Investment Insights Podcast – September 18, 2015

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded September 18, 2015):

What we like: Janet Yellen announced no hike to interest rates; investors had been tracking her policy decision for weeks, making it a distraction, but now some of that stress is alleviated; Yellen was decisive and clear that they wouldn’t raise rates near-term and when they do, there will be fair warning; investors can now focus on the global economy as opposed to that and Fed policy

What we don’t like: As we shift focus to the economy, economic data is currently mixed; employment, housing, and auto are good, manufacturing and production not as much; China, Europe, and Japan have patchwork economic data as well–some good, some bad.

What we’re doing about it: Focusing on growth for investors; watching for earnings reports in early October; leaning more bullish

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Investment Insights Podcast – July 24, 2015

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded July 17, 2015):

What we like: The Greeks and Europeans worked out a deal, strong start to earnings season

What we don’t like: Attention shift to Janet Yellen’s plan to raise interest rates; raise could go into early next year

What we’re doing about it: Destinations reallocation maintained risk exposure; covered shorts and adding to our long positions in Europe

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Monthly Market and Economic Outlook: July 2015

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

Uncertainty over the start of the Federal Reserve’s rate hike campaign, the possibility of a default in Greece and Puerto Rico, and the drop in China shares each weighed on financial markets in June, resulting in a quarter of flat to negative performance across most asset classes. The increased volatility and higher level of dispersion across and within asset classes has benefited active management.

The S&P 500 Index fell almost -2% in June but was able to eke out a small gain for the quarter, despite the negative headlines. The healthcare and consumer discretionary sectors continued to lead, while bond proxies like dividend-paying stocks and REITs struggled. Energy stocks continued to lose ground as well despite a stabilization in crude oil prices. From a market cap perspective, small caps are leading large and mid caps, but the margin isn’t as wide as it is between growth and value. Through the first half of the year, all style boxes are positive except for large cap value, which is modestly negative. However, dispersion is wide, with small cap growth outpacing large cap value by more than 900 basis points over that time period.

Greece_OutlookThe rally in international equities slowed in the second quarter as fears surrounding Greece prompted a sharper sell-off in June; however, international markets still ended the quarter ahead of U.S. markets and continue to have a sizeable lead through the first half of the year. The U.S. Dollar Index (DXY) was weaker in the second quarter, but has still posted gains of more than 5% in the first half, dampening international equity returns for U.S. investors.

In developed markets, Japan, fueled by its expansive quantitative easing program, has been the top performer year to date, gaining almost 14%. Europe, despite a weaker second quarter, has gained more than 4%. Emerging markets soared in April, but gave most of the gains back in May and June to end the quarter in line with developed international markets. June’s significant decline in the Chinese local stock market, which had gained more than 110% since November, prompted a number of policy responses. However, for investors the vast majority of exposure is gained through listings on the more open Hong Kong exchange, which has not experienced gains and losses of even close to the same magnitude.

Anticipation of a Fed rate hike in the fall incited a rise in long-term U.S. Treasury yields, with yield on the 10-year note climbing 41 basis points during the quarter to 2.35%. As a result, the Barclays Aggregate declined -1.7% in the second quarter and is slightly negative through the first six months of the year. All fixed income sectors were negative for the quarter, led by U.S. Treasuries. The macro concerns caused both investment grade and high-yield credit spreads to widen, but due to its yield cushion, the high-yield index was flat for the quarter and remains the strongest fixed income sector year to date with a gain of +2.5%. Despite the recent widening, spreads are still at levels below where we started the year. Municipal bonds finished the quarter ahead of taxable bonds, but are still flat year to date. Increased supply weighed on the municipal market in the second quarter.

Our outlook remains biased in favor of the positives, but recognizes that risks remain. We’re solidly in the second half of the business cycle, but the global macro backdrop keeps us positive on risk assets over the intermediate term. As a result, our strategic portfolios are positioned with a modest overweight to overall risk. A number of factors should support the economy and markets over the intermediate term.

  • Global monetary policy accommodation: Despite the Fed heading toward monetary policy normalization, their approach will be cautious and data dependent. The ECB and the Bank of Japan have both executed bold easing measures in an attempt to support their economies.
  • U.S. growth stable and inflation tame: Despite a soft patch in the first quarter, U.S. economic growth is forecast to be positive in the second quarter and the labor market continues to show steady improvement. While wages are showing signs of acceleration, reported inflation measures and inflation expectations remain below the Fed’s target.
  • U.S. companies remain in solid shape: M&A activity has picked up and companies also are putting cash to work through capex and hiring. Earnings growth outside of the energy sector is positive, and margins have been resilient.
  • Less uncertainty in Washington: After serving as a major uncertainty over the last few years, Washington has done little damage so far this year; however, Congress will still need to address the debt ceiling before the fall. Government spending has shifted to a contributor to GDP growth in 2015 after years of fiscal drag.

