Market Review March 2015 – The Value of a Dollar

The Value of a Dollar

At the beginning of March, the S&P 500 hit another all-time high, but it promptly retreated from that high. Despite another upswing later in the month, it finished the month with a small loss. With the beginning of foreign stimulus programs, rumors of interest rate changes, and lukewarm economic news, investors were reluctant to make large changes to their portfolios. In fact the only significant trend was investors cautiously increasing their exposure to European stocks.

Back in January the president of the European Central Bank (ECB) announced a quantitative easing (QE) program. Much like the similar programs employed by the Bank of Japan and the US Federal Reserve, the ECB’s plan calls for buying bonds to hold down interest rates, encourage borrowing, and stimulate the European economy. March 9th marked the first purchases of the program. Since the ECB’s announcement in January, European stock indexes managed to climb higher, but they gave back some of those gains in March. Meanwhile, the euro continues to lose value and, as the US dollar gains strength, the two stand nearly equal for the first time since 2002.

This shift in the foreign exchange market is significant, and the strong dollar is currently a dominant force in the US markets. With the Bank of Japan and the European Central Bank in the midst of stimulus measures, the dollar is gaining strength relative to the yen and the euro. The increased purchasing power of the dollar provides US investors with an advantage as they invest overseas. Now, while the dollar is strong, they are able to purchase larger positions in foreign assets, and those assets will rise in value when those foreign currencies recover. The downside for the US economy is that this trend encourages investors to seek investment opportunities outside of the US.

In spite of the strengthening US dollar, the US economy continues to recover well. Unemployment numbers are falling and many of the other economic indicators are also showing momentum. This combination of factors means that the US Federal Reserve is starting to think about an interest rate increase. Obviously, any action by the Fed causes disagreement among analysts and economists alike. Some think that a rate increase is long overdue and others worry that the economy is still too fragile, but the improving economic data indicates that rates will start to rise before the end of the year. Since the end of the Fed’s quantitative easing program, the Fed has promised to be “patient” before raising rates. That term has been present in each of the recent official messages from the Fed, but it was notably absent in March. In order to avoid any sort of panic or shock when it announces the first rate increase, the Fed is attempting to delicately communicate its intentions in advance, but most analysts are predicting that the first increase will come in the second half of 2015.

Market Movers

Across many of the major asset classes, March was a month of ups and downs, with stocks peaking in the opening week and again later in the month. Some of the individual asset classes saw gains in March, but the major asset categories all finished with losses. Since the beginning of the year, most of the allocation changes that we implemented have been overwhelmingly positive. This has resulted in exceptional first quarter performance across our Core Allocation portfolios. Our lower risk strategies generally outpaced the S&P500’s near 1% return while our higher-risk portfolios generated almost three times this return. Issues such as the state of the US dollar and Fed interest rate actions continue to be important drivers of our asset allocation decisions within the portfolios. We will likely make additional allocation changes prior to year-end as these market and economic situations unfold.

  • VCA Market Review March 2015 InLineUS small-caps (VB) and mid-caps (VO) performed well and helped to balance out the modest losses in large-caps (IVV) during the month of March. Our elevated allocation to US Stocks delivered substantial value during the first quarter.
  • Foreign stocks disappointed in March (VEA, VSS, VWO). As QE ramps up and begins to impact the European economy, we expect that European stock performance will improve; much like US stocks did under the US Federal Reserve’s QE program. Yet, for the last 3-months, foreign stocks have performed much better than US stocks which boosted our portfolio returns.
  • US bonds held their values in March and have provided modest returns for the first quarter. US treasuries (SHY), US corporates (VCIT), and US Mortgage-Backed (VMBS) showed that investors preferred higher-quality bonds which we had over-weighted at the beginning of the year.
  • Foreign bonds (BWX, PICB, WIP) struggled again – we expected that 2015 would be a difficult year for these assets and had reduced our holdings accordingly. Our allocation to emerging bonds (PCY) provided value in the midst of a particularly difficult month for foreign bonds in developed countries.
  • The start of European QE and volatility in oil left commodities (DBC, GLTR) and master limited partnerships (AMJ) with losses. We effectively reduced these allocations at the beginning of the year helping to provide some shelter.
  • Hybrids continue to impress. In March, preferred stocks (PFF) saw a nominal gain and convertible bonds (CWB) saw a small loss, which nearly balanced each other out. Hybrids remain strong performers in our portfolios while offering lower volatility than stocks and hard assets.

INVESTMENT ADVISORY SERVICES OFFERED THROUGH ALPHASTAR CAPITAL MANAGEMENT, A SEC REGISTERED INVESTMENT ADVISOR. INVESTMENT MANAGEMENT SERVICES MAY BE PROVIDED BY A SUBADVISOR. INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL LOSS OF PRINCIPAL. NO INVESTMENT STRATEGY, SUCH AS ASSET ALLOCATION OR DIVERSIFICATION, CAN GUARANTEE A PROFIT OR PROTECT AGAINST LOSS IN PERIODS OF DECLINING VALUES. PLEASE NOTE THAT REBALANCING INVESTMENTS MAY CAUSE INVESTORS TO INCUR TRANSACTION COSTS AND, WHEN REBALANCING A NON-RETIREMENT ACCOUNT, TAXABLE EVENTS WILL BE CREATED THAT MAY INCREASE YOUR TAX LIABILITY. REBALANCING A PORTFOLIO CANNOT ASSURE A PROFIT OR PROTECT AGAINST A LOSS IN ANY GIVEN MARKET ENVIRONMENT. INVESTMENTS INVOLVE RISK AND, UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO CONSULT WITH A QUALIFIED FINANCIAL ADVISOR AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGIES DISCUSSED HEREIN. THIS REPORT IS PRESENTED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SECURITIES. FURTHER, THIS INFORMATION IS NOT INTENDED AS A REPLACEMENT FOR THE ACCOUNT STATEMENT SENT TO YOU BY THE QUALIFIED CUSTODIAN. THE INFORMATION PRESENTED IN THIS REPORT IS BELIEVED TO BE ACCURATE, BUT OUR FIRM CANNOT GUARANTEE THE ACCURACY OF THE DATA. UNDER NO CIRCUMSTANCES SHALL OUR FIRM OR ANY OF ITS AFFILIATES, OFFICERS, EMPLOYEES, OR AGENTS BE RESPONSIBLE FOR DAMAGES, ERRORS, OMISSIONS, INACCURACIES, OR MISUSES OF THIS REPORT BY YOU OR YOUR AGENTS. THE PERFORMANCE INFORMATION PRESENTED IN THE ASSET CATEGORY SECTION OF THIS REPORT IS BASED ON EQUAL-WEIGHTED AVERAGES OF THE FOLLOWING: US STOCKS (ISHARES S&P 500 ETF, S&P DIVIDEND ETF, VANGUARD MID CAP ETF, WISDOMTREE MIDCAP DIVIDEND ETF, VANGUARD SMALL CAP ETF, WISDOMTREE SMALLCAP DIVIDEND ETF), FOREIGN STOCKS (VANGUARD MSCI EAFE ETF, ISHARES INTERNATIONAL SELECT DIVIDEND ETF, VANGUARD EMERGING MARKET ETF, WISDOMTREE EMERGING MARKETS EQUITY INCOME ETF, ISHARES MSCI EAFE SMALLCAP ETF, VANGUARD FTSE ALL WORLD EX-US SMALL ETF), US BONDS (ISHARES BARCLAYS 1-3 YEAR TREASURY ETF, ISHARES 3-7 YEAR TREASURY BOND ETF, ISHARES 10-20 YEAR TREASURY BOND ETF, ISHARES BARCLAYS MORTGAGE BACKED ETF, ISHARES IBOXX INVESTMENT GRADE CORPORATE ETF, VANGUARD SHORT-TERM CORPORATE BOND ETF, ISHARES BARCLAYS TIPS ETF, PIMCO 1-5 YEAR US TIPS INDEX ETF, SPDRS HIGH YIELD ETF, SPDR BARCLAYS SHORT-TERM HIGH-YIELD BOND ETF, POWERSHARES SENIOR LOAN ETF), FOREIGN BONDS (SPDRS BARCLAYS INTERNATIONAL TREASURY ETF, SPDR BARCLAYS SHORT-TERM INTERNATIONAL TREASURY BOND ETF, POWERSHARES EMERGING MARKET DEBT ETF, SPDRS DB INTL GOVERNMENT INFLATION ETF, POWERSHARES INTERNATIONAL CORPORATE BOND ETF), HARD ASSETS (POWERSHARES DB COMMODITY ETF, SPDRS GOLD ETF, ISHARES SILVER TRUST ETF, JP MORGAN ALERIAN MLP ETN, SPDRS DJ GLOBAL REAL ESTATE ETF), AND HYBRIDS (ISHARES S&P US PREFERRED STOCK ETF, SPDRS BARCLAYS CONVERTIBLE SECURITIES ETF).

