As you know from our prior correspondence, we recently altered our portfolios and exchanged certain managers for others. Today I wanted to provide you with some insight into exactly what we are doing and why.
First, because of softening economic data, falling consumer confidence, and significant market volatility, we made our portfolios more “defensive.” We raised our target for cash and bonds. In the near term, we feel that deflation is more worrisome than inflation and protecting capital is more prudent than exposing ourselves to high-levels of uncertainty (risk) in pursuit of higher growth.
Next, we exchanged a mediocre performance manager for one that historically has had more consistent returns in today’s choppy environment. We also replaced relative return managers for ones focusing on absolute returns. The difference between the two is that relative return managers compare themselves to a benchmark. Their job is to outperform it — even if it’s negative. If it’s growth stocks, they typically will need to be invested in growth stocks most of the time. In less volatile markets that generally are rising, these managers should be considered. Over the past 12 to 15 months, they’ve done well. An absolute return manager, on the other hand, usually has much more latitude on where to invest and when. They selectively risk capital if they believe sufficient opportunity exists. They might invest in growth stocks if the market has momentum, but they might “short the market” if it’s falling. They are not tied to a benchmark; instead they are trying to generate positive returns — even if that means staying in cash and collecting interest.
So in English, we’ve replaced managers that go up and down with the market for ones that are better positioned even if the market falls or stays flat. We feel the new managers can take a more defensive approach.
That said, remember, we’re fine-tuning parts of a portfolio that already reflects our cautious outlook — not making wholesale changes. We still feel that it’s folly to try and time the markets, but it is prudent to protect capital first.
That means we’re not on the sidelines. We still feel that while growth has slowed significantly, we are not going to “double-dip” into recession again. The odds are higher today, but it is still mostly avoidable.
So, we hope this is helpful and not too much information. It’s been suggested that corresponding more often, when things seem uncertain, is appreciated. We hope you agree.
In closing, I wanted to mention that there is some tax relief available for college bound students. The expanded and renamed HOPE Credit is available this year. Called the American Opportunity Credit, it covers the first four years of post-secondary education, can net you as much as $2,500, and can be claimed by joint filers with adjusted gross incomes as high as $160,000 to $180,000. If you fit the bill, make sure you give us a call if we’ve not already discussed it. Also look for more information in the coming weeks from us on the financial reform bill. As always, please feel free to contact us directly to discuss your thoughts. Sally Noel is our new Client Service Manager and she’d be glad to help schedule a conference call if that helps. We look forward to hearing from you.
Don
The following disclosures are courtesy of our LPL Compliance Department.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price.
Greater Midwest Financial Group does not offer tax advice. Please consult your qualified tax advisor.
This entry was posted
on Friday, July 23rd, 2010 at 6:05 pm and is filed under Market Commentary.
You can follow any responses to this entry through the RSS 2.0 feed.
Responses are currently closed, but you can trackback from your own site.
Recent Investment Changes
As you know from our prior correspondence, we recently altered our portfolios and exchanged certain managers for others. Today I wanted to provide you with some insight into exactly what we are doing and why.
First, because of softening economic data, falling consumer confidence, and significant market volatility, we made our portfolios more “defensive.” We raised our target for cash and bonds. In the near term, we feel that deflation is more worrisome than inflation and protecting capital is more prudent than exposing ourselves to high-levels of uncertainty (risk) in pursuit of higher growth.
Next, we exchanged a mediocre performance manager for one that historically has had more consistent returns in today’s choppy environment. We also replaced relative return managers for ones focusing on absolute returns. The difference between the two is that relative return managers compare themselves to a benchmark. Their job is to outperform it — even if it’s negative. If it’s growth stocks, they typically will need to be invested in growth stocks most of the time. In less volatile markets that generally are rising, these managers should be considered. Over the past 12 to 15 months, they’ve done well. An absolute return manager, on the other hand, usually has much more latitude on where to invest and when. They selectively risk capital if they believe sufficient opportunity exists. They might invest in growth stocks if the market has momentum, but they might “short the market” if it’s falling. They are not tied to a benchmark; instead they are trying to generate positive returns — even if that means staying in cash and collecting interest.
So in English, we’ve replaced managers that go up and down with the market for ones that are better positioned even if the market falls or stays flat. We feel the new managers can take a more defensive approach.
That said, remember, we’re fine-tuning parts of a portfolio that already reflects our cautious outlook — not making wholesale changes. We still feel that it’s folly to try and time the markets, but it is prudent to protect capital first.
That means we’re not on the sidelines. We still feel that while growth has slowed significantly, we are not going to “double-dip” into recession again. The odds are higher today, but it is still mostly avoidable.
So, we hope this is helpful and not too much information. It’s been suggested that corresponding more often, when things seem uncertain, is appreciated. We hope you agree.
In closing, I wanted to mention that there is some tax relief available for college bound students. The expanded and renamed HOPE Credit is available this year. Called the American Opportunity Credit, it covers the first four years of post-secondary education, can net you as much as $2,500, and can be claimed by joint filers with adjusted gross incomes as high as $160,000 to $180,000. If you fit the bill, make sure you give us a call if we’ve not already discussed it. Also look for more information in the coming weeks from us on the financial reform bill. As always, please feel free to contact us directly to discuss your thoughts. Sally Noel is our new Client Service Manager and she’d be glad to help schedule a conference call if that helps. We look forward to hearing from you.
Don
The following disclosures are courtesy of our LPL Compliance Department.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price.
Greater Midwest Financial Group does not offer tax advice. Please consult your qualified tax advisor.
This entry was posted on Friday, July 23rd, 2010 at 6:05 pm and is filed under Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.