Mid Year 2021 Newsletter

Hello investors and friends. We hope that you and your families are enjoying the summer season. Over the last few years, we have been distributing a newsletter in a consistent format so, we thought we would try something a little different this quarter. During conversations with our clients, we hear many of the same questions and concerns regarding the markets and investments. In this newsletter we will highlight some of the most frequently discussed topics. We will keep the answers brief, as we are aware that no one wants to read a long newsletter. First, let’s take a macro snapshot on the 1st half of the year.

Investors around the world are placing money into the U.S markets at levels we have not seen in decades. This is a clear indicator that investors globally have tremendous confidence that the U.S, the world’s largest economy, is heading toward a Covid economic recovery comparatively stronger than most other countries around the world. During the first half of 2021, investors put to work an additional 1 trillion dollars into U.S markets via ETF’s, Mutual Funds, and Equities. This is a record going all the way back to 1992. In fact, in first half of 2021, more assets were placed in U.S markets than were invested in the entire rest of the world combined. These asset inflows reflect positive investor sentiment driven by strong U.S economic growth which is projected to be 6.9% in 2021. This strong economic growth, accommodate monetary and fiscal policy, low interest rates and optimism about turning the corner on Covid were the key drivers that have pushed the markets to solid first half results.

Markets are up in the first half of the year, but what’s really in store for the second half of the year?

A significant risk to market performance is the “delta” variant of the virus. Markets really disdain uncertainty, and sadly the virus continues to plague many countries in the world that lack the abundant resources found in the U.S. Our view is we will make it to the other side in terms of beating Covid, but investors should brace for some possible air pockets as we go into the back half of the year.

The long-term prognosis for strong market returns is still in place, with these being low interest rates, strong corporate earnings, impressive GDP growth and strong consumer demand. On the opposite side of the coin, the risks that investors, and advisors, will have to address inside each portfolio include inflation, Beijing’s crackdown on U.S listed stocks and a mixed Federal Reserve policy as it reallocates to monetary adjustments.

The U.S was in a recession last year and markets took a steep decline, can we fall back into an economic recession?

A consensus taken by some of the leading global economists indicate that the world economy returned to its pre-pandemic size during the second quarter of 2021. The U.S economic output grew at an impressive annual rate of 6.5% in the second quarter and exceeded pre-pandemic levels. The economy was powered by an extraordinary increase in pent up consumer spending, government stimulus, an accommodative Fed and business investment. The brief U.S recession, and its rapid recovery, have been unlike any other recession we have experienced in the past. The pandemic-induced recession was abbreviated in its length due to the effectiveness of government stimulus programs, a Fed Reserve that provided unprecedented liquidity and the rapid development of viable vaccines. In our view, a global and/or a defined U.S recession have a faint chance of returning in 2021 and or 2022, which should continue to accommodate market moves to the upside.

With “Value” stocks beating “growth” stocks for the first time in a while will the trend continue?

Financial news media for the first half of the year have been obsessively covering the subject of “Value” vs “Growth” and where should investors focus their attention. In terms of generating return for investors, “Value” stocks have been trounced by “Growth” equity investments over the last decade by a large margin. As a firm that focuses on sector rotation, as well as thematic and cyclical trends, we have focused on the economic fundamentals that have resulted in the recent strong relative performance of “Value” equities. By investing in ETF’s that focus on segmented value stocks we are capturing this trend as it continues to play out. While portfolio managers like to frame the “Value” vs “Growth” argument in many different shades, we see it as quite simply recognizing the pricing attractiveness of “Value” stocks in relation to other market sectors after years of underperformance. Historically a rising rate environment has favored “Value” over “Growth” but since 1994 we have seen “Growth” outperform in a rising rate environment. Quite simply, with “Value” lagging for such a long time and, given this stage of the economic cycle and expectations for rising interest rates, it’s reasonable to assume that value would have its time to outperform.

Why has Copper River reduced its target asset allocation in bonds?

As our clients are aware, our market experience is deeply rooted in fixed income. The asset class will always play a special role, as it meets the needs of our client base who are seeking safety of principal and also a steady income stream. The 37 trillion-dollar global bond market is currently stable and credit conditions, as tracked by the firm, remain strong across the board. Where fixed income has been a challenging asset class is the dismal yields that are afflicting bonds globally. Because of low interest rates, companies are able to issue bonds that are attractive to them, but that are very low yielding for investors. Investors are reconsidering models that included traditional fixed income as a significant percentage of their investment portfolio. Alternatives such as private real estate income trusts and secured private credit are effective bond proxies and provide returns materially higher than traditional fixed income. With the futures market pricing in federal reserve rate hikes in 2023, we should once again see a rise in rates but investors will have to be patient until yields offer real returns.

Why has private equity played an increasing role in one’s portfolio?

Private equity’s shift from a niche asset class to a critical component of the financial system is evident from investors’ financial commitment: Private equity deals hit $62.5 billion in 2020, up 8.8 percent from 2019. Blackstone, Carlyle, and KKR are now household names and publicly-traded companies of significant size. Private equity funds today account for 15%–18% of the value of all mergers and acquisitions. As public market multiples continue to diverge from private markets, opportunistic PE firms will target underperforming public companies for buy-outs with the business strategy of restructuring and improving both operations and management. Once value has been created and/or enhanced, exit strategy options include an IPO but also a sale to another company or to a SPAC. PE continues to play an ever-increasing role in the world’s financial system and we are increasing relative portfolio weightings in this asset class.

Are the recent movements in the 10-year U.S treasury bond foreshadowing problems to come in the equity markets?

The answer is a nuanced. Bonds, historically, have played a crucial role as a leading market indicator on the strength of the U.S and Global economies. However, in our view, the recent dramatic movements in the 10-year treasury yield are a result of supply and demand issuer pressures currently taking place in the market.

While the 10-year treasury yields a rather low 1.32%, it still represents an attractive yield globally for fixed income investors. Nearly two-thirds of fixed income sovereign debt is currently yielding zero or has a negative yield. With U.S Treasuries being backed by the faith and credit of the U.S government we are seeing large demand in the monthly Treasury auctions that take place. Much of this demand is from foreign investors who value the comparatively higher U.S. Treasury yields relative to other OECD countries and the ‘safe haven” status of U.S. Treasuries. Inflationary expectations, Federal Reserve tapering, continued government stimulus, economic growth, investor demand and COVID variants are some of the key variables that will impact the 10-year and the yield curve.


