The Force Awakens, Can Energy?

On December 17, “Star Wars: The Force Awakens” opens in theatres nationwide.  The Walt Disney Company bought Lucasfilm Ltd., the creator of the Star Wars franchise in 2012, with high expectations it would produce significant, positive financial returns.  The soon to be released film, the first “Star Wars” movie in 10 years, will feature characters not seen in 32 years and is expected to rival the opening weekend record of $209 million for June’s “Jurassic World”.   In addition to the theme parks we know so well, Disney owns a large stable of media and studio entertainment companies that help to diversify the sometimes hit and miss nature of the block buster movie business.  These include among others, ABC Television Network, The Disney Channel, ESPN, Disney Publishing Worldwide, Disney (retail) Store, Walt Disney Studios Motion Pictures, Pixar Animation Studios, and Marvel Studios.   Earlier this year, concerns over subscriber losses at ESPN resulted in a drop of just over 10% in Disney’s stock price.  This precipitated a review of the firm’s holdings in Disney and a decision to purchase additional Read on! →

O Value, Where Art Thou?

A recent article by Dougal Williams, CFA highlights the ongoing battle between value and growth in the investment world, giving food for thought in why your portfolio should always be well-diversified. It’s been 15 years since the Coen Brothers’ Oscar-nominated film O Brother, Where Art Thou? was released. Loosely based on Homer’s The Odyssey, the satirical tale follows three escaped convicts as they run from the law in search of buried treasure. For nearly the same length of time, value stocks – those bargain-priced shares which often pay higher dividends – have underperformed growth stocks. As a result, investors who favor value stocks must certainly feel like they are on an unrewarding investment odyssey of their own. How can this be? Aren’t value stocks supposed to deliver higher returns than growth stocks? To read the entire article, click here.

HYBRID INVESTMENTS

DIVERSIFICATION AND COMMITMENT
Two keys to positive, long term performance with lower volatility are diversification and commitment. Diversification, assessed more objectively through correlation analysis and other valuations metrics, can be achieved through the use of various types of investments across different asset classes. Commitment, sometimes subjective and influenced by human behavior, is typically shown by a willingness to hold an investment or group of investments through both peaks and valleys over a long period of time.
Market performance since the Great Recession and more recently, the 2015 Correction focuses our attention on these two aspects of investment management. It is also the reason Clearview Wealth Management maintains an allocation to a category of investments we define as “Hybrids”.

HYBRIDS – ROLE AND COMPOSITION
Hybrids play a unique role in a portfolio by behaving differently (uncorrelated) than bonds and traditional equity investments therefore enhancing diversification and complementing long-term portfolio returns. This uncorrelated asset class is comprised of four distinct subgroups and uses investments that are publicly traded and liquid.
HEDGE FUNDS – Investment strategies that include short selling, the use of futures, options, derivatives and arbitrage that seek to achieve absolute returns. Absolute return refers to attempts by a manager to achieve a return on an asset irrespective of the direction of the wider market. This is in contrast with relative returns where the performance of an investment is compared with a market benchmark or index. Absolute return funds aim to make money for investors in both rising and falling markets.
ALTERNATIVE INCOME – US and non-US speculative grade or high yield junk bonds that are rated below investment grade at the time of purchase. This investment strategy has a higher risk of default, but pays a higher yield than investment grade bonds to attract investors.
INFRASTRUCTURE – Defined by Merriam-Webster dictionary, a system of public works of a country, state, or region; also: the resources (as personnel, buildings, or equipment) required for an activity. Investments grouped in this category include oil/gas pipelines, utilities, public works, toll roads, international airports, and selected logistic centers (ports/docks/rail).
HARD ASSETS – Commodities or raw materials used in the production of foodstuffs and in manufacturing industries. Commodities include oil, metals, grains and cereals, soft commodities such as
sugar, cocoa, coffee and tea and vegetable oils such as palm oil, soy bean oil and sunflower seed oil. Exchange-traded commodities are quoted in specific lots of a specific quality for specified delivery.

PERFORMANCE – THE LONG AND THE SHORT
During the months leading up to the bottom of the Great Recession in the middle of March 2009, Hybrid category investments performed as expected relative to the other asset classes of fixed income and equities. Performance was lackluster when compared to the steady positive performance shown by the S&P 500 since the Great Recession but Hybrids again showed their strength during the 2015 Correction. The Table below illustrates these fluctuations during the 2015 Correction and will hopefully reinforce the value hybrid investments can play during market cycles and shorter term corrections.

HybridsinDownturn

CONCLUSION – THE CASE FOR HYBRIDS
When used together with investment grade fixed income and traditional equity investments, hybrids have the potential to make positive contributions to the long term performance of a portfolio. There will be times it becomes easy to criticize the category and/or a specific investment but long term, the Investment Team believes the Hybrid asset class represents an opportunity for favorable risk adjusted returns.

FAFSA Changes for College-Bound Students

If you are the parent of a high school junior who is preparing to attend college in the fall of 2017, the filing process for financial aid just got easier!  President Obama’s recently signed executive order changes the rules for completing and submitting the Free Application for Federal Student Aid (FAFSA) beginning October 2016 for the 2017-2018 academic school year.  For this and subsequent academic school years, the FAFSA application process will start in October 1st of the year prior to the child starting college and it will rely on prior-prior year income. October Start Date Traditionally, the FAFSA opened on January 1st and utilized income figures from the previous year to determine how much aid a child or family might be eligible to receive at the start of the school year in September of the same year.  This may seem reasonable but colleges often want to provide student aid estimates by mid-March.  Since tax related documents are sometimes not available until mid-February, with K-1s from partnerships, LLC, S-Corporations or Trusts often not arriving until March, the window for completing Read on! →

Planning For College – Choices and Payment

Part 1 of this series addressed how parents and family members can sometimes influence a child’s choice of schools through words and actions. Part 2 focused on the myriad of choices and how to assist a child in narrowing the selection to those best suited to help achieve vocation goals. The final segment of this 3 part series will attempt to outline options to think about when paying for a college education. While it may be possible to cover the entire cost of a child and their siblings’ education, it might be worth considering other options that involve the child. If possible, shifting the responsibility of paying for college to a child and the accompanying debt burden should be avoided. However, requiring the child to share in paying for some of the cost by working or securing grants and loans may increase the student’s motivation to do well and finish on time or early. It might also improve their awareness of what an education costs and reinforce positive views on the responsibility that comes with participating in and repaying some Read on! →