Investment Insights Podcast: A review of October markets

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Leigh Lowman, CFA, Investment Manager

On this week’s podcast (recorded November 10, 2017), Leigh provides a quick review of October markets.

 

Quick hits:

  • Many of the global growth themes that were evident in the third quarter carried into the start of the fourth quarter.
  • Macroeconomic data remained positive and earnings announcements generally came in above analyst forecasts.
  • Our base case remains that the positive market momentum we have seen year-to-date will likely continue through year-end.
  • However, we are aware that with equity markets at record highs and volatility at record lows, this may indicate investor sentiment is reaching excessive levels.

Listen_Icon  Listen to the audio recording.

Read_Icon  Read the full October Market and Economic Outlook.

 

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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: Are you familiar with the expression, “Don’t fight the tape?”

Chris HartHart_Podcast_338x284Senior Vice President

On this week’s podcast (recorded November 3, 2017), Chris highlights some of the more interesting facts that he has come across in recent days from various sources that support the notion of “don’t fight the tape.”.

 

Quick hits:

  • With October complete, the S&P 500 is up more than 15% for the year.  According to our research partners at Strategas, this has only happened 17 times since 1950, and usually indicates continued market strength through the end of the year.
  • A seasonally strong fourth quarter looks even more attractive and helps further confirm our constructive outlook for risk assets for the remainder of 2017.
  • Our partners at Evercore ISI point out that with more than 50% of S&P companies reporting, results have been above analyst expectations.
  • What’s more interesting is that the earnings beats have been skewed more positive than normal.
  • Our outlook remains constructive supported by strong economic data.

For the rest of Chris’s insight, click here to listen to the audio recording.

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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 only go up until they don’t

Goins_Podcast
Andrew Goins
, Investment Manager

On this week’s podcast (recorded October 20, 2017), Andrew revisits Black Monday, the largest single day market decline in history. He provides commentary on the measures taken after the crash and where the market currently stands today.

Quick hits:Last week, we celebrated the 30th anniversary of Black Monday, when on October 19th, 1987 the Dow Jones Industrial Average declined 22.6%.

  • As we look to today, with only one negative quarter for the S&P 500 in the last 4 and a half years, it’s easy to forget that circuit breakers exist and that markets can correct and even crash.
  • The Dow Jones closed above 23,000 for the first time last Wednesday and ended the week even higher.

For Andrew’s full insights, click here to listen to the audio recording.

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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.

No apologies needed – The Diversification Apology Index

Rosenberger 150 x 150Andrew Rosenberger, CFA, Senior Investment Manager

Being truly diversified means always having to apologize for something.  Diversification, like investing in general, is oftentimes easier said than done.  We can theorize about 30 year time horizons; but emotions, herd mentality, individual circumstances, and a largely unpredictable future make practice far more difficult than theory.  For example, prior to the Financial Crisis when international stocks were ripping higher, investors questioned why more of their equity exposure wasn’t allocated toward international and emerging market stocks.  Last year, clients questioned why any of their equity exposure was allocated toward international companies.  As diversified asset allocators, we are constantly facing something in our portfolios which is lagging the broader markets.

With that said, 2017 certainly “feels” like it is shaping up to be a good year for diversified investors.  Most asset classes are up on the year with select ones, like international equities, handily outperforming the S&P 500.  But why does this year “feel” different than those in the past?  To answer that, let me introduce the “Diversification Apology Index.”

Diversification Apology Index 2

Source: Brinker Capital, FactSet, Lipper: 1/1/05 to 8/31/17

To explain further, let me first mention that not everything is performing well this year.  Commodities are slightly negative year-to-date, while REITs cling to only fractionally positive returns.  Yet, when you look at most investors’ portfolios, commodities and REITs make up only a minor portion of their overall asset allocation.  International equities, on the other hand, tend to represent a much larger investable universe and thus tend to make up a more significant portion of a diversified asset allocation.  To demonstrate this idea, we complied all U.S. open-end mutual funds and grouped them into broad asset classes based on their Lipper classifications.  With the entire mutual fund universe in hand, we then asset weighted each fund according to its corresponding asset class.  In short, we created a proxy for the ‘market portfolio.’  While we don’t believe this represents the average investors’ asset allocation per-se, it does give us some indication on relative positioning.  For example, we can see that the assets under management (AUM) for the international and global equity mutual funds is nearly twice as large as that of commodities, natural resources and MLPs.  Similarly, REITs make up only 3 percent of the total mutual fund AUM.  Although investors will differ based on their risk tolerance, objectives, biases, and investment philosophy, the aggregate mutual fund AUM provides some insight as to where the investors tend to allocate their investable capital.