Going forward, Investors will be facing headwinds in the market. They will always exist. It is our job as your Financial Advisor to identify these risks and adjust portfolio weightings and positions accordingly. Protecting principal, identifying and reducing risks, and striving to achieve a reasonable rate of return are our core objectives. Although markets do not historically repeat themselves, they have historically reacted similarly to events that cause large market disruptions. Events like higher rates, natural disasters, credit crisis and now a pandemic (which really did not have a modern historical market equivalent) will tend to lead to similar reactions in various parts of the markets. What we are emphasizing here is a phrase often heard that “there is always a bull market somewhere”. The depth of the global financial markets and strength of growing global economies present investment opportunities somewhere. Investors should try their best to shy away from an “in” or “out” mentality and stay positive on the pockets where expansion is taking place, revenues are growing, and wealth is being created.

We thank you if you have gotten this far in the newsletter and look forward to a strong 2nd half of 2021. Have a great weekend. Team Copper River

4th Quarter 2020 Newsletter

Market Update

Welcome back readers. We hope everyone is doing well and staying healthy. Although it is not quite time for the year-end newsletter, given the difficulties of 2020 we thought it would make sense to share early. We have quite bit to cover here, so we apologize right up front on the length, but we do feel the information is important for investors to digest.

After nine long months, we do feel that there is light at the end of the Covid tunnel. The pandemic accelerated many significant shifts that had been taking place, albeit slower, in how economies, businesses and societies operate. Portfolios and individual positions were rebalanced, reallocated to reflect a rapidly changing landscape caused by these accelerated shifts. There is no playbook for providing portfolio management services during an unprecedented pandemic. Our extensive experiences from 2001 and the financial crisis of 2009 allowed us to personalize strategies for each and every client, and revise plans based on these new market realities.

What was interesting to us was that many investors were more concerned with the effect of the U.S elections rather than the real transformational shifts taking place in the economy. Markets like certainty, which we had at the end of the U.S election. In November and December the markets held steady on the election results and further rallied because of the incredibly positive vaccine news which came on three consecutive Mondays in November and early December.

North America Technology and Megatrends

Our readers are most likely aware that we have had an “overweight” positioning and outlook on North America technology over the past few years. This has proved to be a solid holding, and one we continued to add to as we went through Covid-19 spring/summer/fall. North America technology, and the companies that make up the sector, have been the largest growth driver and wealth creator in the U.S economy over the past decade. We all realize the importance of this sector over past year, as technology has allowed us to work, attend school and maintain many of life’s daily rhythms that would have been unthinkable 5 or 10 years ago. The importance of this sector cannot be understated.

Because of this sectors size and diversity, we like to break investable options further down into various investment sub groupings. Some of our favorite sub grouping in North America technology are 5G, Electronic Payments, Cloud Computing and Cybersecurity. Investing in these subsectors by holding baskets of stocks in an ETF wrapper gives investors broad exposure to these “Technology Megatrends” and also eliminates single stock risk.

Other Megatrends to consider in 2021 for investors would be Clean Energy to include Lithium and Battery technologies, Fin Tech, Data Center Reits, Aerospace and Biotech. Investing in Megatrends or asset classes that have tremendous growth, and are changing the way we live, is an important strategy for investors to consider, and a core theme at this firm. Broad asset class diversification alone may not be sufficient to achieve long term results. Detailed analysis and positioning at the country, sector, industry group and trend level will be crucial to achieve long term results.

Megatrends at a glance

Bonds and Private Equity

At Copper River we maintain a modest pro-risk stance going into 2021, but we will always look to give fixed income and private equity their fair share of weighting inside an investor’s portfolio. Fixed income, which is the firm’s background, had an impressive start to the year due to investor demand for high quality risk averse interest producing instruments. However, due to market mechanics and the Federal Reserve cutting interest rates to zero, bonds will most likely struggle to produce a respectable income stream for most investors in 2021. We still believe in the asset class for those that are at or near retirement. But, with yields again at historic lows, the attractiveness of the asset class has dimmed a bit for the next year. While the depth and constitution of the bond market is unique depending on the issuance and sector, it is now in a “hold and wait position” for 2021 due to low yields.

Fed rate moves

As an asset class Private Equity (PE) can be illiquid and not suitable for all investors. But, in our view it should play a role in any investors long-term portfolio. Many investors remain under-invested in private markets and may underappreciate their ability to take on some liquidity risk. We see private markets playing an important role in portfolio resilience in a world where bonds may no longer serve as diversifiers. They allow investors to build exposures to underlying trends not always available in public markets.

We also find that total return opportunities can be greater in private markets than publicly traded markets. These returns are often achieved by PE managers who can negotiate stronger debt covenants in the assets they are buying. As we went through 2020 we continued to use PE as an asset diversifier in the industrial real estate and credit markets space. Special mention to Blackstone, world’s largest private equity firm, for its work in the RIA space and for with working closely with this firm on several private equity offerings.


What does 2021 look like?

As a result, we favor looking through any near-term market volatility and continue to rebalance and deploy cash on dips. We increased our overall stance by weighting equities and focusing on some of the “megatrends” mentioned above. We continue to like tech, healthcare, industrials, transports, and clean energy due to the pandemic’s transformative shifts and pricing opportunities in sectors that have negative returns in 2020. Portfolio positions such as emerging market (EM) equities and U.S. small caps are back in favor.

While we are optimistic on the 2021 market returns, we need to mention that 80% of small business owners have been deeply impacted by Covid-19. It is estimated 100k small businesses will go out of business. Small businesses are the backbone of the U.S economy. We all need small businesses to recover, and continue to have the opportunities to grow into large businesses for a steady and even recovery to take place. We ask that readers support their local small business during the holidays and throughout 2021.

Tactical trend lines for 2021 are as follows for the firm.


