wore on and investors were left to continue to wait and see if there was any progress on economic and corporate friendly Trump policies. The S&P 500 ended the quarter in positive territory, up over 6%, while Bonds ended up just shy of 1% at .82% for the quarter, according to the Barclays US Aggregate Bond Index. Developed international was the clear winner, up 7.25% on the quarter, for the MSCI EAFE Index. Economic data continues to flow in, sending a strong signal that the U.S. economy is healthy and sustainable.

Europe headlines ended the quarter centered on the long awaited invoking of Article 50. While purely a political event rather than a market-moving event, the trigger marks a point of no return for the split between the United Kingdom and the European Union.  The two year countdown on Brexit begins—get your popcorn and settle in to watch!

Steady Headwinds for Interest Rates Ahead

The Federal Reserve is proactively increasing interest rates this year and has begun with the first interest rate increase of the year in March. What is overlooked, though, is all of the assets still on the balance sheet from years of quantitative easing (QE), the process which the Fed has used to increase money in the economy by buying treasury bonds and flushing the system with liquidity. 

In addition to raising interest rates, The Fed will also continue its reverse QE process by letting the bonds they purchased simply mature and roll off the books, essentially taking that liquidity out of the system. Below, you will see a chart by maturity date for the rate this will happen. Because of the lumpy distribution of maturity dates, it is likely the Fed may try to smooth out this maturing process through a combination of letting the bonds mature and outright selling. This would prevent any one month or year from having an outsized event of pulling liquidity out of the economy, leading to bond volatility.

Source: JP Morgan

Source: JP Morgan

Auf wiedersehen T+3! 

In March, the SEC voted unanamously to shorten the trade settling cycle from a maximum of three days down to two. In the day and age of instant gratification, investors have been left scratching their heads wondering why they have to wait the traditional trade date plus three business days in order for the cash and securities to officially change hands after they trade. That meant that if you needed to withdraw funds from your account, you had to wait nearly one week after selling a security to receive a check. That wait will now be reduced by one day! While the biggest benefit is for you, the invester, we will notice there also may be other “behind the scenes” benefits. Some examples include:  reducing credit and counterparty risk, increased market liquidity, and lowering collateral requirements. This is slated to take effect on September 5th of this year.

Investment Pulse: Check out Investment Pulse, by Angela Palacios, CFP®, a summary of investment-focused meetings for the quarter.

Investor Basics Series: Nick Boguth, Investment Research Associate, introduces us to Fundamental Investing

Of Financial Note:  Jaclyn Jackson, Portfolio Coordinator, continues her series on behavioral investing here.

It is important to remember, even with markets up, not to become complacent with your portfolio. While many investors become laser-focused on their statements when volatility strikes, it is important to remember there is a laundry list of items that are best addressed when markets have been positive for an extended period of time:

  • Plan for upcoming cash needs

  • Rebalance portfolios

  • Make your charitable contributions

  • Don’t ditch your plan!

If you have questions surrounding any of these points, don’t hesitate to reach out to us! We are here to help! At The Center, we want to help each and every one of our clients to take charge of their financial futures. Newsletters, blogs, webinars and more can be found on our website to help you do so. This is all part of Living Your Plan™.  Thank you for placing your trust in us!

Angela Palacios, CFP®

Director of Investments

Financial Advisor

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

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios, CFP®, and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk, investors may incur a profit or loss regardless of strategy or strategies employed. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate bond market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations. Please note direct investment in an index is not possible. 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.

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Investor Ph.D. Series: 6 points you should know about Technical Analysis

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Contributed by: Angela Palacios, CFP® Angela Palacios

While most often investors apply fundamental analysis when picking a suitable security to invest in, a less widely used strategy called technical analysis could be just as important. 

Why would you use it?

Here’s the scenario: you’ve researched and decided, “There is a strategy I have to invest in.” Perhaps it is a company that makes a widget and you think, “This is the best widget ever made and it is going to change everyone’s life!” Fundamental analysis helps you decide if Widget Producer A or Widget Producer B is the better-run company that is worthy of your investment dollars. But, does it matter what price you pay for that investment? Yes! This is where technical analysis can play a role in your portfolio decision making.

What is it?

Technical analysis, at its most basic level, only looks at supply and demand for a security. It attempts to find a trend or pattern in the price movement and volume of a traded security and decide if that trend is more likely to continue or reverse course.

How does it work?