However, risks facing the economy and markets remain, including:

  • Fed tightening: The Fed has set the stage to commence rate hikes later this year. Both the timing of the first rate increase, and the subsequent path of rates is uncertain, which could lead to increased market volatility.
  • Slower global growth: Economic growth outside the U.S. is decidedly weaker. It remains to be seen whether central bank policies can spur sustainable growth in Europe and Japan. Growth in emerging economies has slowed as well.
  • Contagion risk relating to the situations in Greece and China must continue to be monitored.
  • Geopolitical risks could cause short-term volatility.

Despite higher than average valuations, neutral investor sentiment and a weaker technical backdrop, we believe the macro picture supports additional market gains over the intermediate-term. However, with headline risk of events in Greece and the Fed set to normalize monetary policy, a larger pull-back is not out of the question. The S&P 500 Index has gone more than 900 days without a 10% correction, the third longest period on record (Source: Ned Davis Research). However, because of our positive macro view, we’d view a pull-back as a buying opportunity and would expect the equity market to continue its uptrend.

Fed_OutlookWe expect U.S. interest rates to continue to normalize; however, U.S. Treasuries still offer relative value over sovereign bonds in other developed markets, which could keep a ceiling on long-term rates in the short-term. With the Fed set to increase the federal funds rate this year, we should see a flattening of the yield curve. Our portfolios are positioned in defense of rising interest rates, with a shorter duration and yield cushion versus the broader market.

As we operate without the liquidity provided by the Fed and move through the second half of the business cycle, we expect higher levels of both equity and bond market volatility. We expect this volatility and dispersion of returns to lead to more attractive opportunities for active management across and within asset classes. Our portfolios are positioned to take advantage of continued strength in risk assets, and we continue to emphasize high conviction opportunities within asset classes, as well as strategies that can exploit market inefficiencies.

Asset Class Outlook Comments
U.S. Equity + Quality bias
Intl Equity + Neutral vs. US
Fixed Income +/- Favor global high yield
Absolute Return + Favor fixed income AR, event driven
Real Assets +/- Favor global natural resources
Private Equity + Later in cycle

Source: Brinker Capital

Brinker Capital, Inc., a Registered Investment Advisor. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting.

Investment Insights Podcast – June 19, 2015

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded June 16, 2015): Andy Rosenberger takes his turn on the mic to share recent economic data including industrial production, housing starts as well as some survey data on manufacturing.

Highlights from the podcast include:

  • Mixed economic data to continue; suggests positive growth.
  • Most economists not expecting any action from the Fed following the conclusion of their meeting; expectations of higher interest rates pushed towards latter part of the year.
  • Talks again broke down in Greece, impacting markets negatively; however, they are likely to pick back up.
  • As it’s been over 2.5 years since we’ve seen a 10% correction, we shouldn’t ignore that there could be more downside risk from here; however, earnings have held up and economy appears to be growing.

Listen here for the full version of Andy’s insights.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Monthly Market and Economic Outlook: June 2015

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

Financial markets in May were mixed with modestly positive returns in U.S. equity markets (+1.3% for the S&P 500), modestly negative returns for international equity markets (-1.5% for the MSCI ACWI ex USA), and flat returns in U.S. fixed income markets (-0.2% for the Barclays Aggregate). U.S. economic data was on the weaker side, generally attributed to bad weather; however, the labor market continues to show improvement. The expectation is still for the Fed to commence rate hikes later this year.

In U.S. equity markets all sectors were positive for the month except for Energy and Telecom. The healthcare sector led with gains of more than 4%. Small caps led large caps for the month, and growth led value except in the mid cap segment.

International equity markets delivered a small gain in local terms, but the stronger dollar weighed on returns for U.S. investors. Japan gained more than 5% in local terms amid stronger economic data, while Europe gained less than 1% in local terms. Emerging market equities lagged developed markets in May, declining -4% in US dollar terms. China and Brazil were particularly weak performers. Despite weaker performance in May, both developed international and emerging markets lead U.S. equity markets so far this year by a sizeable margin.

The 10-year U.S. Treasury yield ended the month 10 basis points higher at a level of 2.13% and so far in June 10-year yields have backed up another 25 basis points (through June 5). However, because of the small coupon cushion in U.S. Treasuries today, only a small increase in yields can lead to a negative total return for investors. The credit sector was mixed in May, with investment grade experiencing declines and high yield delivering small gains. Municipal bonds continued to underperform taxable bonds. Year to date high yield leads all fixed income sectors.

