November 2015 Portfolio Update

Performance update

  • When benchmarked to the Vanguard Institutional Index S&P 500, symbol VIIIX:
    • High and, Mod-to-High portfolios have outperformed net of fees
    • Moderate portfolio is slightly trailing net of fees, with less risk than VIIIX
    • Mod-to-Low is just trailing behind the Moderate
    • Low risk portfolio is trailing net of fees
  • All of the are performing within their expected ranges relative to their risk when compared to the S&P 500

Economic Update

  • Federal Reserve is expected to raise interest rates in December
    • It is possible they might not
      • Other nations do not want us to raise rates
    • European Central Bank meets in early December
      • Has made comments recently that suggest they will lower rates
    • Switzerland is planning to implement negative interest rates
      • For the next two years, possibly longer
    • Raising rates while other’s lower can stagnate our economic growth
      • Typically, the US Dollar gains strength as rates rise
        • Signal of economic prosperity
        • US Dollar has been rising
      • A strong dollar makes foreign goods and services cheaper
        • Incentives us to purchase and travel overseas
        • Once money is overseas, it is unlikely it will come back soon
          • Little incentive for foreigners to purchase US goods and services, or travel to the US due to the strong dollar
        • The recent rally in the US Dollar alone could keep the Fed from raising rates
          • A strong dollar can have the same effect as higher interest rates
        • To keep economy growing, money needs to stay in motion
      • Concerned there could another correction in the stock market
        • Emerging markets are still selling off
          • Lead to the two most recent corrections
        • High Yield bonds are selling off
          • Leading indicator that the market may correct again
            • Spread between the S&P 500 is high
          • Sold off prior to the last two corrections
            • Has not recovered
            • Still selling off
          • See attached chart

Equity Allocation

  • Allocated to the sectors that are expected to outperform
    • Internet
    • Retail
    • Biotechnology
  • Internet Sector
    • Continues to outperform
  • Biotechnology Sector
    • Has started to rebound
  • Retail Sector
    • Was underperforming since purchase
    • Usually performs well during a rising dollar cycle
      • Dollar has been rising recently
    • Identified this as a position to replace
      • In the past week this has become the top performing sector
        • May continue to rally going into the holiday season
      • If it continues to gain strength this position will stay
        • Offers high amount of upside potential
      • Identifying sectors that perform well when rates rise
        • Banking Sector
          • Identifying time to trade in
          • Limited upside potential
            • Narrow trading range
          • Dependent on the Fed’s move
        • Materials Sector
          • Considering adding a small portion
            • Generally, performs well as the dollar weakens
          • Continuing research to identify opportunities in other sectors

Bond Allocation

  • Inverse Government Bond
    • Fund has appreciated as rates have risen
    • Hedged (small) losses from other bond positions
    • May need to swap out of this position if rates start to drop
  • High Yield bond
    • Currently a low duration fund
    • High Yield bonds have a relatively small exposure to rising rates
    • Generally, move with the market
      • See attached chart
    • Currently trading at a 4.5-year low
      • Offers high degree of upside potential
        • As economy recovers from corrections
      • Yields are attractive
    • Will look to adjust position as necessary to boost return potential of the portfolios

Year-end rebalance

  • Likely suspended
  • Have not been significant returns since mid-year rebalance
    • Markets have been flat
  • When the markets are flat there is little cause for a rebalance
    • Continue to make positional changes
  • If suspended, will rebalance mid-2016