Asset Management Letter

Q3 2017 Asset Management Letter

October 16, 2017   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

Stormy Weather

Perhaps William Faulkner described hurricanes best when he said it was like “looking down upon a world turned to furious motion and incredible retrograde”. This hurricane season has been remarkable for its level of devastation and tragedy. However, at the same time the response of everyday people put in extraordinary situations has been nothing short of heroic. Consider NFL player, J.J. Watt, setting out to raise $200,000 for hurricane Harvey victims and raising over 30 million dollars at last count. Think of the linemen from all across the country who worked tirelessly to restore power from both hurricane Irma and Harvey. Finally, the first responders in Puerto Rico, some from as far away as New York, who were still providing support weeks later after hurricane Maria hit. Truly, if you have ever met personnel headed towards a natural disaster, then you know how encouraging the human capacity to help their fellow man, woman and child can be.
We bring this setting to the foreground of this month’s quarterly letter for two reasons. One is to pause over what matters most, expressing sympathy for all that have been caught in harm’s way. Two is to draw a parallel to investing. We realize there is a little leap of faith on this subject, but bear with us on this one. We consider “value” investing to be similar to picking up the pieces and getting back to work with what you know. When others are lost in a depressed state, the “value” investor is rebuilding their construct brick-by-brick because they know their intrinsic value deep down inside.
Having this “value” perspective has typically led to outperformance over the long haul (at least dating back to 1977 vis-à-vis the Russell 3000 Value and Growth indices), but there have been shorter time frames when “growth” investing has done better. We lean towards the value tilt given its historical outperformance, but we do invest in growth names as well. For instance, our growth managers are up between 14 to 27% thru 09/30/2017. However, the purchases of items like biotech and healthcare that were beaten down at the end of 2016 and are now up 25.95% and 20.79%, respectively, are the type of “value” moves you will continue to see us make. Financials are a similar area you have seen us add to over the past 18 to 24 months that rewarded significantly in 2016, but slowed down a bit this year as the sector is only up 13.44% YTD. However, we are still very comfortable with the upside potential of our financial sector holdings. Finally, our international positions have also rewarded significantly as our names are up between 20 and 32% for the year.
Of course, with a market up 14.24% this year, it is becoming hard to find cheap sectors. There are specific stocks within sectors that look cheap, but picking those names require significant skill and is usually best done with an active manager. We, of course, use several of those managers and think they are poised to outperform in a market rally that is nearly eight years old and facing the threat of rising interest rates. We will continue to use passive strategies in markets that appear cheap, but with many of these opportunities disappearing you will see us recommending more active strategies until the market corrects significantly. This goes for fixed income, as well as equities.
We hope this quarterly inspires you to remain steadfast against any and all “furious motion” outside your door, both figurative and literal, and, of course, reminds you of your intrinsic value. The weather of the past several weeks and the violence in Las Vegas have heightened our need to encourage others. Investing oftentimes requires optimism in the face of adversity so we certainly understand the need for support. Of course, investing is not just in stocks and bonds. It is also in people. Therefore, we find great solace in the heroes from the hurricanes or something as simple as the blood donors from Las Vegas that stood in line for three or more hours. The parallel to “value” investing is not wasted on us and we hope it resonates with you as well. Please know we value you and your relationship greatly.
______________________________________________________________

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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

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.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. 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 and Synovus Trust. Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.
Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s). We request you contact us immediately if you do not receive these statements or if the values reflected 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.

Use of Indexes

iThe 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). 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. 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.

Q2 2017 Asset Management Letter

July 14, 2017   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

Brevity – The Soul of Wit

 

In the 1600’s Blaise Pascal said “I have made this letter longer because I have not had the time to make it shorter.” Of course, with our wits about us and the knowledge that many are enjoying vacations and not holed up reading a quarterly missive, we are going to do our best to make this brief. The market is up nearly double digits per the S&P 500i, 13.81% internationally (MSCI EAFEi), 4.99% in small cap (Russell 2000i), 16.61% in healthcare (Morningstar US Healthcarei), 14.07% in technology (Nasdaq Compositei), and down 13.59% in energy (Morningstar US Energy Cappedi). Growth has outperformed value this year by double digits, so the value sector that outperformed last year, has not looked as hot recently. The good news here is that our value and growth names have both outperformed their respective indices. Additionally, our international, tech and healthcare names have also lifted returns. Alas, we are not perfect as our energy exposure has been hurt this year, but the good news is, we gained nearly 30% in energy last year before this year’s dip. The financials that we added last year are up nearly 35% over the past twelve months, but are only up 6.12% this year. We still find this sector attractive as many financials are near book value with much improved balance sheets.