Firm Update

We want to let our readers know we have updated our website: www.copperriveradvisors.com

A few changes we wanted to capture on the new website is the firm’s continued growth and highlight our new advisory committee as well as partnerships. Please look when you have a moment and feel free to provide any feedback.
Thank you for your business, and the trust you place in your team. We look forward to 2021 with great optimism.

Team Copper River

2nd Quarter 2020 Newsletter

Market Update

Welcome back readers. For market participants, the second quarter of 2020 was one to be remembered. For advisors, implementing portfolio strategies, it has been quite exhausting.

The first quarter of 2020 ended with the key stock indices down; -20% for the S&P 500, -23% for the Dow and the Russell 2000 small caps fell -30%. However, in the 2nd quarter, equity markets recovered very quickly, responding to the historical Federal Reserve stimulus package intended to stabilize the economy and markets. That said, even with a nice V-shaped recovery in some parts of the equity market(s), there are large bifurcations taking place in many of the market indexes, sectors, regions, and individual countries. Year to date (YTD) key equity index market returns are as follows:

S&P 500 (-3%)
Dow Jones (-8%)
Russell 2000 (-12%)
Nasdaq (+12%)

Profitable strategies for 2018 and 2019 in terms of asset allocation weightings and individual equity sectors shifted dramatically in 2020 and in an extraordinarily condensed time. Due to macro shifts in the economy, it’s imperative for investors to stay nimble, with ability to deploy cash on large market swings and remain much more diligent in terms of analyzing and understanding risk in a portfolio.

The U.S market, as well as international markets, are dealing with two opposing forces that have never been seen, tested, or modeled in the financial system. These events are a novel, fast-spreading, and lethal virus that dragged the U.S economy into recession and, in response, an unprecedented global monetary and fiscal stimulus. We have quite a bit to cover here in a brief newsletter, but we will do our best to break it down as succinctly as possible.

Is the U.S. in a recession?

Yes. Recessions are defined as either being cyclical, structural or event driven in nature. Each of these recession types are distinctively different in terms of historical length, depth, and economic destruction. The Covid virus and its financial repercussion is an “event-driven” global recession. Covid-recession, officially starting February 2020, terminated an amazing expansion of 128-months duration, the longest ever recorded, dating back to 1854. Not even during the Great Depression or following WW II have so many countries entered a recession simultaneously. The good news is that “event-driven” recessions have shown to fare best in terms of recovery from associated market decline as well as total duration when compared to structural and or cyclical driven recessions.

Ok its a recession, why did the markets go up in Q2?

Investors are betting on two things to happen in late 2020 and in 2021. Firstly, continued Federal Reserve support until vaccine or therapeutics mitigate the virus and it’s contagion. Secondly, a quick U.S economic recovery to follow once said viral containment(s) develop. Both of these outcomes are certainly possible, and the market has decided to look past the current economic carnage around us (including earnings) and focus instead on the more optimistic scenarios.

It should be noted that while the equity markets have somewhat recovered, this “recovery” is largely driven by “big tech”. Apple, Amazon, Google, Microsoft and other large technology companies have been the real underlying drivers of the market putting up solid 2nd quarter numbers. The QQQ index represents the NASDAQ 100 largest tech companies and investors can see the striking YTD outperformance compared to the 30 largest companies in the U.S that comprise the DOW Jones average.

Will volatility continue and what can we do to take advantage?

Historic market volatility in 2020 is displayed below. We have eclipsed 1928 numbers, (Great Depression), in terms of market gyrations. As knowledge accumulates on the virus we expect volatility to stabilize in the back half of the year. However, this unfortunately does not necessarily indicate market direction. Most market analysts feel we are at the apex of the market averages given the real economic picture outside our windows. While volatility adds to investor (and advisor) unease, is not always terrible as we use it tactically as a re-balancing mechanism, stepping in and or out on advantageous share prices.

What are some portfolio changes to consider as we go into Q3?

We see portfolio resilience as more than just relying on broad asset classes or indexes. It is making sure portfolios are correctly weighted amongst sectors, geographical regions, countries, and company stock level. Diversification is key, as large return dispersion in the first half of the year has increased across asset classes. Granular analysis at the sector level is crucial to understanding exposure that will be tested until the virus is under control.

At Copper River we maintain a modest pro-risk stance and look to give fixed income and private equity its fair share of weighting inside a portfolio. Fixed Income always a staple of our firm given our background has had another impressive start to the year due to investor demand for high quality interest producing instruments.

In terms of equity we favor quality assets that have had tremendous earnings growth in 2020. This leads to an even higher respect and weighting to North America Technology (and various sub classes in the sector like 5G and semiconductors).


As we move into the back half of the year, we look forward to more normal market conditions but will be prepared to act quickly in terms of re-balancing and sector rotation should we face unexpected headwinds and or more major storms.

Have a great 4th of July holiday weekend and please call and or email us with any questions, concerns or needs.

Team Copper River

1st Quarter 2020 Newsletter

Market Update

We hope this finds you well; certainly, we are in trying times. Most of us are now on lock-down and watching the news develop rapidly as the U.S economy has been nearly shut down, intentionally. The impact on our jobs, families and relationships has been tremendous.

In this letter we want to provide you an update on the markets, specifically how these events have impacted your investments. Bob and I have spent the last two weeks discussing the markets and your money individually. We have been modeling different actions and taking direct steps in regards to your target asset allocation, re-balancing where needed and other key portfolio management functions that this firm performs. Portfolio management is all about understanding risk and positioning for the future- but with a deep analysis of historical information and actual market experience to help set a course forward. Covid-19 has challenged us to act, and react, quickly to events unforeseen just a few weeks ago. Each client of the firm has a custom portfolio, based on key factors such as age, risk tolerance, employment, family situation and long-term goals. These are the most common questions and discussions we have been covering with clients and they worth reiterating.

How are bonds doing?

Last week the bond market came under duress as credit markets stated to show sign of concerns. Because of this uncertainty, underlying pricing on bonds saw large swings that are far from typical. Recently we have seen prices in the credit and bond market begin to stabilize.

