October 2015 Portfolio Update

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

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
  • 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