Investment Insights Podcast: Fiscal policy takes the baton from monetary policy – What it means for the economy & risk assets

Posted on February 28, 2018 by Brinker Capital

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

On this week’s podcast (recorded February 23, 2018), Tim takes a closer look at US fiscal policy and how it might impact the economy and markets as we move through 2018.

Quick hits:

For now, we see fiscal policy as a net positive for economic growth and risk assets, particularly equities.
We also don’t see interest rates and inflation as a risk to the economy and markets.
We do think rates are biased higher, which is one reason we are conservatively positioned within fixed income.
Increased investor concern over higher rates and inflation is driving greater market volatility, something we all lived through earlier this month.

For Tim’s full insights, 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: A few things we’re paying close attention to right now

Posted on April 18, 2017 by Brinker Capital

Andrew Goins, Investment Manager

On this week’s podcast (recorded April 13, 2017), Andrew discusses a few things we’re paying close attention to right now.

shutterstock_9514525 Quick hits:

After two Fed rate hikes within 4 months, we’re seeing a bit of a reversal. We’ve seen empirical evidence highlighting the improvement across active managers in the first quarter.
Over the last few months we’ve seen correlations across stocks come down significantly, and is now at the lowest level since 2001.
We are beginning to see signs that inflation is ticking up, and should only continue if Trump’s pro-growth policies come to fruition
The market is likely overdue for a near term pull-back and we are somewhere in the back half of this business cycle

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

April 2017 market and economic review and outlook

Posted on April 13, 2017 by Brinker Capital

Leigh Lowman, Investment Manager

Risk assets finished the quarter in strong positive territory but experienced a pullback in March after notably strong performance for the first two months of the year. In a widely anticipated move, the Fed increased interest rates by 25 basis points on March 15 and rhetoric alluded to the possibility of an additional 2-3 rate hikes this year. However, headlines during the quarter were dominated by speculation surrounding the Trump administration economic plan. After initially surging in the post-election market, investor confidence began to wane as pro-growth policies have yet to come to fruition. Efforts to reform Obamacare were thwarted just prior to the Congress vote on March 24, but uncertainty still remains on the future of healthcare. Overall, economic data remains positive with low unemployment and positive earnings reports and we continue to see signs of improved global growth.

The S&P 500 Index was flat for the month but finished the quarter up 6.1%. Sector performance was mixed with the technology sector (+12.6%) posting double-digit returns for the quarter. Likewise, healthcare (+8.4%) posted strong quarter returns, a sharp reversal from the sector’s poor performance last year. Energy was negative for both the month (-1.0%) and the quarter (-6.7%). Financials lagged in March (-2.8%) but remained positive for the quarter (+2.5%). Growth outperformed value and large cap led both mid and small cap.

Developed international equity outperformed domestic equity for both the month and quarter, up 2.9% in March and 7.4% for the first quarter. Economic data leaned positive for the European Union and Japan as both regions experienced a pick-up in global earnings and nominal growth. Recent outcomes of European regional elections may also have signaled a weakening in the populist movement, but political uncertainty is still apparent as upcoming elections begin to unfold.

Emerging markets were up 2.6% for the month and 11.5% for the quarter. The region rebounded from a difficult fourth quarter as fears of US protectionism began to dissipate.

The Bloomberg Barclays US Aggregate Index was flat for the month and up 0.8% for the quarter. During the month, the 10 year Treasury yield rose as high as 2.6% in anticipation of the Fed raising interest rates, but finished the quarter at 2.4%, slightly lower than where it started in 2017. After steadily contracting during the first two months of the year, high yield spreads slightly widened in March but still remain at relatively low levels. Municipal bonds outperformed taxable bonds during the quarter, largely due to limited supply and solid demand.

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 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: With the new administration and an all-Republican government, we expect fiscal policy expansion in 2017, including 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 is ticking higher and there are signs growth outside of the U.S., in both developed and emerging markets, is improving.
Business confidence has increased: Measures like CEO Confidence and NFIB Small Business Optimism have spiked since the election. This typically leads to additional project spending and hiring, which should boost growth.
Global monetary policy remains accommodative: The Federal Reserve is taking a careful approach to policy normalization. ECB and Bank of Japan balance sheets expanded in 2016 and central banks remain supportive of growth.