Market Review January 2015 – A Rough Start

A Rough Start

The new year got off to a rough start. US economic growth slowed and employment data disappointed, prices fell in the Eurozone again and there are concerns that it may start to lose members, and several large emerging markets are struggling. In 2014, the growth of the US economy helped to drive global growth, but investors recognize that is not sustainable. With the US dollar getting stronger and European demand drying up, US companies are finding fewer foreign buyers for their goods and services.

The European Central Bank (“ECB”) is concerned about declining prices and economic stagnation in the Eurozone. In particular, falling prices are a negative sign for the Eurozone economy. Lower prices sound like a good thing, but they are accompanied by lower wages, smaller profits, and debts getting more expensive. In January, the ECB followed the lead of the US Federal Reserve and, more recently, the Bank of Japan, and announced a stimulus program of bond buying that is supposed to last until September 2016. While investors expected the ECB to take action eventually, this program was more significant than they expected and the European stock markets saw a small boost as a result.

As a whole, the Eurozone is struggling to pull itself out of an economic slump, but those countries that were bailed out in recent years (e.g. Greece, Spain, Portugal, etc.) are still suffering much worse. Greece finally decided that its economic condition was unbearable and elected the leftist Syriza party, which promised to renegotiate the terms of the country’s bailout. Syriza’s landslide win made it clear that the Greek people are united behind this plan, but the European Union and the ECB are assuming a tough stance in the negotiation. While the terms of the Greek bailout were harsh and could be relaxed without assuming too much risk, would the other bailout countries decide to pursue similar renegotiations? At this point, analysts think that Greece will get a small concession in the negotiation—just enough to keep it from leaving the European Union—but not enough to encourage the other bailout countries.

Oil and gas producers are still struggling with prices stuck below $50 per barrel. While the largest producers are making sensible cuts and preparing for an extended period of diminished profitability, smaller producers find themselves in a more difficult position. Many of these smaller producers borrowed heavily to finance their growth. That may have been a sound strategy when oil was selling for more than $100 per barrel, but the current price means that their profit margins are perilously thin. In the US, only one of these companies has defaulted in the past six months, but 19 companies have been downgraded by the ratings companies and that number will increase in the coming months. If more of these companies default on their debts, the financial sector and bond holders will feel those effects too.

Emerging markets started to stumbled last summer and have not regained their feet. Obviously, Russia is still suffocating under the economic sanctions imposed after its aggression in Ukraine, but Brazil and China are also in difficulty. Brazil is on the verge of a recession and announced that it will run its first budget deficit in more than a decade, and China is still sorting out its credit crisis and its manufacturing is at its lowest output in nearly 3 years.

Market Movers

In January, US Stocks have changed direction by pulling back nearly 3%. It is easy to start expecting the strength in stock returns to continue and lose sight of the potential risks for this volatile asset type. Conversely, the majority of our portfolio models held their ground, with the lower risk strategies actually making small gains in this difficult market. Months like this demonstrate the importance of using other investment types to balance risk and return. Some of the more specialized assets that we utilize have provided gains that would not have been available in a “traditional” portfolio of stocks and bonds.

  • VCA Market Review Jan 2015 InLineOur allocation to US Small (VB) and Mid cap stocks (VO) was beneficial as these investments fell less than Large Caps (IVV)
  • Internationally, stocks were much more resilient than in the US offering stability in our portfolios during January.
  • US bonds benefitted from the decline in US stocks. With the exception of high-yield bonds (SJNK), the rest of the US bond category posted gains in January.
  • High-quality and long-term bonds were the strongest performers for the month, where US corporate bonds (VCIT) and US TIPS (TIP) did exceptionally well. Our decision to focus on high-quality bonds continues to serve investors well.
  • Foreign bonds were not so fortunate. The ECB’s announcement did not encourage the European bond markets. We reduced our exposure to foreign bonds at the beginning of the month and that limited the impact of these declines.
  • Hard Assets were lifted by precious metals (GLTR) and real estate (RWO). As the top performing asset classes in January, they were able to balance out commodities (DBC) and master limited partnerships (AMJ), which continue to struggle along with low oil prices. Our increased real estate exposure continues to provide benefit to the portfolios.
  • Hybrids managed to hold their ground in January. Convertible bonds (CWB) saw a small decline, which we would expect in a month when stocks fell, but Preferred Stock (PFF) posted a considerable gain for the month. Hybrids have been consistent performers in the portfolios and helped to manage the volatility in January.

