**Monthly Newsletter – End of 1st Quarter 2017**

Copper River Advisors
2017 Q1 Market Commentary
-Dave Falicia

Since the New Year we have adjusted our client portfolios to take advantage of opportunities associated with the new political environment, as well as the shift in FOMC policy leading to a more normalized rate environment.

As a whole, the economy continues on track to recovery and expansion. Inflation remains in check, employment reports are consistently promising, as well as housing and GDP. Although we feel that they could have moved much sooner, the Federal Reserve finally started raising interest rates in order to ensure that the economic recovery is sustainable. With this in mind, we have pared a number of interest rate sensitive holdings and sectors as well as repositioned various holdings to take advantage of the Fed’s deliberate, incremental tightening pace.

We continue to monitor the market rally that has run since the election and are constantly evaluating how to best position the portfolios based on each client’s risk tolerance. Cracks in the equity rally have begun to show, as a number of the Republican agenda items have struggled to move quickly through congress. We do believe that these setbacks in the markets will continue to be minor, as the real driver of market growth has been the underlying economic growth and expansion.

With the Fed poised to raise rates, and the US markets now looking more towards economic results versus political results, we continue our emphasis on income investments that underweight interest rate sensitivity, core equity investments that help diversify risk-weighted returns, and various sector investments that take advantage of market opportunities.

Sector Investing and the Economy
-Bob Brown

Those who focus on traditional stock selection and style factors often overlook one of the most useful tools for generating outperformance: sector allocation and rotation.

Companies are grouped within sectors and companies within a given sector have similar fundamental outcomes. Corporations in different sectors will usually have differing fundamental outcomes for a given economic environment. These divergent outcomes contribute to divergent equity sector performance, and create the opportunity for generating excess return through proper sector allocation. The chart below gives a basic view how some of the major market sectors have performed in differing economic cycles.


Most investors, as well as advisors feel that economic growth is the key driver of market returns. That said, proper sector allocation as well as sector re-balancing should play a component in every investor’s portfolio.

Portfolio Re-Balancing. How important is it?
-Scott Fox

For many, it is counter-intuitive to sell investments that have been performing well and buy investments that have not. With respect to core holdings, historical data shows that portfolio re-balancing is extremely beneficial to an investor.

There have been many studies done on this subject, but we will use an example from the period 1977 to 2014, taking a basic portfolio that is 60% stocks and 40% bonds. Starting with $10,000 in 1977, and following two strategies – un-rebalanced and rebalanced – we can see the differences.

Over this span, the re-balanced portfolio grew to $204,000 versus $181,000 for the un-rebalanced. The un-rebalanced portfolio accumulated as much as 81% equities at one point – which would be a significant risk deviation from the original 60/40 allocation.

Additionally, over the same period, the re-balanced portfolio was actually 28% less volatile. Rebalancing ultimately helps reduce volatility while providing superior returns over long market cycles.

At Copper River, we use a disciplined approach to portfolio rebalancing. Paying close attention to our risk models, we regularly look for positions that may be over or under-weighted due to market movements, and re-evaluate those positions as they deviate.

Good article from Forbes; click here here to read.

Product Outlook
-Jim Etten

The most critical function an advisor performs for a client is the research and careful selection of the underlying holdings that comprise of a client’s portfolio. Given the vastness of the financial markets, as well as available products it’s easy to see why the investment selection process can seem like an overwhelming task. To give you an idea of the vastness of the markets and the products associated consider the following numbers below:

  • Equities (4,000+) Listed in U.S and actively traded
  • Fixed Income ( Bonds) – (30 Trillion in size) domestically with thousands of issuers
  • Mutual Funds – (9,200) in U.S
  • Alternative Funds and Hedge Funds – (10,000+)
  • ETF’s and Index Funds – (4,800) globally

Despite the vastness in the current product selection it is also important to understand that over the past decade there have been a number of product developments that have significantly simplified the selection process for the individual investor, as well as advisors.

The most significant developments have come out of the ETF space. ETF’s have allowed an investor to hold a low cost, liquid, diversified and tax efficient fund. Over the past decade the growth of the investment vehicle has been stunning, and is a reflection of the applicability for both institutional and individual investors alike.


While markets are constantly shifting and products evolving, it is extremely important for an advisory firm to take advantage of these developments as they can provide a substantial benefit to overall return inside an investor’s portfolio.

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