Of course, the real reason for the brevity of our letter is that we need to take care of administrative tasks that are on the horizon. We are moving to Overton Park on August 18th. We are a little sad about leaving our old location, as many of us have enjoyed being in roughly the same area for 20 plus years. On a lighter note, hopefully we can provide a convenient excuse to come see an Atlanta Braves game at the Battery, after a review of your investment portfolio. Please keep our move in mind around August 18th, as we have been assured the move will be seamless, but none of us have ever moved and not experienced a few hiccups in the process. In other words, if you call in on August 21st, please be patient with your friendly Creative Financial Group associate.

Additionally, we are rolling out a new financial planning tool, eMoney, which will display your entire financial portfolio – including loans, liquidity, investments and much more, all in one private portal. There are many benefits to this non-transactional portal that has a 256-bit socket layer encryption. eMoney will allow you to:

  • Aggregate your financial accounts including loans, mortgages, insurance, credit cards, 401(k)’s and more.
  • View, organize, and oversee your finances with precision and confidence from a single screen.
  • Benefit from robust cash flow tracking, budgeting, and educational tools.
  • Store, protect, and organize important documents securely in a digital vault.

If you are interested in setting up this portal, please contact us and we will send you a link to get the process started. The link is time sensitive and must be activated within seven days or it will deactivate; hence the reason we have not sent a mass mailing out to clients.

Keeping with the short but sweet motif, let’s wrap this up. Teaming up with you over the past twenty years has been our pleasure. We will be in the shadow of “America’s Team” in Cobb County next quarter, but we think our squad can hold its own against anyone. We look forward to many more years ahead with you in our new location.

P.S. With all due respect to Shakespeare, we are a little partial to Ray Bradbury’s quote “Digression is the soul of wit” but that is a digression for another letter.

 

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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

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.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. 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 and Synovus Trust.  Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s).  We request you contact us immediately if you do not receive these statements or if the values reflected 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.

Use of Indexes 

iThe 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). 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. 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.

Q1 2017 Asset Management Letter

April 13, 2017   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

Just Hiking Thru

One of our esteemed colleagues, Scott Mauldin, recently committed to complete the Appalachian Trail. Our romantic, adventuresome self describes this six month journey as a destination while our pragmatic, “Uber” passenger self wonders how do you know when you are lost. All jokes aside, we applaud repairing to the woods to live deliberately and suck the marrow out of life to paraphrase Henry David Thoreau. We also agree with Thoreau’s mentor Emerson who said “Do not go where the path may lead, go instead where there is no path and leave a trail.” These simple, naturalistic concepts are central tenets to the art and science of investing, in our opinion.

For instance, hiking across several states with only a backpack, clothing and a map takes a deep understanding of the fundamentals of outdoor recreation. If you wander off the beaten path, you can find some breathtaking vistas but you can also never be heard from again. Not unlike a value manager who determines the value of a stock using fundamental training and establishes a position where others fear to tread. Oftentimes, one reaps generous rewards in this way, but make too many bad picks and investors will take a different journey. Of course, knowing when to abandon a seemingly wayward path is the hard part. Sometimes the next great surprise is just around the corner.

Another area emphasized by Hike-thru backpackers that parallels investing is the hiker’s gear. The weight of a hiker’s gear is similar to the expense ratios on funds or exchange-traded funds (ETF’s). Backpackers and by extension, returns, are held down by extraneous weights. Cutting extra weight, while still retaining the essentials is a matter of deep significance for someone in the woods for six months. In fact, one of the first stops on the Appalachian Trail, Mountain Crossings, has an almost cult-like following when it comes to their “shakedowns”, where they streamline backpacks and indentify problem areas for hikers before they get too deep into the trail. This approach is similar to the focus we have had for years with low expense mutual funds and exchange-traded funds. In fact, you could say that “shaking” down portfolios is something we do every day.

Finally, hiking alone in the woods is by definition a solitary pursuit requiring patience. Choosing to overweight financials like many of our managers did last year, or energy in 2015/16 and healthcare/biotech in late 2016 can be a lonely feeling while you wait for an upturn. Purchasing an asset with less perceived downside risk and higher upside potential while awaiting a momentum change is the mantra of many “value” investors. When Benjamin Graham (Warren Buffet’s mentor) was asked by the Chairman of the Senate Committee on Banking and Currency in 1955 to characterize when and how the momentum change occurs Graham responded “that is one of the mysteries of our business… We know from experience that eventually the market catches up with value. It realizes it one way or another.” Peter Cundiff, another famed value manager, took this thought process a step further by stating “The most important attribute for success in value investing is patience, patience, and more patience. The majority of investors do not possess this characteristic.”