INVESTMENT ADVISORY SERVICES OFFERED THROUGH ALPHASTAR CAPITAL MANAGEMENT, A SEC REGISTERED INVESTMENT ADVISOR. INVESTMENT MANAGEMENT SERVICES MAY BE PROVIDED BY A SUBADVISOR. INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL LOSS OF PRINCIPAL. NO INVESTMENT STRATEGY, SUCH AS ASSET ALLOCATION OR DIVERSIFICATION, CAN GUARANTEE A PROFIT OR PROTECT AGAINST LOSS IN PERIODS OF DECLINING VALUES. PLEASE NOTE THAT REBALANCING INVESTMENTS MAY CAUSE INVESTORS TO INCUR TRANSACTION COSTS AND, WHEN REBALANCING A NON-RETIREMENT ACCOUNT, TAXABLE EVENTS WILL BE CREATED THAT MAY INCREASE YOUR TAX LIABILITY. REBALANCING A PORTFOLIO CANNOT ASSURE A PROFIT OR PROTECT AGAINST A LOSS IN ANY GIVEN MARKET ENVIRONMENT. INVESTMENTS INVOLVE RISK AND, UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO CONSULT WITH A QUALIFIED FINANCIAL ADVISOR AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGIES DISCUSSED HEREIN. THIS REPORT IS PRESENTED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SECURITIES. FURTHER, THIS INFORMATION IS NOT INTENDED AS A REPLACEMENT FOR THE ACCOUNT STATEMENT SENT TO YOU BY THE QUALIFIED CUSTODIAN. THE INFORMATION PRESENTED IN THIS REPORT IS BELIEVED TO BE ACCURATE, BUT OUR FIRM CANNOT GUARANTEE THE ACCURACY OF THE DATA. UNDER NO CIRCUMSTANCES SHALL OUR FIRM OR ANY OF ITS AFFILIATES, OFFICERS, EMPLOYEES, OR AGENTS BE RESPONSIBLE FOR DAMAGES, ERRORS, OMISSIONS, INACCURACIES, OR MISUSES OF THIS REPORT BY YOU OR YOUR AGENTS. THE PERFORMANCE INFORMATION PRESENTED IN THE ASSET CATEGORY SECTION OF THIS REPORT IS BASED ON EQUAL-WEIGHTED AVERAGES OF THE FOLLOWING: US STOCKS (ISHARES S&P 500 ETF, S&P DIVIDEND ETF, VANGUARD MID CAP ETF, WISDOMTREE MIDCAP DIVIDEND ETF, VANGUARD SMALL CAP ETF, WISDOMTREE SMALLCAP DIVIDEND ETF), FOREIGN STOCKS (VANGUARD MSCI EAFE ETF, ISHARES INTERNATIONAL SELECT DIVIDEND ETF, VANGUARD EMERGING MARKET ETF, WISDOMTREE EMERGING MARKETS EQUITY INCOME ETF, ISHARES MSCI EAFE SMALLCAP ETF, VANGUARD FTSE ALL WORLD EX-US SMALL ETF), US BONDS (ISHARES BARCLAYS 1-3 YEAR TREASURY ETF, ISHARES 3-7 YEAR TREASURY BOND ETF, ISHARES 10-20 YEAR TREASURY BOND ETF, ISHARES BARCLAYS MORTGAGE BACKED ETF, ISHARES IBOXX INVESTMENT GRADE CORPORATE ETF, VANGUARD SHORT-TERM CORPORATE BOND ETF, ISHARES BARCLAYS TIPS ETF, PIMCO 1-5 YEAR US TIPS INDEX ETF, SPDRS HIGH YIELD ETF, SPDR BARCLAYS SHORT-TERM HIGH-YIELD BOND ETF, POWERSHARES SENIOR LOAN ETF), FOREIGN BONDS (SPDRS BARCLAYS INTERNATIONAL TREASURY ETF, SPDR BARCLAYS SHORT-TERM INTERNATIONAL TREASURY BOND ETF, POWERSHARES EMERGING MARKET DEBT ETF, SPDRS DB INTL GOVERNMENT INFLATION ETF, POWERSHARES INTERNATIONAL CORPORATE BOND ETF), HARD ASSETS (POWERSHARES DB COMMODITY ETF, SPDRS GOLD ETF, ISHARES SILVER TRUST ETF, JP MORGAN ALERIAN MLP ETN, SPDRS DJ GLOBAL REAL ESTATE ETF), AND HYBRIDS (ISHARES S&P US PREFERRED STOCK ETF, SPDRS BARCLAYS CONVERTIBLE SECURITIES ETF).

Market Review December 2014 – What Kind of Year Has It Been?

What Kind of Year Has It Been?

The year may have gotten off to a rocky start, but the US markets finished the year strong. US stocks pushed to record highs again and again throughout the year and US bonds recovered from their 2013 losses to post significant gains. Unfortunately, the picture was not so cheerful in foreign markets. As we look at the yearend numbers, it is helpful to review the events that shaped the markets in the past 12 months.

Investors entered 2014 with high expectations. The previous year was a fantastic year for the stock market and there were signs that the US economy was finally seeing its long-awaited recovery. Unfortunately, an unusually brutal winter meant that those hopes would go unrealized for months. The so-called “Polar Vortex” slowed shipments, froze consumers, and left investors eager for the arrival of summer.

Meanwhile, foreign markets were struggling with more fundamental issues as emerging markets stumbled. The trouble seemed to start in China, which struggled with a debt crisis that seemed to get worse with each passing month. Around the world, companies were hurt as Chinese corporations scaled back their appetites and attempted to navigate the crisis. In particular, the nearby emerging markets, which trade primarily in natural resources, were stung by the sudden decrease in Chinese demand.

By Summer, the global economy seemed to find more solid footing. The US economy emerged from the winter and its stock market started to hit record highs on a monthly basis. China also weathered the worst of its debt crisis and foreign markets seemed eager to get back down to business, in spite of growing conflicts in Ukraine and Israel.

The fourth quarter saw some larger issues come to the forefront. The US Federal Reserve got the ball rolling when it announced the end of its asset buying program, known as quantitative easing. This program involved buying bonds and mortgage-backed assets on a large scale in the attempt to encourage lending. More pessimistic analysts predicted that its end would be a shock to the global economy and result in a market correction, but the markets had been anticipating its end for months and hardly reacted.

On the other hand, investors were definitely surprised when the Japanese Central Bank announced that it would be ramping up its own stimulus program. At first, investors seemed pleased by this commitment, but they seemed to change their minds when Japanese inflation failed to respond to these new measures.

Finally, the price of oil became an international issue. While it had been in steady decline since early summer, it crossed an important price threshold in November and investors finally took notice. Reactions were mixed. Those countries that import most of their oil benefit from the cheaper price, while those countries that export oil were struggling to replace that lost revenue. In the US, a slight decline in the prices of oil is an advantage for consumers, who are now free to use those savings to purchase other goods, but a large drop will cause significant harm to our shale oil industry and the energy sector as a whole. We talked about this in greater depth in last month’s Market Review, and this will continue to be an issue in 2015.

