Advisers Stick by Commodity ETFs Despite Dramatic Declines

Treven L. Ayers, MA, CFS, CFP® quoted in The Wall Street Journal. The rise of exchange-traded funds and notes makes it easy for everyone to own commodities, and many financial advisers recommend small stakes as permanent elements of a diversified portfolio. But the average broad-basket commodities ETF has lost an average of 7.9% a year in the past five years through July, according toMorningstar Inc. … Still, some financial advisers say a small allocation to commodity exchange-traded products remains important for a long-term portfolio. Viewing the performance of a commodity ETF or ETN over a specific period of time in isolation would be a mistake, these advisers say, overlooking their diversification and inflation-hedging benefits. “Historically, commodities have demonstrated attractive returns with long-term performance and volatility similar to equities,” says Treven Ayers, chief investment officer at Clearview Wealth Management. In addition, commodity investments may offer low correlation to other asset classes, counter-cyclicality and improvements in risk-adjusted returns, says Mr. Ayers, whose Charlotte, N.C., firm manages $70 million. Commodities have been dragged down over the past 18 months, he says, but that won’t Read on! →

The Greek Tragedy and a Chinese Fire Drill

Greece had been edging towards an exit of the Eurozone.  Global market risk, while elevated from the news, had generally suggested that the direct outcome of this event would be limited / falling well short of anything that would constitute a genuine crisis.  China, on the other hand, has emerged as a much more substantial issue with the weakness in the local Chinese market spilling into Hong Kong and global equity markets. Until matters stabilize in China this will certainly continue to be the main driver of financial markets, and even the impact of a favorable end to the Greek mess would likely be overwhelmed by a continuation of the intense liquidation of Chinese equities. Greek Tragedy; The Greek people voted overwhelmingly against accepting the June 25 plan offered by its creditors. The “No” vote doesn’t necessarily mean Greece will exit the Eurozone but the potential had increased. This was a shock to the markets in that it was assumed the people would vote yes. Eurozone leaders made Greece surrender much of its sovereignty to outside supervision in return for Read on! →

MARKET-VIEW 2ND QUARTER 2014

Portfolio Recap The 2nd quarter was marked by very low equity market volatility and steady, positive performance across all major indices.  Our diversified approach to managing investments continued to focus on limiting downside equity risk through a bias for value-oriented, high quality, dividend paying domestic and international equities.  In the short term, volatility and potential for loss has been further mitigated by allocating fewer investment dollars to US Small Cap stocks.   They have experienced significant gains over the past several years and in our opinion, have been richly valued for quite some time.  This is why we reduced our positions in the latter half of 2013, well in advance of Fed Chair Janet Yellen’s remark about the category valuations being stretched. Hybrid investments, led by preferred stock, global bonds and energy infrastructure, had a strong quarter validating our belief the asset class can perform well during strong equity markets.  Our consumer-focused emerging market investments slightly under-performed during the quarter but exceeded our expectation on a risk-adjusted basis.  Despite headwinds created by the Federal Reserve’s plan to stop tapering and end Read on! →

It Pays to Allocate

U.S. equity markets have struggled to gain ground year-to-date, posting a meager 2.7% return by mid May. Still, the S&P 500 has slowly climbed to an all-time high and a few weeks ago peaked over the 1,900 level.  Over the past year, success in the equity market was supported by a pickup in economic activity and a dampening of tail risks globally.  However, going forward investors should not be surprised by mean reversion in both annual returns and volatility. As shown by a recent JPMorgan chart of the week, the maximum drawdown (intra-year decline) so far this year was -5.8%.  This was also equal to the largest pullback in 2013.  The average annual drawdown since 1980 put these pullbacks in the -14% range.  Despite these annual pullbacks, the S&P 500 index still returned to investors an annual total return of 9.9% since 1980. What does this tell us about stock investing?  It reinforces the notion of diversifying investments across all asset classes.  It pays to have a portion of your portfolio allocated to equities despite the volatility associated with them. Equity markets Read on! →

Spring Thaw

The weather is finally starting to turn, and economic data is returning to a more trustworthy state.  It’s early however and first quarter earnings season is just beginning as well.  Expectations are relatively low, in large part due to the weather, but there is increased interest in forward guidance which could be the catalyst for the next move in the market.  With corporate confidence improving and some fiscal concerns receding, we expect a relatively optimistic, yet cautious, tone to prevail. On the economic front, both versions of the Institute for Supply Management’s (ISM) surveys showed improvement.  The Manufacturing Index rose while new orders encouragingly increased.  The Non-Manufacturing Index, representing the larger service side of our economy, showed a nice gain with the employment component having the largest gain.  Auto sales appear to be rebounding from a weather induced pause, indicating that consumer demand is still decent and confidence is improving.   The Leading Economic Indicators Index (LEI) rose in March, the most in four months, and above consensus estimates. Six of its ten components made positive contributions indicating widespread strength among Read on! →