Let’s get into the details a bit more. At Copper River, we analyze and purchase individual bonds for our clients in what’s called a bond ladder strategy. The bonds acquired are held at Schwab, but they are sourced from Blackrock, and other institutional bond dealers. Schwab has a limited inventory of bonds, which is why we use other dealers who can offer better prices, inventory and execution. Additionally, we have strong relationships with some of the largest bond dealers because we also advise on bond portfolios for institutional investors. The bonds held by our clients are of investment grade quality, meaning these are debt obligations of some of the largest companies of the world that have exceptional businesses and balance sheets. The bond ladder portfolios that have been constructed for our clients are diversified by issuer, industry sector and maturity. The investment objective is to hold the bonds to maturity, whereupon, absent default, the bonds are repaid back at face value. The default rate for A rated bonds in last 100 years is less than 1%.

Let’s look at an example as you would see stated on your statement:

Abbott Laboratories 3.5% (Coupon) 11/30/2023 (Maturity) $25,000

Summary- Each bond has a stated date of maturity listed on the issuance (this one matures November 2023). A bond has a stated coupon of 3.5%. The coupon is paid out to you in cash (typically semiannually). This bond would send a coupon payment to the holder of $437.00 every six months. An underlying price of a bond will fluctuate with market demands, perceived credit risk and interest rate movements. But unlike equities, bonds mature on a set date, at which the principal amount invested is returned to the buyer. As mentioned above, the day-to-day pricing is not a concern as it is in equities and we are not trading these bonds, but holding to maturity. This individual bond ladder strategy is extremely effective for investors looking to decrease portfolio risk and capture a steady stream of interest payments. Very few firms and individual investors utilize this strategy as it does require quite a bit of work for the advisor, as well as deep market experience to execute well. In contrast, most individual investors are in (Bond Funds), which may have the same feature of a coupon payment (yield) but does not have the mechanics of returning principal invested at a set maturity date as they are open ended.

What has you worried in terms of investments?

The length and duration of the pandemic is of great concern for investments. The markets really dislike two things. One is uncertainty, and the virus and the spread globally is still uncertain. Second, the market trends (higher or lower) directionally over a set time period based on corporate earnings and earnings growth. Right now, with so many sectors of the economy shut down we are seeing incredible pressure on GDP, unemployment, earnings and other key macro-economic indicators that only weeks ago were in great shape.

What has you hopeful for the markets?

We feel strongly that the strength of the U.S and global biotech sector and its capabilities. A solution in terms of vaccination and suppressing the virus will come from this sector, as it did in last pandemic which was H1N1 in 2009. Since we essentially are facing a medical problem, we need to understand how the sector has put forth past solutions forward in terms of past viruses that have impacted us. This includes SARS (2003) Zika (2016) HIV and Ebola.

In addition certain parts or sectors of the markets have held up, and we expect will continue to hold up as we go through this global crisis. These segments and sectors include: TIPS ( Treasury Inflation Bonds), U.S Dollar, Biotech, Health Care, Consumer Staples and North America Technology. We can’t express enough the positive impact companies such as Amazon, Apple and Google have had on all our lives and from an investment standpoint are still attractive to own.


Will the markets recover and why are they going back up?

Equity markets tend to overreact to the upside, as well as the downside. These daily moves of 1000-2000 points in the DOW are not good at all, and show that the market has not set a direction and or floor yet. Volatility is off the chart. As of today, the S&P500 is down -21% YTD, but has gained back +10% in last few sessions. While the claw back is great, investors need to be cautious as we still need a better understanding on how this global virus will impact us in the long run and just how long this economic shutdown will last. Below is the S&P 500 since mid-2016. You can see the recent pullback and just the depth of the correction over past two weeks, but also just how high the gains have been since early 2016. On a positive note investors should note the long term power of the markets. Over past 100 years the S&P 500 annualized total return for the index is 9.8%. For investment grade corporate bonds the average annual return is 4.43%.

Are the market mechanics functioning?

Yes. During 2008/2009 we witnessed fundamental market mechanisms break. During the recent market sell-off, we have seen extremely volatile markets, credit gapping and buyer seller imbalances. The Federal Reserve has taken a very active approach in terms of backstopping and repurchase of government, MBS, municipal and corporate bond securities as well as reducing Fed Funds rate to 0. This had a very positive impact in providing liquidity into the market and help ensure smoother functioning. Recently, we have seen tighter bid/ask spreads on securities and the Schwab platform and subsequent service have been excellent. Overall, what we refer to as “the plumbing” in financial services, is functioning and, given the decisive role that the Fed is playing, we see no reason that it will not hold up well as we get through this global event.

Is this market correction like 2001 and or 2008/2009?

Bob and I were working in the financial services during the last three major market corrections. We understand the various dynamics that corrections have on various asset classes globally, as well as the opportunities that bear markets bring. Both 2001 and 2008 compared to the current pandemic are all very different and the main markets (Equities, Fixed Income and PE) will all react differently as we go through this. It should be noted that in both 2001 and 2008 the equity markets corrected 50% from their highs (see below). At this point looking at the data, and our past experiences we would say 2008/2009 was a more dire period in terms of how the markets functioned. In 2008/2009 many parts of the financial markets were not functioning properly, with such core pieces as lending, securitization, mortgage markets and key components of the capital markets broke or went on life support.


We realize that there is so much information out there, and as such we attempted to keep this update brief and concise. Looking back on 2019, we spent a great deal of time as a firm re-balancing our clients’ positions into bonds and private equity, providing a superb ballast inside a portfolio during times like this. Even before Covid-19, which has been an extraordinary and unprecedented medical event, it was obvious many investors were too heavily weighted in equities. Bull markets breed confidence, and after 12 years of price escalation, investors who were approaching retirement or in retirement were over-weighted in risk assets and, quite frankly, holding aggressive positions that today have experienced considerable downward corrections. For these investors looking at their statements at the end of this month will be enlightening. Many of you have contacted us to help family members, friends or neighbors that continue to be improperly positioned in terms of risk weighting and asset allocation and may need judicious and prescient analysis and advice. At Copper River, our extensive expertise in the financial arena is unique; we have significant insight into the markets, the highs and, of course, the lows. This invaluable experience allows to capitalize on the bull market while mitigating losses for the bear. We are happy to help anyone who has concerns so please use us as a free source of assistance to those in need. Stay safe and help one another.