Market Movers

December was a surprisingly difficult month, not just for stocks but for bonds, commodities, and foreign investments as well. We would usually expect to see a boost from the Christmas season and from investors attempting to close out the year on a positive note, but this was not the case. For the year, US stocks and bonds outperformed their foreign counterparts. Global stocks finished the year with low, but positive single digit growth and our higher-risk portfolios kept pace. Global Bonds on the other hand finished the year flat and left conservative investors disappointed. Our conservative portfolios showed significant outperformance resulting in positive returns for our investors. Overall, our strategies offer controlled and broad-based diversification with the goal of providing returns that are worth the risk. Looking to 2015, we will introduce several allocation changes as we attempt to navigate market risks and capture the resulting opportunities.

  • VCA Market Review Dec 2014US Large Cap Stocks (IVV) were down for the month of December but our US Stock allocation performed positively due to our use of US Mid Caps (VO) and US Small Caps (VB). Over the course of 2014, our elevated US Stock exposure helped provide strong returns across our portfolios.
  • Foreign stocks (VEA, VSS, VWO) saw another significant decline during the final months of 2014, surrendering all of the gains that they made during the remainder of the year. Our decision to lighten Emerging Market Stock (VWO) exposure a year ago was rewarded during 2014.
  • December was rough for US Bonds, but they finished the year in the black and provided stability during some of the rocky months of 2014. Although US Bank Loans (BKLN) and US High Yields (JNK) were barely ahead for the year, our use of US Corporates (LQD) and Mortgage-Backed Securities (MBB) contributed to the returns across our portfolios.
  • Foreign Bonds pulled back in December and finished the year in red. Emerging Market Debt (PCY) was the only bright spot for the year and benefited our strategies. Despite their difficult year, foreign bonds still provide a valuable hedge against declining stock prices.
  • The declining prices of oil continue to weigh heavily on Hard Assets, specifically our diversified commodity position (DBC) and master limited partnerships (AMJ). However, Global Real Estate (RWO) offered some refuge and was the best performing portfolio component in 2014.
  • Hybrids were flat in December, but they were the stars of 2014. In a year of cautious optimism and mixed expectations, hybrids were a smart play providing some of the most attractive returns across stocks and bonds. We increased this exposure for 2014 which boosted our portfolio model returns.

INVESTMENT ADVISORY SERVICES OFFERED THROUGH ALPHASTAR CAPITAL MANAGEMENT, A SEC REGISTERED INVESTMENT ADVISOR. INVESTMENT MANAGEMENT SERVICES MAY BE PROVIDED BY A SUBADVISOR. INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL LOSS OF PRINCIPAL. NO INVESTMENT STRATEGY, SUCH AS ASSET ALLOCATION OR DIVERSIFICATION, CAN GUARANTEE A PROFIT OR PROTECT AGAINST LOSS IN PERIODS OF DECLINING VALUES. PLEASE NOTE THAT REBALANCING INVESTMENTS MAY CAUSE INVESTORS TO INCUR TRANSACTION COSTS AND, WHEN REBALANCING A NON-RETIREMENT ACCOUNT, TAXABLE EVENTS WILL BE CREATED THAT MAY INCREASE YOUR TAX LIABILITY. REBALANCING A PORTFOLIO CANNOT ASSURE A PROFIT OR PROTECT AGAINST A LOSS IN ANY GIVEN MARKET ENVIRONMENT. INVESTMENTS INVOLVE RISK AND, UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO CONSULT WITH A QUALIFIED FINANCIAL ADVISOR AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGIES DISCUSSED HEREIN. THIS REPORT IS PRESENTED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SECURITIES. FURTHER, THIS INFORMATION IS NOT INTENDED AS A REPLACEMENT FOR THE ACCOUNT STATEMENT SENT TO YOU BY THE QUALIFIED CUSTODIAN. THE INFORMATION PRESENTED IN THIS REPORT IS BELIEVED TO BE ACCURATE, BUT OUR FIRM CANNOT GUARANTEE THE ACCURACY OF THE DATA. UNDER NO CIRCUMSTANCES SHALL OUR FIRM OR ANY OF ITS AFFILIATES, OFFICERS, EMPLOYEES, OR AGENTS BE RESPONSIBLE FOR DAMAGES, ERRORS, OMISSIONS, INACCURACIES, OR MISUSES OF THIS REPORT BY YOU OR YOUR AGENTS. THE PERFORMANCE INFORMATION PRESENTED IN THE ASSET CATEGORY SECTION OF THIS REPORT IS BASED ON EQUAL-WEIGHTED AVERAGES OF THE FOLLOWING: US STOCKS (ISHARES S&P 500 ETF, S&P DIVIDEND ETF, VANGUARD MID CAP ETF, WISDOMTREE MIDCAP DIVIDEND ETF, VANGUARD SMALL CAP ETF, WISDOMTREE SMALLCAP DIVIDEND ETF), FOREIGN STOCKS (VANGUARD MSCI EAFE ETF, ISHARES INTERNATIONAL SELECT DIVIDEND ETF, VANGUARD EMERGING MARKET ETF, WISDOMTREE EMERGING MARKETS EQUITY INCOME ETF, ISHARES MSCI EAFE SMALLCAP ETF, VANGUARD FTSE ALL WORLD EX-US SMALL ETF), US BONDS (ISHARES BARCLAYS 1-3 YEAR TREASURY ETF, ISHARES 3-7 YEAR TREASURY BOND ETF, ISHARES 10-20 YEAR TREASURY BOND ETF, ISHARES BARCLAYS MORTGAGE BACKED ETF, ISHARES IBOXX INVESTMENT GRADE CORPORATE ETF, VANGUARD SHORT-TERM CORPORATE BOND ETF, ISHARES BARCLAYS TIPS ETF, PIMCO 1-5 YEAR US TIPS INDEX ETF, SPDRS HIGH YIELD ETF, SPDR BARCLAYS SHORT-TERM HIGH-YIELD BOND ETF, POWERSHARES SENIOR LOAN ETF), FOREIGN BONDS (SPDRS BARCLAYS INTERNATIONAL TREASURY ETF, SPDR BARCLAYS SHORT-TERM INTERNATIONAL TREASURY BOND ETF, POWERSHARES EMERGING MARKET DEBT ETF, SPDRS DB INTL GOVERNMENT INFLATION ETF, POWERSHARES INTERNATIONAL CORPORATE BOND ETF), HARD ASSETS (POWERSHARES DB COMMODITY ETF, SPDRS GOLD ETF, ISHARES SILVER TRUST ETF, JP MORGAN ALERIAN MLP ETN, SPDRS DJ GLOBAL REAL ESTATE ETF), AND HYBRIDS (ISHARES S&P US PREFERRED STOCK ETF, SPDRS BARCLAYS CONVERTIBLE SECURITIES ETF).

