Investment Insights Podcast: The 4th best in terms of return, and the 2nd longest in terms of duration

Hart_Podcast_338x284Chris Hart, Senior Vice President

On this week’s podcast (recorded February 3, 2017), Chris talks about the recent choppiness of the markets and how most major averages continue to trade near their highs.

Quick hits:

  • From an equity perspective, markets have been unsteady recently given uncertainty surrounding the new administration’s policy implementation and agenda which have stirred up more volatility.
  • We believe there is room to move higher because there are not too many traditional indictors that are flashing red at this point in time.
  • Developed markets and emerging markets have posted slight declines recently, but EM rebounded form a weak 4Q and is outperforming developed markets year to date in 2017.
  • The aggregate bond index has performed in line with high yield recently, but High yield remains well ahead of the aggregate index year to date.
  • Overall, we believe the opportunity ahead for risk assets in 2017 is positive, but we remain mindful of increasing macro and geopolitical uncertainties.

For the rest of Chris’s insight, 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. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Markets have taken a little bit of a breather

Hart_Podcast_338x284Chris Hart, Senior Vice President

On this week’s podcast (recorded December 22, 2016), Chris is back discussing how directionally many of the trends remain in place as the rotation into equities from bonds continues.

Quick hits:

  • The markets consolidated a bit as Financials and Industrials leadership paused, while previously oversold sectors like Utilities and Healthcare, performed better.
  • International equity performance has proved more challenging.
  • A surprise came from the “dot plot” positioning that was more hawkish than anticipated due to a projected three additional rate hikes in 2017 instead of two.
  • Overall, we remain constructive on the opportunity ahead heading into 2017.

For the rest of Chris’s insight, 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. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Seasonally Stronger Markets Ahead

Hart_Podcast_338x284Chris Hart, Core Investment Manager

On this week’s podcast (recorded September 16, 2016), Chris provides a fresh market update as volatility has picked up recently. Listen in as he discusses market performance and what’s to come in the fourth quarter.

Quick hits:

  • Returns are positive for most segments of the markets; however, volatility has picked up recently and equities have declined over the past week or two
  • This is typically a weak part of the calendar year for the markets, but this soft period should be behind us soon as mid-October typically marks the end of this softer stretch in the markets before seasonally stronger fourth quarter takes hold
  • A rate hike can’t be discounted completely and could be a shock to the markets if it happens.

For the rest of Chris’s insight, 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. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Outlook Positive Despite Rate Hike Possibility

magnotta_headshot_2016Amy Magnotta, CFASenior Investment Manager, Brinker Capital

On this week’s podcast (recorded September 9, 2016), Amy reviews how the markets performed during August and provides an outlook to what’s ahead. Here a few quick hits before you listen:

  • August was a relatively calm month for financial markets. Large cap developed market equities eked out small gains, while emerging markets, high-yield bonds and small caps fared better.
  • U.S. economic data releases have been mixed, but lean positive. Yet, with better economic data comes the possibility of an additional Fed interest rate hike sooner rather than later.
  • While the possibility of a rate hike could adversely affect markets in the near term, it doesn’t change our positive intermediate-term outlook.
  • Risks facing the economy include the potential for a central bank policy mistake, uncertainty surrounding the upcoming presidential election, and disappointing economic growth outside of the U.S.
  • We expect higher volatility to continue as we digest the actions of global central banks, but our view on risk assets still tilts positive over the intermediate term. Increased volatility often leads to pockets of attractive opportunities.

Click here to listen to Amy’s full 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. Brinker Capital, Inc., a Registered Investment Advisor.

May 2016 Monthly Market And Economic Outlook

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

Continuing the rally that began in mid-February, risk assets posted modest gains in April, helped by more dovish comments from the Federal Reserve and further gains in oil prices. Expectations regarding the pace of additional rate hikes by the Fed have been tempered from where they started the year. Economic data releases were mixed, and while a majority of companies beat earnings expectations, earnings growth has been negative year over year.

The S&P 500 Index gained 0.4% for the month. Energy and materials were by far the strongest performing sectors, returning 8.7% and 5.0% respectively. On the negative side was technology and the more defensive sectors like consumer staples, telecom and utilities. U.S. small and micro-cap companies outpaced large caps during the month, and value continued to outpace growth.