Market and Virus Update

Confirmed cases of COVID-19

Confirmed cases of COVID-19In the last 7 trading days the equity markets (S&P 500) has fallen -10%. In terms of a market movement in a specified time period this is the largest since 2008. In market technical terms a 10% drop constitutes a “market correction”. What the market is experiencing called a “Black Swan” event which is defined as a shock to the markets based on an unforeseen event that would be considered rare. The good news is this 12% market correction comes off all time market highs set in mid February. Let’s put these last few sentences in context to overall market returns. The S&P 500 is up +5.19% in the past 6 months and +8.57% on 1 year basis despite the down movements over the past 6 days. We have been busy fielding calls and emails on whats next for the equity markets and what should be done as it relates to investing. Lets break this down a bit.

Coronavirus ( Covid-19)– This is the event that has spooked the markets globally. Very few market indices, countries, sectors and individual equities have not seen price depreciation. Of exception is the bond market, which has rallied on an increased demand for the safe haven asset class. As a firm that specializes in bonds the asset class has performed, as it has for the last 100 plus years, which is predictable even during times of stress. The chart below caught our attention, and while we have no idea on the medical aspects of this event we can say with certainty that markets will be impacted if coronavirus cases continue to spike. This is something that will need to be watched as a correlation has been drawn between cases spreading and market pressure to the downside.

What could happen to my investments if the Virus spreads? The virus in only 6 trading days has caused some of the largest U.S companies to already guide their earnings lower for Q1 and Q2. Examples of this in the past few days have been Visa, Disney, Apple and Alcoa. Continued and real coronavirus disruption would eventually reflect in the financials of the U.S fortune 500 companies, as well as those in the Russell 2000 etc. Impact to these companies current and forward earnings would be a drag on a companies subsequent equity prices. In the U.S we are already seeing heavy pressure on travel related companies and the transport sector. If the virus spreads rapidly in the U.S we will see financial impacts throughout the economy as the U.S consumer pulls back from spending. Consumer spending in the U.S comprises of 70% of U.S GDP.

What can we do to protect our investments?  Every client portfolio we manage is customized based on clients age, risk tolerance and goals. So we can not just say these 3 or 4  steps need to be taken to find safety.  Portfolio management and managing the risk in and around it focuses directly back to your asset allocation. Re-balancing to appropriate percentages of equities, bonds, cash and (private equity) is the key to long term growth and effectively managing risk. The obvious moves of shifting into a higher percentage of bonds, cash as well as certain private equity offerings can offer protection and will naturally be part of any conversation. As a client of the firm you are already aware we have deep experience and use of bonds and private equity in our portfolios with readily access to these two important asset classes. We will be setting up client meetings in our office, and calls with each investor over the next week to discuss your current holdings and appropriate asset allocation going forward into the rest of 2020.

In conclusion, we are watching markets closely and your positions even closer. As events unfold we look forward to having individual conversations as related to your investments and making adjustments that are warranted.  Please feel free to reach out with any questions and we look forward to continued work ahead.

Jim Etten
Copper River Advisors

3rd Quarter 2019 Newsletter

Welcome Back, Readers

We apologize for the delay since our last posting as it was a busy summer. As we head into the final quarter of 2019, we want to update you on some the global macro events driving the markets, discuss what’s been propelling the bond market to new highs and highlight a few other firm developments that should of interest for our readers.

Global Outlook

CEOs, central bankers and money managers say they’re operating in a world where they have no idea what’s coming next, leaving them with few options but to prepare for the worst. Uncertainty about a handful of unprecedented events exist to include the grinding trade war with China, the never-ending Brexit and oval office tweeting is causing gyrations to the global markets.

Corporate America is raking in eye-popping revenues, but is in a decision-making tailspin about capital deployment.

  • Uncertainty is now showing up in hard data: The lack of corporate dollars being spent on factories, software or new equipment Everyone is stymied over how to make financial or investment plans, because the rules keep changing by the day.
  • Businesses don’t know what to do about their operations in China, how to price their products or source their materials. And they don’t know how consumers will react to higher prices during the holiday season.

Main Street is grappling with a lot of questions, too, mostly about how to absorb the impact of tariffs. Nobody knows what to do with their money in an environment where the stock market is a roller coaster, generally doing well, but subject to wild swings.

On a positive side the U.S consumer leads the way with strong spending. Retail sales expanded in August and the U.S unemployment rate fell to a 50-year low in September to 3.5%. The U.S consumer accounts for 70% of the U.S economy and despite the headwinds the consumer has stayed strong and remained confident.

The bottom line is the trade war, Brexit and impeachment, fights that were supposed to pass by have gotten even messier and uglier in recent weeks. Even with the U.S consumer supporting the weight of what’s really working in the global economy it may not be enough to hold a stable outlook for the remainder of the year and or move the 4th quarter equity market into higher territory.

Behind the Numbers: 2019’s Deceptive Market Performance

S&P 500 Performance (YTD) is at +19% which is well ahead of the historical average of just around 10% annually. That said, many investors have simply forgotten how December of 2018 ended, with the market falling 15% in a brief 3-week period on China slowdown fears.

S&P 500 Performance (1 Year) is at +2% so yes, we are basically right back where we were a year ago October 2018.

Bond Performance has been nothing less than spectacular with nearly all fixed income assets rising nearly lockstep in price appreciation. AGG or Barclays Aggregate Bond Index (bellwether Index for Bonds) has turned in (1 Year) total performance at +12%, well above historical average of 3% to 4%. We continue that discussions below in greater detail.

Bond Market Update

As a firm we specialize in fixed income (Bonds) for both individual investors and also corporations seeking advice on their core and operating cash positions. Interest rate policy and market pricing are closely tied to our portfolio outlook and ultimately our clients asset allocation breakdown and their individual holdings. We continue to differentiate ourselves by building individual bond ladders for our investors opposed to using commingled funds and or other structured products.

Globally interest rates have been falling, with over 30 central banks around the world cutting rates in hopes of kick starting their economies amid trade issues and slowing growth. The last time so many of the world’s major economies cut interest rates in unison was during the financial crisis. Many analysts say the moves could help to stave off a painful downturn. But there is a danger: This could also tip off a monetary policy race to the bottom.