Market Review November 2014 – The Cost of Cheap Oil

The Cost of Cheap Oil

The election is over and the Fed’s bond buying program is behind us. Analysts feared that either of those events could signal an end to the current bull market, but the US stock market continues to hit record highs on a weekly basis. The US economic data (e.g. GDP, jobs, etc.) continues to be encouraging as we approach the end of the year, and investors seem hopeful that the economy is starting to gather some strength. Remember, stock prices attempt to forecast economic growth – therefore a strong stock market does not imply the economy is strong.

The news from Europe and Japan is much less hopeful. Both regions continue to struggle with low inflation, and their respective governments and central banks are doing what they can to avoid deflation. Deflation is when prices and wages fall. It tends to choke off both consumer and corporate spending, and often leads to
rising unemployment.

At the end of October, Japan announced another aggressive round of policies designed to combat deflation. It’s too soon to tell whether those measures are working. Next month, there will be an election in Japan and voters will get the opportunity to endorse this policy of aggressive intervention by the central bank of Japan or vote in a new ruling party that will set a new course for the Japanese economy.

The big news is that oil prices are down nearly 40 percent since June. This puts the price of crude oil at a four year low and, despite falling prices, OPEC decided not to cut production due to rising competition. Those countries that import most of their oil, like India and Japan, saw their stock markets boosted by the news of cheaper fuel prices. Declining fuel prices will simultaneously increase profit margins due to decreased transportation costs, and create room in consumers’ budgets for increased spending.

Meanwhile, countries that export oil were suffering. Russia is the most obvious victim of falling oil prices. Oil and gas comprise 68% of its exports, so it’s no surprise that the price of oil is a major factor in the Russian economy. In fact, the Russian currency closely tracks the price of crude oil. Combined with the sanctions resulting from its actions in Ukraine, it is hard to be optimistic about the Russian economy.

The other victims of declining oil prices will be smaller producers in North America. Both the US and Canada are in the midst of an energy boom. In the past, the enormous US shale oil fields and Canadian tar sands were too costly to extract, but recent high oil prices and improved technology made them viable targets in the past 10 years. Both small and large producers rushed to find a toehold in this modern-day oil rush, and they often borrowed heavily to do so. While larger producers will be able to weather periods of unprofitability, these smaller producers must maintain revenues to keep up with their debt payments. If oil prices stay depressed or continue to decline, we may see a significant portion of these small North American producers cease operations.

While it will be tempting to blame those oil producers that borrowed too heavily, lenders will also feel the pain of depressed oil prices. If it turns out that a significant number of these smaller producers are unable to survive a downturn in oil prices, then lenders will suffer along with the investors.

Market Movers

November was an excellent illustration of the need for diversification. A number of popular asset classes suffered, and several events (e.g. stimulus from the Japanese central bank, OPEC decision, etc.) surprised experts. US stocks managed to find success in a difficult month for investors, and continued their trend of outperforming most other investment types. Many investors do not realize that this trend has been in full force for over five years and, historically, stocks are considered higher risk assets. It is critical that you keep your risk level in-check by controlling your exposure in high risk investments. Our strategies used broad diversification to manage risk in investors’ portfolios, while maintaining a significant allocation to stocks as they outperform other asset classes. In November, the portfolio models provided attractive returns that exceeded the majority of the asset categories.

  • VCA Market Review Nov 2014 InLineAs US Stocks pushed to a new high in November, this portion of our portfolios (IVV, VO, VB) was particularly strong.
  • Foreign Stocks, primarily Int’l Small Caps (VSS) and Emerging Markets (VWO) were in the red for November. We reduced our Foreign Stock exposure at the beginning of the year which proved to be beneficial.
  • Foreign Bonds lost value in November, with Developed Treasuries (BWX) losing the most value. Investors remain cautious due to uncertainty surrounding several important central banks, which have significant influence over bond prices in developed markets.
  • Overall US bonds were flat for the month. US High-Yield Bonds (JNK) struggled, but other bond holdings, like US Corporates (LQD) and Mortgages (MBB) pushed higher.
  • Commodities (DBC) and Master Limited Partnerships (AMJ) are closely tied to oil prices and saw significant declines. Our Precious Metal (GLTR) exposure helped to balance out those losses.
  • Global Real Estate (RWO) pushed higher in November, and is the single best performing investment in our portfolios since the beginning of the year.
  • Convertible Bonds (CWB) and Preferred Stock (PFF) continue to find favor with investors who want exposure to the potential upside of the stock market, but would like some protection in the event of a correction. Year-to-date, these two asset classes have been consistent performers and Hybrids remains the best performing asset category.

INVESTMENT ADVISORY SERVICES OFFERED THROUGH ALPHASTAR CAPITAL MANAGEMENT, A SEC REGISTERED INVESTMENT ADVISOR. INVESTMENT MANAGEMENT SERVICES MAY BE PROVIDED BY A SUBADVISOR. INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL LOSS OF PRINCIPAL. NO INVESTMENT STRATEGY, SUCH AS ASSET ALLOCATION OR DIVERSIFICATION, CAN GUARANTEE A PROFIT OR PROTECT AGAINST LOSS IN PERIODS OF DECLINING VALUES. PLEASE NOTE THAT REBALANCING INVESTMENTS MAY CAUSE INVESTORS TO INCUR TRANSACTION COSTS AND, WHEN REBALANCING A NON-RETIREMENT ACCOUNT, TAXABLE EVENTS WILL BE CREATED THAT MAY INCREASE YOUR TAX LIABILITY. REBALANCING A PORTFOLIO CANNOT ASSURE A PROFIT OR PROTECT AGAINST A LOSS IN ANY GIVEN MARKET ENVIRONMENT. INVESTMENTS INVOLVE RISK AND, UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO CONSULT WITH A QUALIFIED FINANCIAL ADVISOR AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGIES DISCUSSED HEREIN. THIS REPORT IS PRESENTED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SECURITIES. FURTHER, THIS INFORMATION IS NOT INTENDED AS A REPLACEMENT FOR THE ACCOUNT STATEMENT SENT TO YOU BY THE QUALIFIED CUSTODIAN. THE INFORMATION PRESENTED IN THIS REPORT IS BELIEVED TO BE ACCURATE, BUT OUR FIRM CANNOT GUARANTEE THE ACCURACY OF THE DATA. UNDER NO CIRCUMSTANCES SHALL OUR FIRM OR ANY OF ITS AFFILIATES, OFFICERS, EMPLOYEES, OR AGENTS BE RESPONSIBLE FOR DAMAGES, ERRORS, OMISSIONS, INACCURACIES, OR MISUSES OF THIS REPORT BY YOU OR YOUR AGENTS. THE PERFORMANCE INFORMATION PRESENTED IN THE ASSET CATEGORY SECTION OF THIS REPORT IS BASED ON EQUAL-WEIGHTED AVERAGES OF THE FOLLOWING: US STOCKS (ISHARES S&P 500 ETF, S&P DIVIDEND ETF, VANGUARD MID CAP ETF, WISDOMTREE MIDCAP DIVIDEND ETF, VANGUARD SMALL CAP ETF, WISDOMTREE SMALLCAP DIVIDEND ETF), FOREIGN STOCKS (VANGUARD MSCI EAFE ETF, ISHARES INTERNATIONAL SELECT DIVIDEND ETF, VANGUARD EMERGING MARKET ETF, WISDOMTREE EMERGING MARKETS EQUITY INCOME ETF, ISHARES MSCI EAFE SMALLCAP ETF, VANGUARD FTSE ALL WORLD EX-US SMALL ETF), US BONDS (ISHARES BARCLAYS 1-3 YEAR TREASURY ETF, ISHARES 3-7 YEAR TREASURY BOND ETF, ISHARES 10-20 YEAR TREASURY BOND ETF, ISHARES BARCLAYS MORTGAGE BACKED ETF, ISHARES IBOXX INVESTMENT GRADE CORPORATE ETF, VANGUARD SHORT-TERM CORPORATE BOND ETF, ISHARES BARCLAYS TIPS ETF, PIMCO 1-5 YEAR US TIPS INDEX ETF, SPDRS HIGH YIELD ETF, SPDR BARCLAYS SHORT-TERM HIGH-YIELD BOND ETF, POWERSHARES SENIOR LOAN ETF), FOREIGN BONDS (SPDRS BARCLAYS INTERNATIONAL TREASURY ETF, SPDR BARCLAYS SHORT-TERM INTERNATIONAL TREASURY BOND ETF, POWERSHARES EMERGING MARKET DEBT ETF, SPDRS DB INTL GOVERNMENT INFLATION ETF, POWERSHARES INTERNATIONAL CORPORATE BOND ETF), HARD ASSETS (POWERSHARES DB COMMODITY ETF, SPDRS GOLD ETF, ISHARES SILVER