International equity markets outperformed U.S. equity markets in April, helped by further weakness in the U.S. dollar. Developed international markets, led by solid returns from Japan and the Eurozone, outpaced emerging markets. Within emerging markets, strong performance from Brazil was offset by weaker performance in emerging Asia.

The Barclays Aggregate Index return was in line with that of the S&P 500 Index in April. Treasury yields were relatively unchanged, but solid returns from investment grade credit helped the index. High-yield credit spreads continued to contract throughout the month, leading to another month of strong gains for the asset class.

We remain positive on risk assets over the intermediate-term; however, we acknowledge that we are in the later innings of the bull market that began in 2009 and the second half of the business cycle. The worst equity market declines are typically associated with recessions, which are preceded by aggressive central bank tightening or accelerating inflation, factors which are not present today.  While our macro outlook is biased in favor of the positives and a near-term end to the business cycle is not our base case, the risks must not be ignored.

A number of factors we find supportive of the economy and markets over the near term.

Global monetary policy remains accommodative: The Fed’s approach to tightening monetary policy is patient and data dependent.  The Bank of Japan and the ECB have been more aggressive with easing measures in an attempt to support their economies, while China may require additional support.

Stable U.S. growth and tame inflation: U.S. economic growth has been modest but steady. While first quarter growth was muted at an annualized rate of +0.5%, we expect to see a bounce in the second quarter as has been the pattern. Payroll employment growth has been solid and the unemployment rate has fallen to 5.0%. Wage growth has been tepid at best despite the tightening labor market, and reported inflation measures and inflation expectations, while off the lows, remain below the Fed’s target.

U.S. fiscal policy more accommodative: With the new budget, fiscal policy is poised to become modestly accommodative in 2016, helping offset more restrictive monetary policy.

Constructive backdrop for U.S. consumer: The U.S. consumer should see benefits from lower energy prices and a stronger labor market.

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

Risk of policy mistake: The potential for a policy mistake by the Fed or another major central bank is a concern, and central bank communication will be key. In the U.S. the subsequent path of rates is uncertain and may not be in line with market expectations, which could lead to increased volatility. Negative interest rates are already prevalent in other developed market economies. An event that brings into question central bank credibility could weigh on markets.

Slower global growth: Economic growth outside the U.S. is decidedly weaker, and while China looks to be improving, a significant slowdown remains a concern.

Another downturn in commodity prices: Oil prices have rebounded off of the recent lows and lower energy prices on the whole benefit the consumer; however, another significant leg down in prices could become destabilizing. This could also trigger further weakness in the high yield credit markets, which have recovered since oil bottomed in February.

Presidential Election Uncertainty: The lack of clarity will likely weigh on investors leading up to November’s election. Depending on the rhetoric, certain sectors could be more impacted.

The technical backdrop of the market has improved, as have credit conditions, while the macroeconomic environment leans favorable. Investor sentiment moved from extreme pessimism levels in early 2016 back into more neutral territory. Valuations are at or slightly above historical averages, but we need to see earnings growth reaccelerate. We expect a higher level of volatility as markets assess the impact of slower global growth and actions of policymakers; but our view on risk assets still tilts positive over the near term. Higher volatility has led to attractive pockets of opportunity we can take advantage of as active managers.

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. Brinker Capital Inc., a Registered Investment Advisor.

Investment Insights Podcast – Japan: Sunset on the Horizon?

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager & International Strategist

On this week’s podcast (recorded April 29, 2016), Stuart puts the focus on Japan and their struggling economy especially on the current political climate and its economic impact.

Why talk about Japan?

  • It’s the third largest economy in the world.
  • It’s one of the world’s leading lenders to the rest of the world, including the U.S.
  • Political fallout and economic downside loom if monetary easing policy is not accompanied with fiscal progress.

What’s the latest?

  • On April 27, the Bank of Japan decided not to add to currently high quantitative easing, greatly disappointing the markets.
  • The Japanese Yen appreciated over 2% (versus the U.S. dollar), that’s a negative given that two-thirds of the equity market is based towards overseas earnings.

How did Japan get here?

  • Back in 2013, Shinzo Abe inspired hope to reinvigorate the economy through the three arrows: monetary policy, fiscal stimulus, and structural reform.
  • The reality is there has been little-to-no follow through on fiscal policy or structural reform.
  • Bank of Japan has created a massive QE program, owning one out of every three long-duration government bonds.

Japan_Chart_1

So, did the quantitative easing measures work?