US Mutual Fund Universe by Asset Class 2

Source: Brinker Capital, FactSet, Lipper: as of 6/30/17

With an idea relative asset class weightings, we can then compare recent performance of each of these asset classes to how a very traditional 60 percent S&P 500, 40 percent Barclays Aggregate portfolio would perform.  When asset classes with relatively small weights underperform, investors tend not to take all that much notice.  Hence, there is little to ‘apologize’ for.  However, when more meaningfully weighted asset classes underperform, the results stand out like a sore thumb.

Therein lies the basic methodology for the “Diversification Apology Index”.  After staying in an elevated range since 2011, we now see the benefits of diversification more similar to that of before the Financial Crisis.  Although we shouldn’t interpret this gauge as having any predictive power, it does bring hope that conversations with investors will be more focused on goals and how to meet objectives rather than why one may not be keeping up with the S&P 500.  Ultimately though, we should take comfort in knowing that it’s a good thing when select asset classes underperform, as it means that we are truly benefiting from a diversified portfolio.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

 

Investment Insights Podcast: Headed for home

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded September 29, 2017), Tim discusses how we at Brinker Capital do not currently see a reason to change our thinking on market history and fundamentals as we head into October.

Quick hits:

  • We have been overweight risk assets and overweight U.S. equities.
  • So far, as we move into the end of Q3, the expected pattern of equity market strength is holding, with the S&P 500 up more than 3% in the quarter.
  • We see many more positives than negatives when we consider the underlying fundamentals for the market and the economy.

For Tim’s full insights, click here to listen to the audio recording.

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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: When the macro clouds clear

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded September 15, 2017), Tim discusses how Brinker Capital’s focus will remain on market and economic fundamentals.

Quick hits:

  • Despite the strong fundamentals in early September, the market was languishing as investors focused on current political and geo-political events.
  • We will of course continue to monitor political and geo-political events, but our focus will remain on market and economic fundamentals; those factors that more than any other drive stock prices over the long-term.

For Tim’s full insights, click here to listen to the audio recording.

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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: A review of August markets

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Leigh Lowman, CFA, Investment Manager

On this week’s podcast (recorded September 8, 2017), Leigh provides a quick review of August markets.

 

Quick hits:

  • In a historically seasonally weak month, risk assets exhibited weaker performance in August.
  • Global economies continued to stay the course on the path to recovery with both consumer and business confidence and macroeconomic data remaining positive.
  • We expect that the upcoming actions in Washington may serve as a catalyst for a pickup in volatility, which has been notably absent year to date.
  • However, more volatile periods can often lead to attractive market opportunities.

Listen_Icon  Listen to the audio recording.

Read_Icon  Read the full September Market and Economic Outlook.

market outlook

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.

 

Follow the earnings, my friend

Wilson-150-x-150Thomas K.R. Wilson, CFA, external Chief Investment Officer, Wealth Advisory

In meeting with clients this summer, the most frequently asked question was, “Why does the stock market keep going up?” Of course, there are variations of this question which range from “How does the market go up with all the distraction in the U.S. government,” to “This bull market is very long, how can it continue?”

On the surface, it does seem odd that the market continues to move higher. There have been a lot of ‘interesting’ comments coming from the White House, which in a different time may have caused the equity market to decline or at least pause. The average economic expansion since 1900 lasted 47 months, however, the one we are currently in has lasted 98 months, thus far. The economic expansion has contributed to a bull market, which began in March 2009, that is now up close to 260%! In addition, there are a litany of geopolitical issues ranging from riots in Venezuela, an expanding Chinese navy, and North Korean missile tests, which combined are pushing the rise of populism in Europe and the constant Middle East conflict to the backburner. Besides, whatever happened to the old cliché of sell in May and go away? For the year, the S&P 500 is up just over 11%, which includes more than 1.5% appreciation since June 1.

There are a variety of reasons why the U.S. equity market is up, but arguable the most important factor is the earnings of U.S. companies. Earnings have been good this year, very good. And, expectations for earnings for the remainder of the year and into 2018 are solid. This comes on the heels of flat to down earnings from 2014 through the first half of 2016. Furthermore, once earnings are finalized for the second quarter, it looks like operating margins achieved their highest level of any quarter in the last decade!                                                               Follow the earnings my friend

James Carville, campaign strategist for President Bill Clinton, is credited with the phrase “It’s the economy, stupid.” As we think about the gains in U.S. equities this year, perhaps a variation of this phrase, “Follow the earnings, my friend” is more appropriate.

For 30 years, Brinker Capital has served financial advisors and their clients by providing the highest quality investment manager due diligence, asset allocation, portfolio construction and client communication services. Brinker Capital Wealth Advisory works with business owners, individual investors and institutions with assets of at least $2 million. To learn more about the services available through Brinker Capital Wealth Advisor, click here.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Source:  JP Morgan

Investment Insights Podcast: Forgotten fundamentals

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded September 1, 2017), Tim discusses how recent current events are not fundamental to the market’s long-term performance.