Understanding basic assumptions behind technical analysis can be a key concept. First, it assumes that markets are efficient at all times; meaning everything that can be known about a company is known by all investors and reflected in the current price at which it is trading. Second, security prices move in trends; or, essentially, an object in motion stays in motion (or is much more likely to in the future). Third, history repeats itself. Investor behavior that caused prior patterns to occur is assumed to still be present and will likely repeat.

Which indicators are most commonly followed?

There are many indicators you can pick from when conducting technical research. Most investors that do this type of analysis have their favorites that fit with their own unique investing style. Some examples are: moving averages, volume, Oscillators, Bollinger Bands, Fibonacci levels, trend lines or relative strength.

Where can I find this information?

There are many resources that have a “fee for service” out there that can be used to conduct technical analysis. Yahoo! Finance, on the other hand, is a free resource available online for anyone to view. Their interactive charts help make it easy to view many of the most common indicators with the click of a button.

Can anyone do this?

Yes! However, it can take time, consistency, skill, and experience to be able to do technical analysis well; and even then, so-called “experts” can get it wrong quite often.

While there is no silver bullet in investing, blending both fundamental and technical analysis can help investors toward a potentially better outcome. Is this a fool’s errand or the potential secret sauce? I will leave that up to the individual to decide!

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

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

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Investor Basics: Intro to Fundamental Analysis

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Contributed by: Nicholas Boguth Nicholas Boguth

There are two major types of analysis when it comes to investing: Technical Analysis, which you can read more about in Angela Palacios', CFP®, Investor PhD blog, and Fundamental Analysis, which I will break down for you right now.

Ultimately, fundamental analysis is an evaluation of the financial position and performance of a company or strategy.

When doing fundamental analysis on a stock, the process involves breaking down all of the quantitative information found on the company’s financial statements. Digging into a company’s balance sheet tells you about their current position as it pertains to assets, liabilities, and shareholders’ equity. The information on income statements and statements of cash flow reveals how the company has performed, or how much expense, revenue, or profit it generated. Fundamental analysis also involves looking at qualitative factors such as management, the business model, accounting practices, and competitors. All of this data is then analyzed, compared to peers, and used to make an investment decision.

The graphic above lays out The Center’s investment selection process. You will see that there is both quantitative and qualitative fundamental analysis done when choosing the strategies in our model. The process is slightly different when comparing all strategies as opposed to only stocks, but the same considerations have to be taken into account before making an investment decision. We look at quantitative factors such as manager tenure, ownership, costs, risk metrics, and return metrics, just to name a few. We also look at a vast amount of qualitative information about the fund companies, managers, and investment team. Fundamental analysis is step one to selecting each individual strategy for our portfolios. If you have questions on how we build portfolios or fundamental analysis, please reach out to our investment team!

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

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Boguth and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Asset Flow Watch: First Quarter 2017

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Contributed by: Jaclyn Jackson Jaclyn Jackson

The U.S. economy showed improvement, even before last year’s election, and data since continues to trend well. Overall, consumer confidence and optimism remained high with the Trump administration policy most of the first quarter. One of the most common ways to monitor consumer confidence and investor sentiment is to watch fund inflows and outflows. Market analysts use fund flows to measure investor sentiment within asset classes, sectors, or markets. This information (combined with other economic indicators) helps savvy investors identify trends and determine potential investment opportunities.

Asset Flows: What Investors Did This Quarter

This quarter, investor demand increased in global stocks and taxable bonds. While at a slower pace, the Trump agenda (lower taxes, infrastructure spending, deregulation, etc.) continued to lure investors into US equities. In February, US equities saw double the flows they’d received in January (reflecting fewer outflows from active managers). Hopeful economic data from Europe generated inflows for international equities, which primarily went to passive strategies. Yet, the most divergent trend from 2016’s fourth quarter is that fixed income flows started a comeback with a favor toward taxable bonds, specifically, intermediate term bonds. In spite of looming rate-hikes, March 31st ended as fixed income’s twelfth consecutive week of inflows.

Forward Steps

We’ve witnessed post-election equity runs correlated with the anticipation of “business-beneficial” tax and regulation reform. Nonetheless, the House’s inability to repeal/replace the Affordable Care Act leaves doubt that the Trump agenda will progress as expected. Late 2016’s boost in stock returns could have overweighed portions of your equity allocation. At the same time, you may have also noticed a decrease or underweight to your bond allocation. Consider rebalancing back to your target allocation. In the face of Trump agenda uncertainty, rebalancing should help protect recent capital growth accumulation. As always, if you have questions or concerns when it comes to your portfolio, we are always happy to help!

