November 2015 Portfolio Update | Steven Van Metre, CFP®

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

Disclosure