Asset Management Letter Archive

3Q 2012 Asset Management Letter

October 19, 2012   ·   By   ·   Comments Off on 3Q 2012 Asset Management Letter   ·   Posted in Asset Management Letter Archive, News

Last quarter we wrote a missive with a more political flavor than normal. We apologize if our message may have been muddied with too much detail and iconic quotes. The overriding goal of that letter, and this one, is to celebrate individual ambition and entrepreneurial spirit in the face of obstacles. To clarify, our feeling is that even though the global economy is fragile, we can still find successful and profitable firms in spite of global government uncertainty. Figuratively, we think we can navigate these choppy waters for our clients.

Apparently, others feel the same way, as the large cap S&P 500 is up 16.31%[i] through September 30th.  Additionally, the small cap Russell 2000 is up 14.23%i and the international MSCI EAFE is up 10.08%i. Fixed income, even against fears of hyperinflation from “QE Infinity”, as some classify Bernanke’s latest round of quantitative easing, is up 3.99%i for the year per the Barclay’s Aggregate Bond Index.

Contrary to equity performances this year, though, crosscurrents still exist in this market. To act as if the ride has been uneventful this year would be naïve, in our opinion. The flood of liquidity via the central banks seems to have “raised all boats” but at what consequence? As little as two months ago there was serious discussion of global recession, “Euroquake” and high unemployment and then central banks promise more liquidity to a system already flush with 1.5 trillion in excess bank reserves and everything is calm. Or is it possible that assets are being inflated by artificial means and what happens when that same liquidity is removed?  The questions are numerous and complex. In the meantime, with hindsight as their counsel, some may look back with regret for not putting all of their money into the S&P 500 at the 665 level and heading to the beach.  Reality’s story is different, however, with many investors  instead purchasing fixed income and CD’s and afraid to take vacation.

We are rehashing the past here as part of a more important point referenced in a Barron’s magazine article “Broken Dow Theory; Dinged Ivies”. In this article, Barron’s, chronicles how the Ivy League endowments’ have trailed the S&P 500 over the past year. We certainly realize the fallacy in using one year of performance numbers since the endowments have trounced the market over the past five, ten and twenty years. However, we wanted to note that in a macro driven market swirling with volatility that the “smartest guys in the room” have trailed a passive index. The pinnacles of higher learning using the most sophisticated methods of investing have underperformed the S&P 500 over the past three years. Have they lost their touch?  Our argument is that these investments have instead mitigated downside risk and volatility in an unstable environment. They have evened out the ups and downs of the market but as of September 30th, 2012 they have not been rewarded with outperformance for this tactic.

We, of course, fall into this pattern as well, since we have felt compelled to protect our clients against riptides in this market. The upside has not been as much as the S&P 500, but we are more concerned with creating a long run trajectory that is upwards by minimizing turbulence. Significant dips are what cause clients to pull away from investments and never return. Given the wholesale printing of money by world governments currently, we feel inflation will affect real rates of return in the future and, consequently, we must stay invested for our clients.

Therefore, we continue to captain your investments with a conservative stewardship in mind. Duration on fixed income remains short to protect against inflation and minimize interest rate volatility. Flexible funds that protect against downside risk via hedging and asset allocation remain integral. Finally, top quartile long-only mutual funds that provide market-like performance in case the markets continues to surge higher and higher will also stay in portfolios.

As always, thanks for your trust as we pilot through the ebbs and flows on the horizon. We may encounter some unforeseen obstacles, but with strong resolve and innovation, we will weather the storm.  Please call with questions.

 

General Compliance Disclosures

 Statements made via this letter are the opinions of Creative Financial Group (“CFG”) and its advisors, and are not to be construed as guarantees, warranties or predictions of future events, portfolio allocations, portfolio results, investment returns, or other outcomes. None of the information contained is intended as a solicitation or offer to purchase or sell a specific security, mutual fund, bond, or any other investment. Readers should not assume that the considerations, suggestions, or recommendations will be profitable, suitable to their circumstances or that future investment and/or portfolio performance will be profitable or favorable. Past performance of indices, mutual funds, or actual portfolios does not guarantee future results. Future results may differ significantly from the past due to materially different economic and market conditions.

Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior to January 1, 2011, CFG was a separate registered investment adviser affiliate of SSI.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc, Synovus Trust Company, N.A., GLOBALT, Inc. and Creative Financial Group. The registered broker-dealer offering brokerage products for Synovus is Synovus Securities, Inc., member FINRA/SIPC. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank.

The U.S. Securities and Exchange Commission adopted new oversight rules designed to help and protect all investors. These rules generally reflect a reaction to the Madoff and custody scandals, but they do require that we, like all investment firms, adopt new policies and procedures related to verification of your accounts. As such, we request that you take time to compare your account balances and statements from NFS and to contact us if you do not receive those quarterly statements and/or that the values are materially different.”

 Cost basis reporting

If you buy and sell a security in a taxable account on or after the effective date, NFS will report cost basis for the sold security to you and the IRS on Form 1099-B. If you have a mix of covered and uncovered positions in the same security, NFS will report cost basis to you and the IRS for any covered position that is sold. NFS will apply the FIFO (First In, First Out) default method unless you inform us of a different method. Your cost basis method for all transactions must be final by settlement date. If you choose to change the default method, you can do so by notifying your Financial Consultant.



[i] The investment return and style information and comparisons employ a variety of popular indices, and the index contents and strategies are the property of their respective companies (e.g., Dow Jones, Standard & Poor’s, Morningstar, Barclay Capital, Russell, Morningstar). Although the data is believed to be reliable, CFG makes no warranty with respect to the contents, accuracy, completeness, timeliness, suitability, or reliability of the information, which is represented here for informational use only and should not be considered investment advice or recommendation. None of the indices can be invested directly, and the return figures for these various securities indices are reported without management fees, trading costs, or other expenses subtracted from the returns, and are shown on a total return basis that assumes reinvestment of applicable capital gains and dividends. Components of indices may change over time.  The S&P 500 index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities.  Small capitalization stocks are represented by the Russell 2000 Index. Mid Capitalization stocks are represented by the S&P Mid Cap 400 Index. Foreign stocks are represented by the MSCI EAFE Index and emerging markets are represented by the MSCI Emerging Markets Index.

 


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Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior to January 1, 2011, CFG was a separate registered investment adviser affiliate of SSI. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank. You can obtain more information about Synovus Securities, Inc. and its Registered Representatives by accessing BrokerCheck