  • QE helped asset prices, but did not reset inflationary expectations nor economic growth (GDP around 1%).
  • Japanese corporations aren’t investing back into Japan, but rather overseas.
  • Negative interest rates have resulted in a deceleration in bank lending.

That’s not great, but what does that mean exactly?

  • Failure in Japan could also have implications for global markets.
  • Despite stagnant growth for parts of the last three decades, Japan remains the third largest economy and second largest equity market.
  • Japan is also one of the largest holders of U.S. Treasuries.

Shoot me straight here, has Japan entered into the “sunset” phase?

  • It appears likely that Japan still has liquidity to muddle through its problems for now, but one cannot rule out a more negative scenario with the latest inaction and failure to improve the economy.
  • Fiscal stimulus could come in light of the recent earthquake, but progress on tax code reform and increased spending would provide longer-lasting relief.
  • One potentially negative scenario could come in July if a larger-than-expected victory for the opposition happens–this could lead to general elections and the departure of Abe causing policy uncertainty and higher volatility.

Please click here to listen to the full 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. Brinker Capital, a Registered Investment Advisor.

April 2016 Monthly Market And Economic Outlook

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

After an extremely volatile quarter, the broad equity market indexes ended just about where they started. Risk assets began the year under heavy pressure, with the S&P 500 Index declining more than -10% to a 22-month low on February 11. Concerns over the global growth outlook and the impact of further weakness in crude oil prices weighed on investors, and investor sentiment hit levels of extreme pessimism. Then we experienced a major reversal beginning on February 12, helped by a rebound in oil prices after Saudi Arabia and Russia agreed to freeze production, and more dovish comments by the Federal Reserve. Expectations regarding the pace of additional rate hikes by the Fed have been tempered from where they started the year.

All U.S. equity sectors ended the quarter in positive territory except for healthcare and financials. Dividend paying stocks significantly outperformed, resulting in a strong quarter for both the telecom and utilities sectors, and value indexes overall. From a market capitalization perspective, mid-caps outperformed both large and small caps, helped by the strong performance of REITs, another yield-oriented asset class.

Developed international equity markets lagged U.S. equity markets in the first quarter despite benefiting from a weaker U.S. dollar. Japan and Europe were particularly weak despite additional easing moves by their central banks, while the commodity-sensitive countries, such as Canada and Australia were positive for the quarter. Emerging markets outperformed U.S. equity markets for the quarter despite declines in China and India. Brazil was the strongest performer, helped by a rebound in the currency, expectations for political change, and the bounce in commodity prices.

ECBBonds outperformed stocks during the quarter, and did not even decline during the risk-on rally. Additional easing from the European Central Bank and a negative interest rate policy in Japan prevented U.S. bond yields from moving higher.

All fixed income sectors were positive for the quarter, led by corporate credit, which benefited from meaningful spread tightening, and TIPS, which benefited from their longer duration. Municipal bonds delivered positive returns, but lagged taxable fixed income.

We remain positive on risk assets over the intermediate-term; however, we acknowledge that we are in the later innings of the bull market that began in 2009 and the second half of the business cycle. The worst equity market declines are typically associated with recessions, which are preceded by aggressive central bank tightening or accelerating inflation, factors which are not present today. While our macro outlook is biased in favor of the positives and a near-term end to the business cycle is not our base case, the risks must not be ignored.

A number of factors we find supportive of the economy and markets over the near term.

  • Global monetary policy remains accommodative: Despite the Federal Reserve beginning to normalize monetary policy with a first rate hike in December, their approach is patient and data dependent. The Bank of Japan and the ECB have been more aggressive with easing measures in an attempt to support their economies, and China is likely going to require additional support.
  • Stable U.S. growth and tame inflation: U.S. economic growth has been modest but steady. Payroll employment growth has been solid and the unemployment rate has fallen to 5.0%. Wage growth has been tepid at best despite the tightening labor market, and reported inflation measures and inflation expectations, while off the lows, remain below the Fed’s target.
  • U.S. fiscal policy more accommodative: With the new budget fiscal policy is poised to become modestly accommodative in 2016, helping offset more restrictive monetary policy.
  • Solid backdrop for U.S. consumer: The U.S. consumer should see benefits from lower energy prices and a stronger labor market.