Jaclyn Jackson is a Portfolio Administrator and Financial Associate at Center for Financial Planning, Inc.®

This information does not purport to be a complete description of the securities, markets, or developments referred to in this material; it has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Jaclyn Jackson and are not necessarily those of Raymond James. This information is not a complete summary or statement of all available data necessary for making and investment decision and does not constitute a recommendation. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. 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. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Asset allocation does not ensure a profit or guarantee against loss. Past performance is not a guarantee of future results.

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First Quarter Investment Pulse

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Contributed by: Angela Palacios, CFP® Angela Palacios

During the first quarter of the year, managers and strategists are eager to travel and get the word out on what they think is to come in the New Year. This quarter was no exception. Here is a summary of some of the standout guest speakers we were able to host at the Center!

Priscilla Hancock, Global Fixed Income Strategist of JP Morgan

Priscilla Hancock stopped by to visit our office to discuss the current state of the municipal bond market. Priscilla’s insight into this market is both logical and insightful. She discussed that, for the most part, municipal bonds are less expensive now. Investors often worry about the performance of their municipal bonds in an environment of falling tax rates—which it seems we are on the verge of. Investors have sold off the space recently for that reason. But she has found there is very little to no correlation between municipal bond performance and tax rates over the long term. The municipal bond market is driven primarily by the retail investor, so you or I. We can benefit from the tax-advantaged status that the interest from municipal bonds produces. As rates fall, municipal bonds tend not to experience as much price appreciation because retail investors focus more on the yield a bond provides rather than the total return aspect they can provide. So as rates fall, the retail investor tends to sell. As rates rise, they experience the opposite effect. Rates then start to look attractive again, so investors may resume buying and help prevent prices declining, as much as treasuries, while rates rise.

Wendell Birkhofer, Senior Vice President, Investment Policy Committee Member of Dodge & Cox

Wendell Birkhofer brought Dodge & Cox’s unique value-based outlook to discuss equity markets both here in the U.S. and abroad. They are seeing value in financials here in the U.S. and also in Europe. Regulation changes and interest rate increases are a couple of the market forces that tend to be favorable to bank stocks—and are occurring right now. There is pent-up cash on hand at banks that could potentially get paid to shareholders in the future—if regulations loosen under the new Trump administration. In the U.S. markets, they see middling valuations (although some pockets are expensive). This tends to be a favorable environment for active management over passive management from their perspective. They also continue to find good value in emerging markets, while countries like Japan still struggle with corporate governance headwinds.

Ted Chen, Portfolio Manager and Aditya Bindal, Ph.D, Chief Risk Officer with Water Island Capital

Short volatility and the illusion of diversification were the topics we discussed with Mr. Chen and Mr. Bindal. They shared their groundbreaking research on the topics to a packed conference room of Center staff. They discussed how since the 2008 market crisis, the volatility of volatility has been off the charts (this is how much the VIX, a measurement of volatility in the equity markets, has, itself, been volatile). The markets have seen volatility spikes to the tune of two standard deviation events fourteen times over the past nine years! Alternative investment strategies are supposed to be uncorrelated to equity markets; however, they showed us that during these volatility spikes, most investment strategies lost value. This is what they call “short volatility.” They went on to share that true alternative strategies should possess characteristics, such as: low beta, market neutrality, and a lack of correlation regardless of low or high volatility time periods. These concepts are something we explore in our own portfolio construction process, and they have given us some excellent food for thought to chew on in the coming months and years!

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

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 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. 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. Investing involves risk and investors may incur a profit or a loss. Alternative Investments involve substantial risks that may be greater than those associated with traditional investments and may be offered only to clients who meet specific suitability requirements, including minimum net worth tests. These risks include but are not limited to: limited or no liquidity, tax considerations, incentive fee structures, speculative investment strategies, and different regulatory and reporting requirements. There is no assurance that any investment will meet its investment objectives or that substantial losses will be avoided. Diversification does not ensure a profit or guarantee against a loss. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investments mentioned may not be suitable for all investors. Raymond James is not affiliated with Priscilla Hancock, JP Morgan, Wendell Birkhofer, Dodge & Cox, Ted Chen, Aditya Bindal and/or Water Island Capital.

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