Performance update
- When benchmarked to the Vanguard Institutional Index S&P 500, symbol VIIIX:
- High, Mod-to-High and Moderate portfolios have outperformed net of fees
- Mod-to-Low portfolio is slightly trailing net of fees
- Low risk portfolio is trailing net of fees
- All of the are performing within their expected ranges relative to the S&P 500
- Portfolios are allocated to sectors that’s should perform well when the Fed raises rates
Economic Update
- Federal Reserve has decided to hold off raising interest rates
- Due to international concerns
- Suggesting Fed is worried about the cooling Chinese economy
- Hinting they may raise rates at the December meeting
- “Assess progress towards its objectives of maximum employment and 2 percent inflation”
- Wall Street is not convinced
- Expects Fed to move sometime next year
- China cut benchmark one-year lending and deposit rates by ¼ percent in October
- Stimulate economy, which has recently cooled off
- China PMI (Purchasing Managers Index) remained unchanged at 49.8 in October
- A PMI over 50 indicates an expansion in manufacturing
- Indicating no change since September
- Bank of Japan is continuing their Quantitative Easing program
- Under pressure to expand program
- European Central Bank President Mario Draghi has verbally stated they may expand their program
- “The ECB is ready to expand or extend its QE program if needed, as a slump on commodity prices and risks to global growth threaten its inflation goal of 2%”
- Many European PMIs came out early Monday morning crossing over the 50 mark suggesting their economies are moving into an expansion
- There is general concern that continued expansion of QE easing programs internationally could prevent the Federal Reserve from raising interest rates for 2 more years
- A PMI over 50 indicates an expansion in manufacturing
- Due to international concerns
Equity Allocation
- Biotechnology Sector
- Outperforming S&P 500 net of fees for the year
- Near the bottom of its technical range
- Expect this sector to lead once market sorts things out
- Identifying sectors that perform well when rates rise
- Banking Sector
- Identifying time to trade in
- Materials Sector
- Considering adding a small portion
- Others
- Banking Sector
- Will need to make adjustments to increase performance
Bond Allocation
- Interest rates have risen on anticipation the Fed will raise rates
- The “Senior Floating Rate” positions have been replaced
- With an “Inverse Government Bond” fund
- Appreciates as interest rates rise
- Expect volatility until Fed makes a decision
- Positive returns since trade
- Long term this change will be good
- Delay further changes in the bond allocation
- Other bond funds are low duration
- Wait until Fed makes a move
- With an “Inverse Government Bond” fund