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

  • Risk of policy mistake: The potential for a policy mistake by the Fed or another major central bank is a concern, and central bank communication will be key. In the U.S. the subsequent path of rates is uncertain and may not be in line with market expectations, which could lead to increased volatility. Negative interest rates are already prevalent in other developed market economies.
  • Slower global growth: Economic growth outside the U.S. is decidedly weaker, and a significant slowdown in China is a concern.
  • Another downturn in commodity prices: Oil prices have rebounded off of the recent lows and lower energy prices on the whole benefit the consumer; however, another significant leg down in prices could become destabilizing.
  • Further weakness in credit markets: While high yield credit spreads have tightened from February’s wide levels, further weakness would signal concern regarding risk assets more broadly.

The technical backdrop of the market has improved, as have credit conditions, while the macroeconomic environment remains favorable. Investor sentiment moved from extreme pessimism levels in early 2016 back into more neutral territory. Valuations are at or slightly above historical averages, but we need to see earnings growth reaccelerate. We expect a higher level of volatility as markets assess the impact of slower global growth and actions of policymakers; however, our view on risk assets tilts positive over the near term. Higher volatility has led to attractive pockets of opportunity we can take advantage of as active managers.

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. Brinker Capital Inc., a Registered Investment Advisor.

Investment Insights Podcast – Hope Springs Eternal

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded February 11, 2016), Bill addresses the current market climate and why there is reason to remain hopeful:

What we don’t like: Stocks are down around 10% in general; European stock markets are down even more; Asian markets down the most; it’s a tough environment for investors

What we like: We don’t believe this is a long-term bear market and don’t see a recession hitting the U.S.; labor and wages are positive; auto and housing is good as well; economy seems sturdy despite volatile market behavior; China poised to finalize five-year plan including lowering corporate tax rates and addressing government debt levels; ECB should start to show more support for its major banks

What we’re doing about it: Most of the damage is done; more sensible to see what we should buy or rotate into; hedged pretty fully in tactical products; staying the course in more strategic products

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. Brinker Capital, Inc., a Registered Investment Advisor.

Happy New Year?

Stuart QuintStuart P. Quint, CFA, Senior Investment Manager & International Strategist

Although we are only nine business days into 2016, markets have gotten off to a rough start. As of January 13, 2016, the S&P 500 was down -7.7% while a moderate-risk[1] benchmark was down -4.2%. In fact, this year has seen the worst start to any calendar year on record.

Unlike past corrections, the catalyst for the recent sell-off in markets is less obvious. One thought is that we are seeing a delayed response to the Federal Reserve’s December rate hike. Markets appear displeased with the timing of the Fed’s action, given the stalling economic growth. In our opinion, the Fed should have considered raising rates a year ago when economic growth was stronger.

Another consideration, it’s conceivable that investors are finally grasping the reality of slower growth in China. This is a factor that we have monitored for quite some time (and a factor in being underweight large emerging markets); but, the timing as to why the markets are worrying about China now is less clear.

There are other factors, too, that might be contributing to the downbeat mood in markets:

  • Slowdown in the Chinese economy and continued devaluation of its currency
  • Continued weakness and flight of capital in emerging markets
  • Weak oil prices (lower capital spend offsetting benefit to consumers)
  • Narrow leadership of U.S. equities (e.g. “FANG” stocks driving markets – high valuation, momentum, expectations with little room for disappointment)
  • Selloff in high-yield bonds
  • Continued deterioration in U.S. and global manufacturing
  • Strengthening of U.S. dollar and its corresponding hit to corporate earnings
  • Ongoing weakness in corporate revenue growth and economic growth
  • 2016 U.S. presidential elections
  • Disappointment in global central bank actions (Europe, Japan, China)

While the picture painted above seems saturated in negativity, it’s not all doom and gloom. There are assuredly some more positive factors to consider:

  • Global policy remains accommodative, particularly in Europe and Japan
  • U.S. interest rates remain low by historic standards
  • Job creation in the U.S. remains positive
  • U.S. bank lending continues to grow at moderate pace
  • U.S. services (majority of U.S. economic activity) continue to show moderate growth
  • Looser U.S. fiscal policy should marginally contribute toward GDP growth in 2016 (estimated)
  • Economic growth in Europe appears stable, albeit tepid
  • Direct impact of emerging market weakness to U.S. economy is less than 5% of GDP

In terms of how we address this in our portfolios, we continue to monitor these conditions and are assessing the risks and opportunities. Within our strategic portfolios, such as our Destinations mutual fund program, we have marginally reduced stated risk within more conservative portfolios while maintaining a slight overweight to risk in more aggressive portfolios. Following the trend of the last several years, we have trimmed exposure to riskier segments, such as credit within fixed income and small cap within equities. Tactical portfolios entered the year with neutral to slightly-positive beta on near-term concerns of high valuations and China.