Our outlook remains biased in favor of the positives, but recognizing risks remain. We have entered the second half of the business cycle, but remain optimistic regarding the global macro backdrop and risk assets over the intermediate-term. As a result our strategic portfolios are positioned with a modest overweight to overall risk. A number of factors should support the economy and markets over the intermediate term

  • Global monetary policy accommodation: Despite the Federal Reserve heading toward monetary policy normalization, the ECB and the Bank of Japan have both executed bold easing measures in an attempt to support their economies.
  • U.S. growth stable and inflation tame: Despite a soft patch in the first quarter, U.S. economic growth is expected to turn positive in the second quarter and the labor market has markedly improved. Reported inflation measures and inflation expectations remain below the Fed’s target.
  • U.S. companies remain in solid shape: U.S. companies are beginning to put cash to work through capex, hiring and M&A. Earnings growth outside of the energy sector is positive, and margins have been resilient.
  • Less uncertainty in Washington: After serving as a major uncertainty over the last few years, Washington has done little damage so far this year; however, Congress will still need to address the debt ceiling before the fall. Government spending has shifted to a contributor to GDP growth in 2015 after years of fiscal drag.

However, risks facing the economy and markets remain, including:

  • Timing/impact of Fed tightening: The Fed has set the stage to commence rate hikes later this year. Both the timing of the first rate increase, and the subsequent path of rates is uncertain, which could lead to increased market volatility.
  • Slower global growth: Economic growth outside the U.S. is decidedly weaker. It remains to be seen whether central bank policies can spur sustainable growth in Europe and Japan. Growth in emerging economies has slowed as well.
  • Geopolitical risks: Could cause short-term volatility.

Despite higher than average valuations and neutral investor sentiment, the trend is still positive and the macro backdrop leans favorable, so we believe there is the potential for additional equity market gains. The quantitative easing programs of the European Central Bank and the Bank of Japan, combined with signs of economic improvement, have us more positive in the short-term regarding international developed equities, but we need to see follow-through with structural reforms. We expect U.S. interest rates to continue to normalize; however, U.S. Treasuries still offer relative value over sovereign bonds in other developed markets, which could keep a ceiling on long-term rates in the short-term.

As we operate without the liquidity provided by the Fed and move through the second half of the business cycle, we expect higher levels of both equity and bond market volatility. This volatility should lead to more attractive opportunities for active management across asset classes. Our portfolios are positioned to take advantage of continued strength in risk assets, and we continue to emphasize high conviction opportunities within asset classes, as well as strategies that can exploit market inefficiencies.

Asset Class Outlook Comments
U.S. Equity + Quality bias
Intl Equity + Neutral vs. U.S.
Fixed Income +/- High-yield favorable
Absolute Return + Benefit from higher volatility
Real Assets +/- Favor global natural resources
Private Equity + Later in cycle

Source: Brinker Capital. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting.

Investment Insights Podcast – May 14, 2015

Bill MillerBill Miller, Chief Investment Officer

Back for one more installment (recorded May 11, 2015) as Bill wraps up the conversation on earnings season. You can listen to the entire series by clicking here.

Here are some of this week’s highlights:

  • 450+ companies of the S&P 500 have reported earnings
  • Earnings pretty good; beat a low-bar level of expectations
  • Sales were generally flat; low oil prices dragged down sales
  • Expecting to see more growth in Europe; watching the housing industry in the U.S.

Click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Monthly Market and Economic Outlook: May 2015

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

In April we saw a reversal of some of what occurred in the first quarter. U.S. large cap equities were positive on the month (S&P 500 Index gained +1.0%); however, U.S. mid and small cap stocks experienced declines of -0.9% and -2.6% respectively. International developed equity markets continued to outperform U.S. markets (MSCI EAFE gained +4.2%), led by strong gains in Europe. The Euro strengthened 4.5% against the dollar during the month. Emerging markets led developed markets (MSCI EM gained +7.7%), helped by double-digit gains in China and Brazil. In the real assets space, crude oil soared +25% in April after an -11% decline in the first quarter, while REITs experienced modest declines.

Global sovereign yields moved higher in April. The yield on the 10-year Treasury climbed 11 basis points and as a result the Barclays Aggregate Index fell -0.4%. While investment-grade credit was negative on the month, high-yield credit gained +1.2% as spreads tightened. Municipal bonds underperformed taxable bonds during the month.