Market Review October 2014 – The End of QE3

The End of QE3

By mid-month, the US stock market was in the midst of a slide, and many international markets were in similar trouble. Financial reporters were speculating that this was the beginning of the “overdue market correction” that some people have been predicting since last year. The consensus was that the Eurozone was on the verge of yet another recession and that this would be a drag on markets worldwide. Fortunately, the US market pulled out of its decline and recovered to finish the month at another record high.

The US market was buoyed by encouraging economic data, especially the news that the US economy expanded by an annualized 3.5% during the third quarter. This was great news for US investors. Ever since the harsh winter, investors and analysts have been waiting for the actual growth of the US economy to match expectations. Analysts kept saying that the economy was healthier than the data suggested and that, sooner or later, the data would catch up to the reality. This 3.5% figure was just the news that analysts were hoping for and that good news gave investors the confidence that they needed to pump more money into the US stock market.

This confidence happened to coincide with the Federal Reserve’s announcement that its most recent stimulus program, known as “Quantitative Easing” or “QE3,” is ending. Historically, the end of these programs is a delicate time for the US market, but the resurgence of investor confidence seemed to soften the blow. So far, any negative reaction has been lost amidst news that the US dollar is gaining strength and the US stock market is pushing to new highs. Hopefully, the results of the US elections do not halt this momentum.

In contrast, the Bank of Japan (“BOJ”) surprised investors, both at home and abroad, by announcing a more aggressive round of stimulus. Japanese currency fell, but stocks saw noticeable increases in prices. This is a good reminder that the power of surprise is a useful tool for central banks. Globally, central banks continue to clear guidance as to their upcoming decisions and hope that transparency offers stability. The downside to those efforts is that they do not allow for large changes in policy. The Bank of Japan was able to offer a jolt to its economy by defying expectations. While the success of this move is uncertain, it provoked a
reaction from one of the world’s most sluggish economies.

Meanwhile, the Eurozone continues to struggle. Many of the member countries are teetering on the edge of deflation. This threat was looming at the beginning of this year and it continues to do so. However, there was one spot of good news for the Eurozone as it prepares for winter. Surprisingly, the good news comes from Ukraine. After halting natural gas delivery in June, Ukraine and Russia just struck a deal to resume the flow of natural gas until March. This is a relief the European markets dependent on Russian natural gas supplies that arrives via the Ukrainian pipeline.

Speaking of energy issues, oil prices continued to decline in October due to a strong US Dollar and decreasing demand. The upside to this is that consumers are able to purchase gas at cheaper prices and that eases a burden on household budgets. The downside is that it puts downward pressure on prices, which can be bad for the economy.

Market Movers

October proved to be an interesting month for investors and defied expectations. Just last month, analysts and investors were preparing for a rocky end to QE3 and suggesting that the US stock market was on the verge of a correction. Instead, the markets delivered reminders that market timing is difficult and even the professional consensus can misjudge the direction of the market. For the month, most of the portfolios outperformed the global equity markets, even the lower risk portfolios with larger allocations to bonds.

  • VCA Market Review Oct 2014 InLineUS stocks hit another record high. Our current large allocation to Small Caps (VB) and Mid Caps (VO) proved beneficial as these market segments significantly outperformed Large Caps (IVV).
  • Overall, US bonds remained relatively flat for the month.
    Our sizeable allocation to High Yield Bonds (JNK) across the portfolios added value as lower quality bonds outperformed.
  • Outside the US, the picture was not so optimistic. Foreign stocks got some assistance from the Bank of Japan at the end of the month, but that was too late to help them stumble out of the hole created by the struggling Eurozone.
    Although many investors have feared the Emerging Markets (VWO), we maintained this exposure and it performed positively relative to the developed countries moving in the red for the month.
  • Meanwhile, foreign bonds found no consolation in Japan’s efforts. In Europe, where banks continue to struggle and nations are running spending deficits, bonds were not attractive to investors. Although foreign bonds were relatively flat, our exposure to Emerging Market Bonds (PCY) contributed positively.
  • Hard assets continue to pull back. Master limited partnerships (AMJ), Precious Metals (GLTR), and Commodities (DBC) pulled back in October. Some of this can be attributed to improving confidence in the US market, yet this exposure is advantageous during times of market turmoil and inflation.
  • Preferred Stocks (PFF) and Convertible Bonds (CWB) provided respectable performance for the month.
    Our portfolios continue to benefit from these hybrid securities.

Since the beginning of the year, the higher risk portfolios are keeping pace with global stocks and the lower risk portfolios are significantly outpacing the global bond market. Over the last several years, US Stocks continue to pull ahead relative to global stocks and other investment types. Although this may tempt you to shift more assets domestically, these market trends are not uncommon for relatively short time periods and the benefits of broad global diversification are significant over longer time periods.

