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
- Leading indicator that the market may correct again
- Emerging markets are still selling off
- Typically, the US Dollar gains strength as rates rise
- It is possible they might not
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
- Considering adding a small portion
- Banking Sector
- In the past week this has become the top performing sector
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
- Offers high degree of upside potential
- 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