While interest rates in the U.S remain attractive on the front end of the curve we will continue to adjust our positions in terms of credit and duration as we go through this active period of Federal Reserve adjustment of policy and rates.

Copper River Update

A special thanks to BlackRock (the world’s largest investment manager ) and their RIA team ( Tom Viola and Brian McCoy) as well as the bond desk (Ryan Connors) for their partnership with the firm in terms of sourcing individual bonds as well as the use of the Aladdin Platform for running sophisticated individual portfolio analytics and risk management metrics.

The firm has to also mention Agincourt Investment Management and specifically portfolio manager Scott Marshall for their fixed income partnership with some of our our high net worth investors and corporations. We are excited to continue to work with Agincourt and leverage their decades of expertise in all areas of the bond market.
Agincourt Capital Management

Free Trades (Charles Schwab)
Charles Schwab recent dropped its trading fees from $4.99 to Zero. While this is not earth-shattering in terms of adding performance by saving a few bucks on costs it does signify the fee compression going on in the industry. In addition, it also represents a cost saving for our clients as Charles Schwab is the firms main custodian.
Charles Schwab: Free Trades

New Office
Copper River will be moving into its new office space in late November or early December depending on the construction timeline. We will be moving from our current location at 385 Inverness Parkway to the identical building next door at 383 Inverness Parkway. The new space will double the size of our current footprint and allow for continued expansion.

Copper River Advisors
Copper River Advisors is an independent Registered Investment Advisory Firm (RIA). The firm provides institutional portfolio management and investment consulting services to Fortune 500 companies, as well as custom portfolio construction for select individual investors and their families.

1st Quarter 2019 Newsletter

Hope everyone is off to a great start in 2019!

2018 was a bumpy year in the markets. Things really fizzled in late December, which brought a real downdraft moving the markets close to the -20% bear market threshold. This “winter chill” developed on what many considered to be very little compelling economic news or data and the sell-off was arguably exacerbated by tax loss harvesting and low volume.

While these events were hard to watch they also presented a great opportunity for investors to buy key stock indices, targeted equity sectors, and geographic sectors at attractive prices. During this downturn we were opportunistically stepping up our positions in key industry and geographical sectors across all of our clients’ portfolios. We will always use cash to take advantage of large pricing swings in the markets.

Warren Buffett, with his 75 years of investing wisdom has often stated, “Be fearful when others are greedy and greedy when others are fearful.” This statement relates directly to market pricing; when others are greedy, prices typically are higher than they should be. When others are fearful, a good value buying opportunity should be at hand. I am sure Warren and Berkshire Hathaway were buying shares across the board late in December 2018.

Toward the end of 2018 and during the first quarter of 2019 we saw some incredible swings when it comes to the numbers.

Dark December Days

From a September 20, 2018 all-time closing high of 2931, the S&P 500 dropped 19.8% to close at 2351 on Christmas Eve 2018. We are aware of this as we were in the office, and yes, things were grim. As mentioned, the markets in fourth quarter 2018 fell just shy of reaching the -20% threshold that would have made it the 11th bear market for the index since 1946. There have been 10 bear markets for the S&P 500 since 1946. It has taken 26 months on average for the S&P 500 to bounce back from the low point in the previous 10 bear markets and achieve a new closing high.

Comparing 1st Quarter 2019 to 4th Quarter 2018

During the first quarter of 2019 the S&P 500 gained +13% (total return). It would be the best first quarter performance for the stock index since 2012 when the S&P 500 gained +12%. The 2019 performance was only the 5th first quarter in the last 30 years to produce at least a +10% gain. As we are already well under way in April the markets are steadily climbing upwards on the expectations of a trade deal with China, a Fed pause in its tightening cycle, and the Trump Administration not being indicted in the Mueller report.

Bonds – Let’s Talk Rates & Yield Curve (something besides equities, please)

While the equity market has been on a roller coaster over the past 4 quarters, the fundamental credit quality of the average high-grade corporate bond has been very solid. Interest coverage, the ability of a bond issuer to pay interest and principal, continues to be strong, and defaults remain extremely low. Given our background and our clients’ needs, we are a firm that is heavily fixed-income focused. With interest rates finally pushing fixed income yields to an attractive level, we are seeing strong applicability and interest in our individual corporate bond ladders for clients.

The bond market has come a long way in past few years in terms of being accessible to the individual investor in regards to issuance and transparent pricing. Our buy-and-hold strategy of laddered high-grade individual issuers is an efficient way to build a resilient asset class inside a portfolio and achieve a steady, reliable stream of interest income.

What’s this All Mean For My Portfolio?

The end of 2018 reminded us very much of the beginning of 2016 when the market had a violent selloff on no real macro-economic changes. In 2016 we used that opportunity to deploy cash and that has played out well over the past 36 months as prices across most asset classes have had excellent performance and appreciation. While we do see clouds building on the horizon, we like to refer to the old saying that “economists have predicted 17 of the past five recessions.” While the U.S is not in an accelerated growth mode it is, none-the-less, not in recession.

Here are some eye-opening historical facts:

Since 1919 the stock market (S&P 500) has returned just over 10% on an average annual basis.

The Barclays Aggregate Bond Index (AGG) Total Returns:

+ 4.03% over 1 year

+ 1.64% over 3 years

+ 2.42% over 5 years

+ 3.52% over 10 years

+ 3.52% over 15 years

The point being fixed income returns on the the whole have been steady and consistent over past two decades.

Below is a nice snapshot of the largest key market indexes fared over the past decade.

In Conclusion

Until the macro data turns considerably worse we will stay vigilant and use market downturns to put money to work at cheaper pricing. We are not a hedge fund or quant shop trading in and out of positions on daily pricing and market discrepancies, but an independent investment advisor firm with a long-term horizon for each investor as well as each of their underlying holdings.

Historical analysis from many of the world’s best economists and investors like Warren Buffett has shown this investment approach to be the most effective for individual investors. Investors need to remember this is a marathon not a sprint, and the patient will be rewarded with meeting their goals. We thank you if you have read the newsletter to the end (great job) and we look forward to any feedback or questions you may have.

We wish everyone a happy and healthy Easter holiday!