INVESTMENT ADVISORY SERVICES OFFERED THROUGH ALPHASTAR CAPITAL MANAGEMENT, A SEC REGISTERED INVESTMENT ADVISOR. INVESTMENT MANAGEMENT SERVICES MAY BE PROVIDED BY A SUBADVISOR. INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL LOSS OF PRINCIPAL. NO INVESTMENT STRATEGY, SUCH AS ASSET ALLOCATION OR DIVERSIFICATION, CAN GUARANTEE A PROFIT OR PROTECT AGAINST LOSS IN PERIODS OF DECLINING VALUES. PLEASE NOTE THAT REBALANCING INVESTMENTS MAY CAUSE INVESTORS TO INCUR TRANSACTION COSTS AND, WHEN REBALANCING A NON-RETIREMENT ACCOUNT, TAXABLE EVENTS WILL BE CREATED THAT MAY INCREASE YOUR TAX LIABILITY. REBALANCING A PORTFOLIO CANNOT ASSURE A PROFIT OR PROTECT AGAINST A LOSS IN ANY GIVEN MARKET ENVIRONMENT. INVESTMENTS INVOLVE RISK AND, UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO CONSULT WITH A QUALIFIED FINANCIAL ADVISOR AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGIES DISCUSSED HEREIN. THIS REPORT IS PRESENTED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SECURITIES. FURTHER, THIS INFORMATION IS NOT INTENDED AS A REPLACEMENT FOR THE ACCOUNT STATEMENT SENT TO YOU BY THE QUALIFIED CUSTODIAN. THE INFORMATION PRESENTED IN THIS REPORT IS BELIEVED TO BE ACCURATE, BUT OUR FIRM CANNOT GUARANTEE THE ACCURACY OF THE DATA. UNDER NO CIRCUMSTANCES SHALL OUR FIRM OR ANY OF ITS AFFILIATES, OFFICERS, EMPLOYEES, OR AGENTS BE RESPONSIBLE FOR DAMAGES, ERRORS, OMISSIONS, INACCURACIES, OR MISUSES OF THIS REPORT BY YOU OR YOUR AGENTS.
THE PERFORMANCE INFORMATION PRESENTED IN THE ASSET CATEGORY SECTION OF THIS REPORT IS BASED ON EQUAL-WEIGHTED AVERAGES OF THE FOLLOWING: US STOCKS (ISHARES S&P 500 ETF, S&P DIVIDEND ETF, VANGUARD MID CAP ETF, WISDOMTREE MIDCAP DIVIDEND ETF, VANGUARD SMALL CAP ETF, WISDOMTREE SMALLCAP DIVIDEND ETF), FOREIGN STOCKS (VANGUARD MSCI EAFE ETF, ISHARES INTERNATIONAL SELECT DIVIDEND ETF, VANGUARD EMERGING MARKET ETF, WISDOMTREE EMERGING MARKETS EQUITY INCOME ETF, ISHARES MSCI EAFE SMALLCAP ETF, VANGUARD FTSE ALL WORLD EX-US SMALL ETF), US BONDS (ISHARES BARCLAYS 1-3 YEAR TREASURY ETF, ISHARES 3-7 YEAR TREASURY BOND ETF, ISHARES 10-20 YEAR TREASURY BOND ETF, ISHARES BARCLAYS MORTGAGE BACKED ETF, ISHARES IBOXX INVESTMENT GRADE CORPORATE ETF, VANGUARD SHORT-TERM CORPORATE BOND ETF, ISHARES BARCLAYS TIPS ETF, PIMCO 1-5 YEAR US TIPS INDEX ETF, SPDRS HIGH YIELD ETF, SPDR BARCLAYS SHORT-TERM HIGH-YIELD BOND ETF, POWERSHARES SENIOR LOAN ETF), FOREIGN BONDS (SPDRS BARCLAYS INTERNATIONAL TREASURY ETF, SPDR BARCLAYS SHORT-TERM INTERNATIONAL TREASURY BOND ETF, POWERSHARES EMERGING MARKET DEBT ETF, SPDRS DB INTL GOVERNMENT INFLATION ETF, POWERSHARES INTERNATIONAL CORPORATE BOND ETF), HARD ASSETS (POWERSHARES DB COMMODITY ETF, SPDRS GOLD ETF, ISHARES SILVER TRUST ETF, JP MORGAN ALERIAN MLP ETN, SPDRS DJ GLOBAL REAL ESTATE ETF), AND HYBRIDS (ISHARES S&P US PREFERRED STOCK ETF, SPDRS BARCLAYS CONVERTIBLE SECURITIES ETF).

Market Review September 2014 – Reducing Risk in a Month of Uncertainty

September was a rough month for investors. After stocks pushed to new highs in the early days of the month, disappointing economic numbers, mixed signals from central banks, and political uncertainties gave investors several excuses to reduce the risk in their portfolios or increase their cash positions. As we enter the fourth quarter, many investors are reevaluating their portfolios and starting to plot changes for the coming year.

US jobs data was disappointing. This really concerned US investors. Ever since January, investors have been hoping that the economic indicators were just lagging behind, but the US economy was growing. The summer’s data was lackluster and the preliminary September data was discouraging. While the jobs data released last week revised those figures upward for September and the preliminary October data was better than analysts hoped, investors remain cautious.

Adding to this cautious attitude, the end of Federal Reserve’s quantitative easing (QE) program is predicted for October. This program stabilized the bond market and encouraged lenders to make money available to borrowers. This allowed companies and individuals to borrow at lower interest rates and encouraged investment. The Fed has used similar programs in the past and the conclusion of these programs is always a delicate time for the markets.

Meanwhile, the EU continues to struggle with price stability and deflation is now a significant concern for EUmember nations. Mario Draghi, president of the European Central Bank (ECB), followed through on his plans to take interest rates even further into negative territory and proposed a variety of possible QE measures similar to those used by the Federal Reserve. Those QE measures are expected to be announced in early October. Investors with European interests are waiting impatiently for the direction of the EU economy to come into focus, and much of that picture is dependent on the actions of the ECB in coming months.

The Scottish independence vote was also a source of uncertainty in September. Since Scotland controls large portions of the oil in the North Sea and the more liberal Scottish voters would surely subject the petroleum industry to additional taxes and regulation, investors were paying careful attention to this vote. Additionally, Scottish leaders proposed staying on the British Pound, but there was no formal agreement. Some economists speculated that Scotland might join the EU and adopt the Euro. Even without a formal currency agreement in place, no one seriously thought that they would create their own currency, which means that the Scottish government would need to negotiate the use of either the Euro or the Pound. In either case, the more liberal Scots were sure to adopt a much different attitude toward corporate interests than their British counterparts.The failure of the Scottish independence referendum was a relief to investors, once the vote was certified later in the month.