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

Administration unknowns: While the upcoming administration’s policies are currently being viewed favorably, uncertainties remain. The market may be too optimistic that all of the pro-growth policies anticipated will come to fruition. We are unsure how Trump’s trade policies will develop, and there is the possibility for geopolitical missteps.
Risk of policy mistake: The Federal Reserve has begun to slowly normalize monetary policy, but the future path of rates is still unclear. Should inflation move significantly higher, there is also the risk that the Fed falls behind the curve. The ECB and the Bank of Japan could also disappoint market participants, bringing the credibility of central banks into question.

The technical backdrop of the market is favorable, credit conditions are supportive, and we have started to see some acceleration in economic growth. So far Trump’s policies are being seen as pro-growth, and investor confidence has improved. We expect higher volatility to continue as we digest the onset of new policies under the Trump administration and the actions of central banks, 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.

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.

Barclays Municipal Bond Index: A market-weighted index, maintained by Barclays Capital, used to represent the broad market for investment grade, tax-exempt bonds with a maturity of over one year. Such index will have different level of volatility than the actual investment portfolio. 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. World Index Ex-U.S. includes both developed and emerging markets. 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 the United States.

Brinker Capital Inc., a Registered Investment Advisor.

Retirement planning: Ten numbers you need to know

Posted on April 7, 2017 by Brinker Capital

Brad Weber, Regional Director, Retirement Plan Services

When investors or financial planners talk about a retirement number, often it is the amount that you should try to save.

As this year’s National Retirement Planning Week comes to a close, it is an appropriate time to take a closer look at ten important numbers to consider when contemplating your retirement.

Your current retirement account balance. This is the amount you’ve saved-to-date that is just for retirement and excludes illiquid assets.
The number of years you expect to work before retiring. Do you think you will be working another six months or six years?
The amount of money you plan to set aside each year you remain employed.
The number of years you can expect to live. While no one can accurately predict this number, your average life expectancy is a critical variable in retirement planning. According to the Social Security Administration, a man reaching age 65 today can expect to live until age 84, while a woman of the same age can expect to live until 86. Tools such as the Living to 100, or the more simplified LifeSpan Calculator from Northwestern Mutual, will generate a prediction based on your responses to lifestyle type questions. The point of this exercise is less about trying to predict when you will die than it is to help you prepare for the reality of a retirement of unprecedented length.
A projected rate of inflation throughout your retirement. As Roddy Marino explained in his recent blog post, even mild inflation over a 40-year span can erode your purchasing power and negatively impact your standard of living. Retirees must continue to invest in risk assets that they can reasonably expect will outpace inflation to retire comfortably.
The amount of retirement income you expect to receive, from all sources, including social security, income on rental property, pension payments, and annuity income.
Your anticipated monthly expenses in retirement. A good rule of thumb in thinking about future expenses is to take a hard look at your existing expense structure. While some may disappear or decrease significantly, you may find them being replaced by other expenses. For example, instead of daily commuter costs you may take longer trips so overall transportation expenses may not fluctuate that much.
The percentage of stocks vs. bonds in your portfolio. You should know your portfolio allocation, and its associated level of investment risk. Throughout your retirement, your portfolio will have to provide both income and growth to maintain your purchasing power and support your lifestyle. It’s helpful, however, to know where you stand so you can assess whether your portfolio mix will help you achieve your retirement goals.
The amount of financial support you will likely supply to your loved ones. Care for loved ones can play a significant role in shaping your retirement experience. As John Solomon, EVP of our Wealth Advisory group, points out in a recent blog, the number of adult children who provide personal care and/or financial assistance to a parent has more than tripled in the last 15 years. Currently, 25% of adults, mostly Baby Boomers, provide some care to a parent.
Your anticipated medical expenses. Like predicting longevity, it is hard to know how much you will spend on medical expenses in retirement. According to recent estimates by Fidelity Investments, the average American couple spends nearly $260,000 in retirement on health-related expenses, excluding monthly insurance premium costs.

While all of these numbers play a critical role in shaping your retirement experience, probably the most important one you should know is the telephone number of a financial advisor.