Quick hits:

  • In the first half of 2017, the S&P 500 delivered year over year earnings growth of 12%, driven by double digit gains in both the first and second quarter.
  • The robust earnings performance of the S&P 500 is important for several reasons.
  • The underlying economic and market fundamentals are what matter most over the long term, and for the time being the news on both fronts is much more good than bad.

For Tim’s full insights, click here to listen to the audio recording.

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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.

August 2017 market and economic outlook

Lowman_150x150pxLeigh LowmanInvestment Manager

After a strong first half to the year, positive economic growth continued into July.  Risk assets were up across the board and volatility was notably muted. Second quarter earnings came in strong with both revenue and earnings surprises accelerating from already strong levels, helped by a weaker US dollar and depressed oil prices. On the political front, the Senate’s failure to pass a healthcare bill cast a shadow on the “Trump trade”, bringing forth concerns on whether meaningful tax and regulatory reform can be accomplished. However, this failure may serve as a catalyst for other pro-growth initiatives, such as tax reform, to be pushed through in the near future.  Overall economic data leans positive and we expect markets will continue to trend upward over the near term.

The S&P 500 was up 2.1% in July and reached a record high mid-month, stemming from many large corporations reporting stronger than expected second quarter earnings. All sectors posted positive returns with the largest outperformers being telecom (+6.4%) and technology (+4.3%). Large cap stocks outperformed mid cap and small cap stocks and lead year to date.  Growth outperformed value and leads by a large margin year to date.

market outlook

Developed international equities outperformed domestic equities, returning 2.9% for the month.  Improving fundamentals and increased investor sentiment in both the Eurozone and Japan helped spur continued positive economic growth.  Both regions remain heavily reliant on central bank stimulus programs and speculation has begun on whether the European Central Bank or Bank of Japan will begin easing in the near future. Emerging markets rallied, gaining 6.0% for July, with all BRIC countries posting positive returns.  Brazil was up over 11%, stemming from initial failed corruption allegations of the country’s president, Michel Temer.

Likewise India and China posted strong returns, fueled by strong economic growth and evidence of reform.

Fixed income markets were quiet during the month.  The July Fed meeting was relatively uneventful with an expected announcement of no changes to interest rates. The Bloomberg Barclays US Aggregate Index returned 0.4% with all fixed income sectors posting positive returns. The 10 Year Treasury yield ended at 2.3%, relatively unchanged from the beginning of the month.  High yield spreads contracted an additional 12 basis points. Municipals were up 0.8%, outperforming taxable counterparts.

We remain positive on risk assets over the intermediate-term, although we acknowledge we are in the later innings of the bull market and the second half of the business cycle. While this cycle has been longer in duration compared to history, the recovery we have experienced has been muted. While our macro outlook is biased in favor of the positives and recession is not our base case, especially considering the potential of reflationary policies from the new administration, the risks must not be ignored.

We find a number of factors supportive of the economy and markets over the near term.

Reflationary fiscal policies: Despite a rocky start, we still expect fiscal policy expansion out of the Trump Administration, potentially including some combination of tax cuts, repatriation of foreign sourced profits, increased infrastructure and defense spending, and a more benign regulatory environment.

Global growth improving: U.S. economic growth remains moderate and there is evidence growth outside of the U.S., in both developed and emerging markets, is improving. Earnings growth has improved across markets as well.

Business confidence has increased: Measures like CEO Confidence and NFIB Small Business Optimism have improved since the election. This typically leads to additional project spending and hiring, which should boost growth.

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

Administration unknowns: While the upcoming administration’s policies are still being viewed favorably by investors, uncertainties remain. The market may be too optimistic that all of the pro-growth policies anticipated will come to fruition. The Administration has quickly shifted from healthcare to tax reform legislation. We are unsure how Trump’s trade policies will develop, and there is the possibility for geopolitical missteps.

Risk of policy mistake: While global growth has improved, it is important that central banks do not move to tighten too early. The Federal Reserve has begun to normalize monetary policy, but has room to be patient given muted levels of inflation. The tone of the ECB has begun to shift slightly more hawkish.

The technical backdrop of the market is favorable, credit conditions are supportive, and we have seen acceleration in economic growth. So far Trump’s policies are being seen as pro-growth, and investor confidence is elevated. The onset of new policies under the Trump administration and actions of central banks may lead to higher volatility, but our view on risk assets remains positive over the intermediate term. Higher volatility can lead to attractive pockets of opportunity we can take advantage of as active managers.

Brinker Capital Market Barometer

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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. Indices are unmanaged and an investor cannot invest directly in an index. 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. S&P 500: An index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe. Companies included in the Index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor’s. Bloomberg Barclays U.S. Aggregate: A market capitalization-weighted index, maintained by Bloomberg Barclays, and is often used to represent investment grade bonds being traded in United States. Brinker Capital Inc. and Santander Investment Services are independent entities and neither is the agent of the other.