-Team Copper River

4th Quarter 2018 Newsletter

Volatility Returns

-Jim Etten

In October and the first half of November we have seen volatility return to the equity markets. Consider this, in 2017 the equity markets did not have a move of 2% or more in a single day. In October 2018 alone we saw 10 trading days that had a move of 2% or more and a result was the equity markets recorded their worst month since 2011. We cover this in much greater detail below, but what the equity markets are telling us is that while the U.S. economy is still in excellent shape investors need to take caution due to some strong headwinds that are picking up.

On the positive side:

Jobs: Companies added jobs for the 97th-straight month, and the economy has now grown for 112 months in a row. The U.S. is on track to match the longest economic expansion in history. The previous streak was 120 months, which ended in 2008. For the second-straight month, U.S. unemployment is at 3.7%, the lowest in 49 years and wages are up 3.1% year-to-year, this is the highest rate since 2009.

U.S GDP: The U.S. economy grew at a strong 3.5% annual growth rate in the third quarter. Growth dipped from the second quarter’s 4.2% rate, but the economy still posted its best back-to-back quarters in four years. This is partially due to free spending by consumers and the federal government. On an annual basis, this growth rate would meet or exceed the Trump administration’s 3% annual growth target.

On the side of concern:

The economy is cooling: Next year, GDP growth is projected to steadily shrink as the effect of the tax cut wears off. Meanwhile, the Commerce Department said the U.S. is exporting less for the fourth-straight month and the trade deficit with China rose again to a record $40.2 billion.

Strong U.S dollar: The greenback is up nearly 4.5% so far in 2018 against other major global currencies, including the euro, yen, and pound. A strong dollar is a sign of a strong economy. But, it also comes with potential consequences.The stronger dollar is a problem for many large American companies because it reduces the value of their international sales and profits.

In light of a great economy that has some very forward-looking concerns the forecasts for year end and 2019 are all over the map. This can be stated without a doubt, the record bull market will come to an end at some point mainly on the back of weak global growth, rising U.S interest rates and a slowing U.S economy.
That said, with interest rates higher the “once left for dead” bond market now offers investors downside protection while producing a steady return for those seeking shelter and predictable interest income.

Investor Guidelines for the Current Equity Markets

-Scott Fox

During the summer of 2018, global equity markets were on a steady and seemingly never-ending rise. As stock prices rose in September, many analysts warned that U.S. stocks could experience violent swings through the fall of 2018. We mentioned in our August newsletter that we expected volatility to return in September and October. As it turns out, in September the equity markets were firm and saw price increases in the majority of sectors. October has a different story and the market spent much of the month lurching wildly. The S&P 500 rose or fell in excess of 1% in 10 days in a 16-day stretch. This was quite a change after a 74-day run with no moves of this magnitude. The drivers were generally seen as rising interest rates, the prospect of slower global economic growth, global trade talks and tariffs, along with uncertainty about the November midterm elections.

The S&P 500 ended October down 6.9%, which was the worst month in over seven years. Following a month like October the obvious question is, now what? Some market participants worry that the slump isn’t over but in speaking with institutional investors and traders we have found that the majority believe stock will bounce back through the end of the year. We tend to agree, and we have stuck to the strategy we mentioned in the August newsletter that volatility can create opportunity to buy quality sectors “on-sale.” We are firm believers that the October pullback created opportunities for long-term investors to invest in quality positions at lower prices. We are focused primarily on U.S. companies and U.S sectors that have an innovation advantage, year-over-year strong revenue growth, and manageable debt loads.

As we proceed through the end of the fourth quarter, we intend to stick to the four very important guiding principles below.

  1. Volatility is always inherent: Volatility will come and go. That is a given, and long-term investors should not let daily swings drive them crazy.
  2. Timing the market doesn’t work: If you attempt to sell when you think the market is overheated and buy back in when you think it is at a low, you will statistically get it wrong more than get it right.
  3. Add cash to the market over intervals of time: Every Copper River client has heard us talk about dollar-cost averaging, building positions slowly over time. This approach smooths out you purchase price of positions and has the effect of reducing timing risk.
  4. Be well diversified to reduce overall risk. Diversification means you have a mix of stocks, bonds, and cash equivalents to reduce general market risk. In the equity markets, we use sector rotation to keep portfolios diversified and protect against large movements in individual sectors or geographic regions.

S&P 500

S&P 500

Fed, Rising Rates and Bonds

-Scott Fox

It is impossible to watch or read the financial news without hearing the constant talk about rising rates. The Fed has been pushing the funds rate up by 25 basis points every quarter for nearly two years now, and the FOMC, firm in it’s belief that the U.S. economy is strong and resilient, said it wants to keep that “normalization” schedule essentially unchanged throughout 2019. That would put the funds rate in the neighborhood of 3%-3.25% in the next 12 months.

The market is pricing in three 25 basis point increases by the Fed in 2019 but the odds of three increases have dropped significantly in the last couple of days. Recent comments by Federal Reserve Chair, Jerome Powell, have indicated that the Fed is now paying more attention to the equity markets and the recent volatility. With this new “fed speak” we feel confident in our previous view that the Fed will pause sooner rather than later. Only time will tell, as the Fed can be very hard to predict.

Given the yield curve in relation to our fixed income holdings we will continue to keep portfolio duration relatively short and credit quality at investment grade.We do not see this approach changing in 2019. We will continue to focus on building individual bond ladders that offer investors an attractive annual yield with a short-term duration strategy in high quality issuers.

Year End Portfolio Planning

-Bob Brown

As we come into year end it is an important step for us to utilize tax loss harvesting and to work closely with our investors and their tax accountants and CPA’s. Tax loss harvesting is the practice of selling a security that has experienced a loss. By realizing, or “harvesting” a loss investors are able to offset taxes on both gains and income. The sold security is replaced by a similar one, maintaining an optimal asset allocation and expected returns.

In addition to portfolio management “tax loss harvesting” it is also important for us to work with our clients at year end to prepare for 2019 asset allocation adjustments. We are in the final steps of setting our models, their weightings and individual positions for next year. These are not dramatic changes, but their are changes as what worked in 2018 will change in 2019. We look forward to working with our clients on these final two steps as we come into year end.