An experienced financial advisor can help you manage your retirement portfolio to meet your preservation and growth objectives, establish an income strategy matched to your spending needs, and track your spending versus assumptions. Regardless of the situation, you know that your trusted financial advisor understands your financial history and can help make decisions that are in your best interests.

For over 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees. This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

For additional information on National Retirement Planning week from Brinker Capital, please review Frank Randall’s blog debunking common retirement myths.

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.

Setting the record straight on common retirement myths

Posted on April 5, 2017 by Brinker Capital

Frank Randall, Regional Director, Retirement Plan Services

It’s National Retirement Planning Week and an important time to take a closer look at some of the common myths that if followed, could decrease your spending power, and your happiness, in retirement.

“It’s too late to start saving now.” Even in your late 40s or early 50s, you still have 15 to 20 years to grow your nest egg. The government has given incentives by enacting tax laws designed to help people over the age of 50 to contribute a little extra to retirement plans so they can catch up as retirement nears.
“I can’t start saving for retirement until I pay off my debt.” Not all debt is bad. A financial advisor can help you differentiate between debt you can carry and the debt you should prioritize paying off over retirement savings (i.e., high-interest credit cards).
“I’ll start saving after I get my kids through college.” Borrowing for college is easier than borrowing for retirement.
“I need to be super conservative in my investments so my money will last.” The flaw in this strategy is that it doesn’t consider the impact of inflation. While inflation has been tame in recent memory, even at 2-3% over long periods of time, inflation can have a devastating impact on wealth.
“It’ll just be me (and my spouse).” Many retirees either underestimate or do not anticipate the financial toll associated with providing financial support to their adult children, yet over one-third (36%) of the young adults ages 18-31 live with their parents. It’s not uncommon for the adult children to have children of their own, adding layers of both complexity and expense. Furthermore, Securian Financial Group reported that only 10% of the adult children living with their parents contribute to the household finances (e.g., pay rent). Retirees may also have the added expense of providing care to elderly relatives. In a recent blog, John Solomon, EVP of our Wealth Advisory group, pointed out that 25% of adults, mostly Baby Boomers, provide care to a parent.
“I’ll pay it back.” Avoid borrowing against your retirement account. Even if you repay the loan, your nest egg will suffer because you will probably incur interest charges and fees. In addition, you will miss out on the compounding effect of the original funds, your contributions may be suspended while the loan is outstanding, and you will be more likely to sell low and buy high.
“I won’t have to pay as much in taxes.” In retirement your income will be lowered, which will in turn lower your effective tax rate. Keep in mind; however, cost of living is impacted by all forms of taxes, including state income tax, local income tax, property tax, sales tax, capital gains tax, and Medicare tax. Also, in retirement you’ll likely have fewer federal deductions and dependents to claim, so a greater percentage of your income goes to the government.
“Medicare will cover my health care expenses.” Medicare doesn’t cover everything, and the items not covered can add up. The Center for Retirement Research at Boston College estimates out of pocket medical care expenses for retirees at approximately $4,300/year for individuals and $8,600/year for couples. These amounts don’t include long-term care expenses. Many retirees purchase supplemental policies (called Medigap) to cover co-pays, deductibles and other expenses that Medicare does not. Medigap policies can ultimately cost you more than you paid for health care covered when employed.
“I won’t have as many expenses.” Retirement expenses might not be as low as you think. Unstructured time often leads to greater spending. Also, many people wait until retirement to increase travel and pursue hobbies when work is no longer standing in the way.
“I will have more time to study the markets in retirement.” The more you know about investment principles and the long-term historical record of the market, the better outcomes you can expect to achieve in your retirement portfolio. The American Association of Individual Investors found that investing knowledge enhances risk-adjusted returns by at least 1.3% annually. Over 30 years, the improved portfolio performance leads to 25% greater wealth. So, don’t wait until you are in retirement to begin studying up on investment principles. Start today.
“I don’t need help.” While your financial mission in retirement may seem straightforward—to not outlive your money—the decisions you face along the way can be complicated. An experienced financial advisor can help you manage your retirement portfolio to meet your preservation and growth objectives, help you establish an income strategy matched to your spending needs, and track your spending versus assumptions. If a crisis arises, a trusted financial advisor will know your financial history and can help make decisions in your best interests.