ISIS/ISIL continues to wreak havoc in the Middle East. Over the summer, investors were merely concerned about oil supplies from the region. Now, it appears that the West is planning to get involved in the conflict and investors are wondering how large those operations will be. With most western nations still running deficits and western citizens wary of new military conflicts, it is unlikely that large or long-term military operations would be beneficial to western economies.

Market Movers

The events of September were a valuable reminder that diversification is crucial. Nearly every asset class suffered as many investors scaled back the risk in their portfolios. A variety of our portfolio holdings managed to stay relatively flat, but there were no significant gains. This was welcome relative to the dismal performance across the major equity markets. The investment selection of our portfolios helped to weather some of this recent volatility.

Sept 2014 Market Review Market Movement Table

Sept 2014 Market Review Market Movement Table

Some investors lost by chasing the record highs of the US stock market. Some investors also lost by betting against the market and holding large amounts of precious metals. However, our carefullyconsidered, diversified portfolios were weathered the uncertain events of September. We benefited from our allocation to several investment categories. Our Investment Team continues to closely monitor the market and economic developments, and these situations will continue to factor in to our future investment allocations. The following summarizes the major movements within our portfolios:

  • This pattern of risk reduction carried through all asset categories. Both US and foreign equities pushed negative, but the largest declines were in those asset classes that carry the most risk. In equities, those were small caps (VB) and emerging markets (VWO), which significantly underperformed large cap stocks (IVV & VEA).
  • US treasuries (SHY) and US mortgage-backed securities (MBB) both saw nominal gains for the month and functioned as safe havens for investors that were looking to reduce their risk without going to cash. This greatly benefited our lower risk portfolios.
  • Foreign bonds saw more significant declines than US bonds. Also, high-yield (JNK) and emerging markets bonds (PCY) ventured further into the red. Regardless, these bond types are critically important as they are typically less sensitive to interest rate changes relative to many other bonds.
  • When markets respond out of fear, we would expect precious metals to do well. This was not the case as metals (GLTR) and commodities (DBC) continue to underperform most other investments. In looking at these September figures, it is important to review the year-to-date numbers. Every asset category still shows a positive return for the year. Digging a little deeper, 18 of the 23 asset classes in the models are still in the black for the year, and every model in the Core Allocation Series is still well into positive territory.

 

INVESTMENT ADVISORY SERVICES OFFERED THROUGH ALPHASTAR CAPITAL MANAGEMENT, A SEC REGISTERED INVESTMENT ADVISOR. INVESTMENT MANAGEMENT SERVICES MAY BE PROVIDED BY A SUBADVISOR. INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL LOSS OF PRINCIPAL. NO INVESTMENT STRATEGY, SUCH AS ASSET ALLOCATION OR DIVERSIFICATION, CAN GUARANTEE A PROFIT OR PROTECT AGAINST LOSS IN PERIODS OF DECLINING VALUES. PLEASE NOTE THAT REBALANCING INVESTMENTS MAY CAUSE INVESTORS TO INCUR TRANSACTION COSTS AND, WHEN REBALANCING A NON-RETIREMENT ACCOUNT, TAXABLE EVENTS WILL BE CREATED THAT MAY INCREASE YOUR TAX LIABILITY. REBALANCING A PORTFOLIO CANNOT ASSURE A PROFIT OR PROTECT AGAINST A LOSS IN ANY GIVEN MARKET ENVIRONMENT. INVESTMENTS INVOLVE RISK AND, UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO CONSULT WITH A QUALIFIED FINANCIAL ADVISOR AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGIES DISCUSSED HEREIN. THIS REPORT IS PRESENTED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SECURITIES. FURTHER, THIS INFORMATION IS NOT INTENDED AS A REPLACEMENT FOR THE ACCOUNT STATEMENT SENT TO YOU BY THE QUALIFIED CUSTODIAN. THE INFORMATION PRESENTED IN THIS REPORT IS BELIEVED TO BE ACCURATE, BUT OUR FIRM CANNOT GUARANTEE THE ACCURACY OF THE DATA. UNDER NO CIRCUMSTANCES SHALL OUR FIRM OR ANY OF ITS AFFILIATES, OFFICERS, EMPLOYEES, OR AGENTS BE RESPONSIBLE FOR DAMAGES, ERRORS, OMISSIONS, INACCURACIES, OR MISUSES OF THIS REPORT BY YOU OR YOUR AGENTS. THE PERFORMANCE INFORMATION PRESENTED IN THE ASSET CATEGORY SECTION OF THIS REPORT IS BASED ON EQUAL-WEIGHTED AVERAGES OF THE FOLLOWING: US STOCKS (ISHARES S&P 500 ETF, S&P DIVIDEND ETF, VANGUARD MID CAP ETF, WISDOMTREE MIDCAP DIVIDEND ETF, VANGUARD SMALL CAP ETF, WISDOMTREE SMALLCAP DIVIDEND ETF), FOREIGN STOCKS (VANGUARD MSCI EAFE ETF, ISHARES INTERNATIONAL SELECT DIVIDEND ETF, VANGUARD EMERGING MARKET ETF, WISDOMTREE EMERGING MARKETS EQUITY INCOME ETF, ISHARES MSCI EAFE SMALLCAP ETF, VANGUARD FTSE ALL WORLD EX-US SMALL ETF), US BONDS (ISHARES BARCLAYS 1-3 YEAR TREASURY ETF, ISHARES 3-7 YEAR TREASURY BOND ETF, ISHARES 10-20 YEAR TREASURY BOND ETF, ISHARES BARCLAYS MORTGAGE BACKED ETF, ISHARES IBOXX INVESTMENT GRADE CORPORATE ETF, VANGUARD SHORT-TERM CORPORATE BOND ETF, ISHARES BARCLAYS TIPS ETF, PIMCO 1-5 YEAR US TIPS INDEX ETF, SPDRS HIGH YIELD ETF, SPDR BARCLAYS SHORT-TERM HIGH-YIELD BOND ETF, POWERSHARES SENIOR LOAN ETF), FOREIGN BONDS (SPDRS BARCLAYS INTERNATIONAL TREASURY ETF, SPDR BARCLAYS SHORT-TERM INTERNATIONAL TREASURY BOND ETF, POWERSHARES EMERGING MARKET DEBT ETF, SPDRS DB INTL GOVERNMENT INFLATION ETF, POWERSHARES INTERNATIONAL CORPORATE BOND ETF), HARD ASSETS (POWERSHARES DB COMMODITY ETF, SPDRS GOLD ETF, ISHARES SILVER TRUST ETF, JP MORGAN ALERIAN MLP ETN, SPDRS DJ GLOBAL REAL ESTATE ETF), AND HYBRIDS (ISHARES S&P US PREFERRED STOCK ETF, SPDRS BARCLAYS CONVERTIBLE SECURITIES ETF).