We wish everyone a happy and healthy Thanksgiving holiday!

-Team Copper River

Late Summer 2018 Newsletter

2018 Late Summer Market Commentary

-Jim Etten

How time flies! The third quarter of 2018 is underway, summer is headed to fall and school is starting in many parts of the county. It has been an interesting summer in the stock and bond markets with several different factors trying to pull the markets in opposite directions.

On the bullish side, we continue to see a backdrop of strong corporate earnings and steady growth in the U.S. On the bearish side, we have rising short end U.S. rates, the possibility of a global trade war, increased concerns regarding European fragmentation and currency and debt issues in Turkey. All of these issues create uncertainty in the markets and inside the minds of investors, which will almost always create a drag on global equity market returns.

Summer is traditionally a period of a low volume in the number of shares traded. We expect September and October will bring the return of market volatility as institutional portfolio managers and traders return to work after the August break. While volatility creates uncertainty in an investor’s psyche it also represents a great time for advisors and investors to buy quality holdings at cheaper prices.

Sector Watch

-Scott Fox

At Copper River Advisors we scaled back our global equitie exposure in nearly every portfolio over the past 6 months. In 2018 Emerging Markets are down 6% year to date and developed markets outside the U.S are in negative territory as well.

In general, we still believe that diversified exposure to U.S. equities in the next two quarters will bode well for investors. Our sector rotation strategy has proven effective during 2018. Our preferred sectors continue to remain as strong anchor positions and include North America Technology, Aerospace and Defense, Small Caps (Russell 2000) and Basic Materials.

With the possibility of an expanding U.S and global slowdown on the horizon we will be considering an overweight to health care, REITs and possibly utilities (which has been a lagging sector over the past few years). As a firm, we have been buyers of the “FANG” sector (Facebook, Amazon, Netflix and Google) for past 2 years, but as small percentage positions for clients with a more aggressive profile. Below we will take a deeper dive into the “FANG” stocks as they can present a tremendous opportunity but one not without a very high degree of risk.

Bond Market Commentary

-Scott Fox

The primary narrative in the U.S bond market continues to be the drumbeat that higher rates “are coming.” Short term rates have risen drastically on the heels of Fed tightening. Short term U.S. credit yields are above 3% for the first time in years, which has attracted both cash-like assets and assets from the equity markets that are looking for a modest return and a lower risk profile. Credit yield is the yield an investor can earn in a corporate, mortgage or other type of bond with a risk profile greater than the U.S Treasury. Essentially, this is the yield of the U.S. Treasury plus the premium needed to attract an investor to a bond with additional risk.

We believe the Fed is walking a tightrope. They have raised short term rates 7 times since this cycle began, but we think they are close to being stuck in a tight place that may limit their maneuverability. The Fed needs to continue “normalizing” monetary policy by continuing with the rate increases, but they also fear that too many increases will put downward pressure on continued U.S economic expansion. We continue to feel that there is modest chance of an inverted yield curve within 18 months, which typically signals a slowdown or recession. We’ll be watching the curve closely. Here are where Yields stand now.

U.S. Treasury Yields on August 15th

Fed Funds Target: 2.00%
2 Year Treasury: 2.62%
5 Year Treasury: 2.74%
10 Year Treasury: 2.87%
30 Year Treasury:3.04%

This yield curve scenario makes our decision regarding our desired fixed income maturities and duration an easy one. We like the 2-4 year window as we are not getting paid to take additional risk by extending out the curve. Longer bonds are more sensitive to rate increases and right now the yield difference between 2yr and 30yr US Treasuries is 42 basis points. Simply put, would you take 42 basis points and increased risk to lend the government money for an additional 28 years? Of course you wouldn’t and we won’t either, so for now, you’ll notice shorter duration holdings across our bond portfolios.

We also continue to avoid large exposures to the high yield sector. We have seen liquidity in lower credit quality bonds decrease over the past few weeks and that gives us pause when considering the high yielding, riskier areas of the bond markets. We have been investing in bank loan portfolios, which usually offer a higher yield than investment grade corporate bonds. We like this space but continue to watch the positions closely for any signs of weakness in credit quality or spread widening.


-Bob Brown

If you follow the financial media or tend to turn on CNBC during the day, you have most certainly noticed the publicity regarding the term “FANG Stocks.” So, what are the FANG Stocks? FANG is the acronym for four high-performing technology stocks to include Facebook, Amazon, Netflix and Google (now Alphabet, Inc.).

In the group of FANG stocks, we have been buyers of Amazon and Google/Alphabet over the past few years. We did not buy Netflix during its spectacular run up over the past few years. While we like the business model of Netflix, it is against our ethos to buy a stock at such a high P/E ratio.

Our team took a close look at adding a position in Facebook when their data privacy issues came to light in the Spring. The privacy issues gave us pause, and despite a large price depreciation we stayed away. After watching the price action over the past few weeks we are very glad we continued to stay away from the stock. On Thursday, July 26th, Facebook had the single worst day in the history of the stock market. The company lost $120 billion in market cap as its stock fell about 20%. This drop was caused by lower than expected user growth and reduced guidance for future growth. We weren’t surprised to see a Facebook downturn, but a 20% move down is greater than we would have expected in this market. Volatility such as seen in Facebook is almost always a warning sign for trouble ahead.

The companies that comprise FANG are some of the best growth stories that the market has ever seen and they are truly disruptive companies. That said the stocks need careful and continuous evaluation when considering opportunities for investment.

New Institutional Mandate

Copper River advises and manages both high net worth and institutional portfolios. The firm is pleased to announce that it has won a mandate for investment management for a large power and utility company in Texas. The mandate covers consultation and daily portfolio management for a $100 million dollar fixed income portfolio.

Copper River was able to use its collective 60 years of institutional fixed income experience to beat out some of the largest banks and advisory firms to win the client. We will be working alongside Agincourt Capital Management (Agincort Capital Management) out of Richmond, Virginia in providing comprehensive portfolio management, reporting, and client servicing for this large institutional client.

In conclusion, we thank you if you read this entire newsletter and we thank you for your business if you are a client of the firm.

Please feel free to reach out to us at anytime with questions or concerns.

-Team Copper River Advisors