Click here to learn more about Brinker Capital Retirement Plan Services.

Fed continues on road to interest rate normalization

Posted on March 30, 2017 by Brinker Capital

Leigh Lowman, Investment Manager

In a widely anticipated move, the Fed increased interest rates by 25 basis points on March 15, 2017, the second interest rate hike in three months and there are talks of potentially two more raises this year. Positive economic data and a rise in business confidence served as a catalyst for the Fed to continue its interest rate normalization efforts with the possibility of as many as two additional rate increases later this year. However, recent rhetoric from the Fed reaffirmed their commitment to move at a cautious pace, supporting Brinker Capital’s view that the process of longer term rates will likely be prolonged and characterized in fits and starts, rather than linear, as the market adapts to the new normal.

Source: FactSet, Federal Reserve, J.P. Morgan Asset Management. U.S. Data are as of February 28, 2017. Market expectations are the federal funds rates priced into the fed futures market as of the date of the December 2016 FOMC meeting. *Forecasts of 17 Federal Open Market Committee (FOMC) participants are median estimates. **Last futures market expectation is for November 2019 due to data availability.

Catalysts for higher interest rates

Many positive factors are currently present in the economy that point to a move toward interest rate normalization:

Stable U.S. economic growth. Economic growth in the U.S. has been modest but steady. The new administration and an all-Republican government will likely further stimulate the economy through reflationary fiscal policies including tax cuts, infrastructure spending and a more benign regulatory environment.
Supportive credit environment. High yield credit spreads have meaningfully contracted and are back to the tight levels we saw in 2014. Commodity prices have also stabilized.
Inflation expectations. Historically, there has been a strong positive correlation between interest rates and inflation. Many of the anticipated policies of the Trump administration are inherently inflationary. Inflation expectations have increased accordingly and headline inflation has been moving towards the Fed’s 2% long-run objective. In addition, we believe we are in the second half of the business cycle, typically characterized by wage growth and increased capital expenditures, both of which eventually translate into higher prices.
Unemployment levels. The labor market has become stronger and is nearing full employment. Unemployment has dropped to a level last seen in 2007.

Historical perspective

From 1965 to present, the Fed has implemented policy tightening a total of 15 times and the impact on the bond market has not always translated into longer rates rising. For example, back in 2004 the Fed began raising rates in response to beginning concerns of a housing bubble and the bond market did well as the yield on the 10-year Treasury fell.

More recently during the current market cycle, the Fed increased rates by 25 basis points in December 2015. The 10 year Treasury yield fell and the bond market generated a positive return while equities plummeted in the first quarter of 2016. A year later, the Fed increased rates by 25 basis points in December 2016. The impact on markets was minimal with both equities and fixed income generating strong positive returns in the two months that followed.

Fixed income allocation

Traditional fixed income has historically provided a hedge against equity market risk with substantially less drawdown than equities. Although a rising rate environment would suggest flat to negative returns for some areas of fixed income, the asset class still provides stability in portfolios when equities sell off. For example, fixed income provided an attractive safe haven during the market correction in the beginning of 2016.

In an environment of rising rates, Brinker Capital believes an allocation to traditional fixed income is still merited as we expect the asset class to provide a good counter to equity volatility.

Source: Fact Set, Brinker Capital, Inc. Index returns are for illustrative purposes only. Investors cannot invest directly in an index. Past performance does not guarantee future results.

Overall, much uncertainty remains on the timing and trajectory of interest rate changes. Brinker Capital remains committed to helping investors navigate through a rising rate environment through building diversified portfolios across multiple asset classes.

Inflation is back

Posted on February 15, 2017 by Brinker Capital

Ryan Dressel, Investment Analyst

For the better part of the past five years, inflation growth rates in developed economies have barely budged, hovering below 1.5%. Coming out of the global financial crisis, global gross domestic product (GDP) growth was stuck below its long term average of 3% from 2011 to 2015. This extended period of low growth kept inflationary factors at depressed levels. In particular, tightened credit markets and low confidence in the broad economy had the most adverse effects on inflation. These factors limited both businesses and consumers from spending more, driving prices higher. Furthermore, the end of a decade-long commodity cycle kept input costs at extremely low levels.

