[x_custom_headline type=”center” level=”h2″ looks_like=”h3″ accent=”true”]Firm Update[/x_custom_headline]
For the month of October the markets experienced a substantial positive uptick. The key equity benchmark, the S&P 500, notched an impressive 10.82% gain since our September newsletter release. However, the move was on the heels of a late summer downturn. Year to date, the S&P 500 has now turned positive with a 1.52% return for 2015. Please see Dave’s market commentary below for a further view of where we expect the markets to head for the final few months of 2015.
As we go into the end of the year we want to thank all of our clients that have come onboard in 2015 at CRA. It has been a good year for the firm. As a boutique investment advisory firm focused on high net worth clients and institutional accounts, we look to remain focused on each and every client position held. As a firm, we will always keep the client/advisor ratio low to meet our investors’ ever changing needs.
[x_custom_headline type=”center” level=”h2″ looks_like=”h3″ accent=”true”]Market Commentary[/x_custom_headline]
Dave Falicia
Equity markets have essentially recovered from the volatility experienced over the summer. The bond market has been relatively unchanged. This points to the fact that despite all the fears that came to a head over this period, the US economy remains relatively stable, and global risks are not as dire as the markets had initially indicated. We feel that the chances for a recessionary relapse are minimal, and clients will continue to be rewarded by staying invested over the long term in sectors and industry groups with solid potential for growth.
While volatility in the markets is difficult for our clients to watch, it is also important for us to understand that pricing fluctuations present a tremendous opportunity to dollar cost average into positions at a cheaper cost basis. As we head toward the end of the year, with an inevitable rate hike at some juncture, we expect to see more volatility and plan to use it to our clients’ advantage.
On the topic of interest rates, we feel that the economy is healthy enough that the FOMC should bring rates to more normalized levels. We have actually felt this for some time. Unfortunately, the Fed appears to have been looking for reasons to hold rates at historically low levels. One feels like the markets have developed a dependency on this interest rate environment but at some point the markets will have to disengage from this artificial stimulus. Even when the Fed does raise rates, it will be at a tempered pace. We expect that the bond market should be able to easily absorb the rate increases with out substantial detrimental impact. The economy is recovering, yet not at a pace that would require aggressive moves by the Fed. Therefore we would be surprised to see rates higher than 1.5% by the end of 2016. We continue to seek investment options that position our clients well given current and expected market conditions.
Feel free to contact us if you want more insight into markets – dave.falicia@crawealth.com.
[x_custom_headline type=”center” level=”h2″ looks_like=”h3″ accent=”true”]Product Commentary[/x_custom_headline]
Jim Etten
At CRA we continue to focus on building individual custom portfolios based on a client’s age, risk level, as well as liquidity needs. For the past few years this has been especially difficult for those investors nearing or in retirement due to the low rate environment. However, with the firm’s strong background in fixed income (specifically Dave who previously managed a large bond fund at Oppenheimer) and the continued expansion of exceptional new fixed income products in the market, we have found a number of areas in which relative value and returns can be obtained. Here are a few of the areas in the fixed income market that we will continue to focus on in this historic low rate environment.
Unconstrained Bond Funds
Unconstrained Bond Funds take a flexible approach to capturing global opportunities and managing risk. They strive to actively mitigate downside risk, provide attractive risk-adjusted returns and preserve the diversification benefits of a traditional fixed income portfolio. By removing benchmark constraints, these funds can gain significant latitude to tap into credit, interest rate, volatility and currency opportunities across global sectors and regions. One that we like and continue to invest in is BSIIX from BlackRock, the world’s largest money manager.
Bank Loan Funds
These funds buy loans made by banks and are usually secured by senior debt. Banks will often make loans to corporations who need to raise capital without issuing bonds to the street. The loans in these funds are typically BB and below, but credit quality is mitigated by the fact that the typical fund will have hundreds of unique issuers (diversification) and strong active managers. Another positive feature of this investment is that the loans in the fund are almost always floating rate, insulating the investor from changes in interest rates.
One bank loan fund that we like and continue to utilize is OOSAX or Oppenheimer Senior Floating Rate Fund. The fund has almost 400 unique issuers, total assets of 15 billion dollars, and has a portfolio team that aggressively monitors the loans within the portfolio. This fund has a 30 day yield of 4.47%, with a relatively low expense ratio. While the fund normally comes with a sales charge (which we typically despise), it is actually no-load on the Schwab advisor platform making it an attractive holding for many of our clients.
One final note. Our goal for this newsletter is to keep it short in length and keep you informed on some of the ideas, products, knowledge and market experience that is the basis of the firm. Please provide any feedback you may have on this newsletter, and please feel free to contact us at any time.
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