Our outlook remains biased in favor of the positives, but recognizing risks remain. We feel we have entered the second half of the business cycle, but remain optimistic regarding the global macro backdrop and risk assets over the intermediate-term. As a result, our strategic portfolios are positioned with a modest overweight to overall risk. A number of factors should support the economy and markets over the intermediate term.

  • Global monetary policy accommodation: Despite the Federal Reserve heading toward monetary policy normalization, the ECB and the Bank of Japan have both executed bold easing measures in an attempt to support their economies.
  • U.S. growth stable and inflation tame: Despite a soft patch in the first quarter, U.S. economic growth remains solidly in positive territory and the labor market has markedly improved. Reported inflation measures and inflation expectations are moving higher but remain below the Fed’s target.
  • U.S. companies remain in solid shape: U.S. companies are beginning to put cash to work through capex, hiring and M&A. Earnings growth outside of the energy sector is positive, and margins have been resilient.
  • Less uncertainty in Washington: After serving as a major uncertainty over the last few years, Washington has done little damage so far this year; however, Congress will still need to address the debt ceiling before the fall. Government spending has shifted to a contributor to GDP growth in 2015 after years of fiscal drag.

However, risks facing the economy and markets remain, including:

  • Timing/impact of Fed tightening: The Fed has set the stage to commence rate hikes later this year. Both the timing of the first rate increase, and the subsequent path of rates is uncertain, which could lead to increased market volatility.
  • Slower global growth: While growth in the U.S. is solid, growth outside the U.S. is decidedly weaker. It remains to be seen whether central bank policies can spur sustainable growth in Europe and Japan. Growth in emerging economies has slowed as well.
  • Geopolitical risks: Issues in the Middle East, Greece and Russia, could cause short-term volatility.

While valuations have moved above long-term averages and investor sentiment is neutral, the trend is still positive and the macro backdrop leans favorable, so we remain positive on equities. The ECB’s actions, combined with signs of economic improvement, have us more positive in the short-term regarding international developed equities, but we need to see follow-through with structural reforms. We expect U.S. interest rates to normalize, but remain range-bound and the yield curve to flatten. Fed policy will drive short-term rates higher, but long-term yields should be held down by demand for long duration safe assets and relative value versus other developed sovereign bonds.

As we operate without the liquidity provided by the Fed and move through the second half of the business cycle, we expect higher levels of market volatility. This volatility should lead to more opportunity for active management across asset classes. Our portfolios are positioned to take advantage of continued strength in risk assets, and we continue to emphasize high conviction opportunities within asset classes, as well as strategies that can exploit market inefficiencies.

Asset Class Outlook Comments
U.S. Equity + Quality bias
Intl Equity + Neutral vs. U.S.
Fixed Income +/- HY favorable after ST dislocation
Absolute Return + Benefit from higher volatility
Real Assets +/- Favor global natural resources
Private Equity + Later in cycle

Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Past performance is not a guarantee of similar future results. An investor cannot invest directly in an index.

Investment Insights Podcast – May 5, 2015

Bill MillerBill Miller, Chief Investment Officer

On this fourth and final installment (recorded May 1, 2015), Bill continues the conversation on earnings season. You can listen to the entire series by clicking here.

Here are some of this week’s highlights:

  • 350+ companies of the S&P 500 have reported earnings
  • Earnings up about 4%; sales are generally flat
  • Earnings season was, at best, okay; markets should continue to churn sideways
  • Anticipate housing to be lead contributor to economic performance

Click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Investment Insights Podcast – April 28, 2015

Bill MillerBill Miller, Chief Investment Officer

On this third installment (recorded April 23, 2015), Bill continues the conversation on earnings season.

Here are some of this week’s highlights:

  • Earnings season important for looking at where business is and where it’s going to be
  • About 30% of companies reporting, about three quarters of which are beating expectations (albeit at a lower level)
  • There remains a level of skepticism if earnings can continue
  • Sales numbers also important; represent demand from consumers
  • Earnings numbers are okay; sales numbers can be stronger

Click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Investment Insights Podcast – April 22, 2015

Bill MillerBill Miller, Chief Investment Officer

On this week’s podcast (recorded April 16, 2015), Bill provides an update from last week’s podcast and focuses on how companies are managing earnings:

Here are some of the highlights:

  • Two weeks into the earnings seasons, with 10% of S&P 500 companies reporting, news is surprisingly good
  • Expectations were down due to lower oil prices and strong dollar
  • It’s still early! Many reports are in from the financial sector but still waiting on materials, energy and industrials sectors
  • Initial earnings skewed by a few standout companies reporting strong quarters
  • If good sales growth and good earnings guidance continues, stock market could still perform well despite higher valuations.

Click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.