Source: The World Bank

Recently however, economic signs of life indicate that inflation is on the verge of returning to normal levels. The price of oil has rebounded off of its lowest point since 2008. The housing market is healthy. Purchases of consumer durable goods such as automobiles surged 11% over the past year. And, according to FactSet Research Systems, wages have begun to rise as the labor force has regained traction after massive displacements caused by the global financial crisis. These economic data points have led the U.S. Consumer Price Index (CPI) to rise 2.1% in the 12 months through December 2016, the largest increase since June 2014. Additionally, inflation accelerated for the fifth consecutive month.

Source: FactSet Research Systems

Additional factors have also raised inflation expectations in 2017 and beyond. Fed Chair Janet Yellen has long-held a position of allowing inflation to run past its 2% target in order to reverse the negative effects of the great recession. Proposed policies of President Donald J. Trump are expected to further drive inflation rates higher. President Trump is expected to push for up to $1 trillion from Congress to upgrade infrastructure, introduce major tax cuts, de-regulate industry, and implement a number of protectionist trade policies in the coming year. These factors are all expected to drive inflation higher.

Outside the U.S., other signs are surfacing as well. The Eurozone recorded a 1.8% rise in consumer prices (YoY) in January, despite a turbulent Brexit vote and plummeting currencies. Factory prices in China are rising and wages in Japan have risen to their highest levels since 2010.

Why should investors care about inflation?

Rising inflation positively impacts borrowers of existing debt (if real interest rates are negative), producers that experience prices rising faster than costs, and workers with strong wage bargaining power.
Adversely, inflation negatively impacts workers with low wage bargaining power (including fixed incomes), lenders, businesses with high wage pressures, and investors whose returns cannot outpace inflation over the long term.

How can investors prepare?

Investors should remain invested in a diversified portfolio over a reasonably long period of time in order to protect and grow purchasing power to sustain their standard of living in the future. Brinker Capital is committed to helping investors create the purchasing power needed to pay for personal, financial or lifestyle goals.

For 30 years, Brinker Capital has provided investment solutions based on ideas generated from listening to the needs of advisors and investors. From being a pioneer of multi-asset class investments to using behavioral finance to manage the emotions of investing, our disciplined approach is the key to helping clients achieve better outcomes.

Investment Insights Podcast: The market’s next likely source of uncertainty

Posted on November 7, 2016 by Brinker Capital

Andrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded November 4, 2016), Andy discusses the market’s next likely source of uncertainty – the Fed meeting in December. Quick hits:

Looking at the probability of a December hike, Fed Fund futures now peg it as a 76% change.
3 month LIBOR rates, which are set by the market, have already risen by 25bps since June.
Wage growth looks to be finally increasing.
Inflation is now getting back to more normalized levels.
Whether right or wrong on inflation, we remain short duration in our portfolios and protected if markets do finally believe that inflation is a credible risk.
Our multi asset class philosophy gives us a number of different tools to defend against the risk of rising rates and inflation.

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

Investment Insights Podcast: Four Areas of Focus in the Last Quarter

Posted on October 24, 2016 by Brinker Capital

Jeff Raupp, CFA, Senior Vice President

On this week’s podcast (recorded October 21, 2016), Jeff highlights four focus areas to watch during the last quarter of 2016: the Fed, earnings, signs of recession, and the election.

The Federal Reserve. Watch for a tightening of interest rates in December and dovish guidance (maintaining low interest rates) for 2017.
Earnings. Watch for improvement in earnings as the pressure of low oil prices on energy companies starts to roll off.
Signs of Recession. Watch for indicators that the business cycle is over. We believe we are in the second half of the cycle, and while it has been about seven years, economic growth has been more muted.
Election. Watch for volatility as elections tend to cause uncertainty in the markets. However, markets tend to bounce back following elections as some of the uncertainty fades away.

For Jeff’s full insight, click here to listen to the audio recording.

Investment Insights Podcast: Expectation for Positive Trend to Continue

Posted on October 19, 2016 by Brinker Capital

Chris Hart, Senior Vice President

On this week’s podcast (recorded October 14, 2016), Chris provides a market update as we inch closer to the end of the year. Listen in as he discusses recent market performance and what we should look forward to.