Presentation Transcript

1. QuarterlyInvestment BriefingNovember 14, 2012 Clayton T. Bill, CFA Stephen J. Nilles, CFP
2. Capital Market Returns Current and Annualized: 9-30-2012 Source: Russell
3. What Worked and What Didn’t in 3Q 2012 What Worked Equities Energy +10%/Cons. Disc. +8% Euro Area +10% Fixed Income Emerging Market Debt +7% Global High Yield +6% Alternatives/Real Assets Grains +16% Precious Metals +13% Infrastructure: Energy +7% REITs Asia +13% What Didn’t Work Equities Cons. Staples +3%/Utilities +4% Japan 0% Fixed Income U.S. Treasuries +1% Alternatives/Real Assets Livestock -6% Sugar -6% Infrastructure: Utilities +1% REITs North America +1% Source: Russell
4. International Diversification: Seeking to broaden opportunities Source: Russell
5. Year to Date Index Returns 21 22.0 September 30, 2012 16 17.0 13 10 12.0 10 Index Rate of Return (%) 8 6 7.0 4 2 0 2.0 Infrastructure U.S. Equity Non - U.S. Dev EM Equity U.S. Fixed Treasuries Cash REITs Commodities Balanced - 3.0 Russell Russell Russell Barclays Barclays Barclays FTSE S&P Global DJ UBS 60% Russell Global 3000 ® - U.S. LC Emerging Mkts Agg Treasuries Month Treas EPRA/NAREIT Infrastructure Commodity 40% Barclays Agg 1-3 Dev ex Consensus Views Don’t Drive Market ReturnsDiversified index portfolios increased opportunities and managed risks Source: Russell
6. What Does The Election Mean? The Fiscal Cliff: is it really a cliff? Taxation and Municipal Bonds. Gridlock in Washington D.C. and Market Returns. Continued Monetary Easing by the Fed. U.S. Dollar Depreciation? Market Fundamentals.
7. Federal Revenues and Spending as % of GDP (1950 – 2011) 26% 24% 22% Average 20% 20.0% Expenditures: Average % of GDP 18% 17.8% Revenues: 16% U.S. President: 14% Republican Democrat 12% 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 Tax Revenue Gov’t Expenditures Something’s Got to GiveImbalance between the government people say they want and government they are willing to pay for Balancing the differences between revenues and expenses will likely include compromise in regards to both taxes and spending Source: Russell
8. New Health Care Taxes Alternative Minimum Other Tax (AMT) Expiration* Taxes Medicare $25bn Lower Medicare Cuts Payments* $30bn $5bn Other $10bn Cuts $125bn $380bn Expiration $30bn $100bn of extended $25bn Tax unemployment Spending $90bn benefits Increase Cuts $30bn Expiration of Payroll Defense Cuts Tax Cut $110bn Sunset of *Historically “patched” by Congress and not incurred Bush Era Rates The Looming Fiscal CliffPart tax increase and part spending cuts Absent government action, the economy will face tax and spending headwinds beginning in 2013. Will the government allow both in the face of near 8% unemployment and < 2% GDP growth? Source: Russell
9. Fiscal Downsizing and Deficit Reduction: A Global Perspective Avg Annual Deficit Reduction, 2010 - 2012 Source: Vanguard
10. Muni Fundamentals Steady, Tax Advantage May Increase Although fiscal challenges still exist for many municipalities, state revenues have improved for nine straight quarters, and the recent uptick in property tax revenues is a positive sign for localities. Highly rated municipal bonds offer comparable pre-tax yields to Treasuries, and currently legislated tax changes for 2013 would further enhance their after-tax yield advantage. Muni Tax-Equivalent Yields Tax Revenue Growth Year-over-Year Yield (%) Source: Fidelity
11. Gridlock in D.C.: Historical Market Returns Source: Ned Davis Research, Inc.
12. Federal Reserve Steps In (Again) Source: Russell
13. Fed’s QE3: Open-ended Liquidity Boost, Different Results? During the previous two rounds of the Federal Reserve’s quantitative easing, stock prices and Treasury bond yields rose, while the dollar declined and commodity prices increased. Though the liquidity from QE3 should provide support to asset prices, stock prices and bond yields have decoupled over the past year, possibly as a result of weak global growth. Reactions to Extraordinary Monetary Policies 10-Year Treasury Yield (%) S&P 500 Index Level 9/12/12 QE3 Source: Fidelity
14. High Inflation not an Immediate Concern Source: Vanguard
15. U.S. Dollar Depreciation: A Potential Tailwind for International Equity Performance Source: Russell
16. U.S. Earnings Estimates and Valuations Source: J.P. Morgan
17. Where Do You Go From Here? Avoid temptation to confuse economic outcomes with market expectations Waiting for perfect clarity may be too late Base your investment decisions on probabilities, not possibilities Expect continued market volatility as macro-events unfold U.S. fiscal cliff Eurozone sovereign debt China economic slowdown Strive for disciplined diversification and maintain a long-term perspective