The S&P 500 has dominated all asset classes in recent years.  A potential end to that reign should not cause alarm, but instead refocus attention to the long-term benefits of diversification and why there are reasons to own strategies which do not just act like the S&P 500.

In general, investors should not panic but rather continue to evaluate their risk tolerance and suitability, as well as engage in consistent dialogue with their financial advisors. The turn of the calendar might just be the ideal time to review those needs.

[1] Theoretical benchmark representing 60% equity (42% Russell 3000 Index, 18% MSCI AC ex-US), and 40% fixed income (38% Barclay Aggregate and 2% T-Bill)

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. Brinker Capital, Inc., a Registered Investment Advisor.

Monthly Market And Economic Outlook: September 2015

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

Global growth concerns, specifically the impact of a slowdown in China, and the anticipation of Fed tightening beginning in the fall prompted a spike in volatility and a sell-off in risk assets in August. The decline occurred despite decent U.S. economic data. U.S. equity markets held up slightly better than the rest of the developed world while emerging markets fared worse. U.S. Treasury yields were unchanged on the month, but credit spreads widened in response to the risk-off environment. Crude oil prices hit another low in late August, also weighing on global equity and credit markets.

The S&P 500 Index ended the month down -6%, but experienced a peak to trough decline of -12%. Prior to that it had been more than 900 trading days since we last experienced a 10% correction. All sectors were negative on the month, with healthcare and consumer discretionary, which had been leading, experiencing the largest declines. Small caps experienced a -6% decline as well, while mid caps held up slightly better. Growth meaningfully lagged value in small caps, but style performance was less differentiated in the large cap space.

International developed equity markets lagged U.S. markets in August, despite a slightly weaker U.S. dollar. Japan edged out European markets. After leading through the first seven months of the year, international developed equity markets are now behind the S&P 500 U.S. equity markets year to date. Emerging market equities have experienced a steep decline, down more than -15% so far in the third quarter, amid the volatility in China and continued economic woes in Brazil and broad currency weakness.

August wasn’t a typical risk-off period as longer-term U.S. Treasury yields were unchanged on the month and yields on the short end of the curve rose slightly. The Barclays Aggregate Index declined -0.14% in August. Treasuries and mortgage-backed securities were flat for the month, but spread widening in both investment grade and high yield led to negative returns for corporate credit, with lower quality credits experiencing the largest declines. Municipal bonds were slightly ahead of taxable bonds in August and lead year to date.

Our outlook remains biased in favor of the positives, but recognizing risks remain. The global macro backdrop keeps us positive on risk assets over the intermediate-term, even as we move through the second half of the business cycle. 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, 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: U.S. GDP growth rebounded in the second quarter and consensus expectations are for 2.5% growth moving forward. Employment growth is solid, with an average monthly gain of 243,000 jobs during the past year. While wages are showing beginning 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. However, weakness due to low commodity prices could begin to spread to sectors.
  • 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.

However, risks facing the economy and markets remain:

  • Fed tightening: The Fed has set the stage to commence rate hikes in the coming months. 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. A significant slowdown in China is a concern, along with slower growth in other emerging economics like Brazil.
  • Geopolitical risks could cause short-term volatility.

While the recent equity market drop is cause for concern, we view the move as more of a correction than the start of a bear market. The worst equity market declines are associated with recessions, which are preceded by substantial central bank tightening or accelerating inflation. As described above, we don’t see these conditions being met yet today. The trend of the macro data in the U.S. is still positive, and a significant slowdown in China, which will certainly weigh on global growth, is not likely enough to tip the U.S. economy into contraction. Even if the Fed begins tightening monetary policy in September, the pace will be measured as inflation is still below target. However, we would not be surprised if market volatility remains elevated and we re-tested the August 25 low as history provides many examples of that occurrence. Good retests of the bottom tend to occur with less emotion and less volume as the weak buyers have already been washed out.

As a result of this view that we’re still in a correction period and not a bear market, we are seeking out opportunities created by the increased volatility. We expect volatility to remain elevated as investors position for an environment without Fed liquidity. However, such an environment creates greater dislocations across and within asset classes that we can take advantage of as active managers.

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.