Keeping with the trail metaphor, a nice walk in the woods can turn ugly soon if conditions change. A sudden storm or a wild animal can wreak havoc on someone unprepared. With the price-to-sales ratio of the market at its second highest level in history and price-to-book ratio nearly 2 times the 2009 level, we are leery of “bears” lurking in the dark. Add other examples such as Tesla trading at a market capitalization higher than Ford, even though it delivered only 80,000 cars last year compared to 6.7 million by Ford, and we feel even more compelled to hew to the path carved by older hands that have traveled this trail many times. Several of our fundamentally driven managers are holding significant levels of cash, and we feel very certain they are doing this for a reason. Our strategy is to provide shelter during storms thereby recovering quicker than others. In financial terms, we call this minimizing downside risk.

In closing, please know that we support all who endeavor to carve their own path or march to the beat of a different drum. The wealth we create and maintain is hopefully a tool to help support or manifest destiny for generations to come. On that note, for those who wish to follow our dear friend, Scott Mauldin, on the Appalachian Trail, you can find him at http://www.trailjournals.com/entry.cfm?trailname=21046.

 

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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

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.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. 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 and Synovus Trust.  Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s).  We request you contact us immediately if you do not receive these statements or if the values reflected 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.

Use of Indexes

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). 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. 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.

4Q 2016 Asset Management Letter

February 10, 2017   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

“What a World! What a World!”

We start off the quarterly with the Wicked Witch of the West because sometimes laughter is the best medicine. It is only fitting that we laugh when we think about all the stern pundits and the remarkably poor calls they made last year: Brexit, Trump, Cubs, and four Federal Fund rate increases; to name a few. We bring this up as a reminder about how convincing the consensus can seem at the time and how significantly wrong they can be when the facts are in. Behavioral finance refers to this as “overconfidence” and points to it as a significant detriment to investor returns. This is the moment where we make our tried and true (yet somewhat boring) reference to prudence being the better part of valor when it comes to investing.

On that note, for the past few years the groundswell for “all index funds, all the time” has become a sight to behold. The movement borders on religious zealotry as if everything spoken from John Bogle’s mouth (Vanguard founder) about low cost index funds and investing in general is the gospel.   While we applaud cheap funds and have always used institutional, low expense funds with this in mind, we also caution that absolute certainty in investing is often similar to punditry in the media and can lead to false prophets (or profits, pun intended). We instead believe there are more instances of shades of gray, than black and white, when it comes to the investing world and note that Vanguard recently had an article entitled “Why we believe in active and passive—No ifs or buts” to support this point. To further refine our position, we have and always will encourage the use of index funds (passive investing) when asset classes are cheap, but rely more on active mutual funds when asset classes are fairly priced or a sector is historically inefficient (think niche areas like small cap, emerging markets, high yield, etc…).

For instance, we added energy to accounts via exchange-traded funds (a marketable security that trades like a stock but tracks an index) in 2015 and were rewarded significantly in 2016 with the sector being up 27.89%. Our addition to financial exchange-traded funds (aka ETF’s) in 2016 has also rewarded by being up 20.63% for the year. Of course, our addition to Biotech via ETF’s has not rewarded yet, but once again it is our belief that the time to buy an index or ETF is when the asset class is cheap, not when it is at an all-time high. That being said, Biotech was up 7.44% YTD through January 11th so maybe it is starting to turn.

On the active side, we were pleased with our fixed income fund performance. From the July 5th low with the 10 year Treasury Note at 1.37%, the iShares Barclays Aggregate Bond Index was down 3.03% through December 31st, whereas our actively managed bond funds were up 4.32% (JP Morgan Strategic Income Opportunities), 2.47% (Blackrock Strategic Income), 1.09% (John Hancock Strategic Income), 2.16% (Loomis Sayles), 2.11% (Fidelity Strategic Income), and 4.27% (Pimco Income).  We did have one fund, Doubleline Total Return, however, that was down over that period but it was only down 1.61%. Since it is a five star rated top quartile performer within its category over the three and five year time frame, we are not inclined to give up on Jeffrey Gundlach, the renowned manager of the fund. Keeping with the active theme, municipal bonds have sold off significantly since the election as the market has reacted to the talk of lowering income tax rates, thereby making municipal bonds prospective tax-free yields less attractive. We have seen these types of behaviors before in the municipal market and have typically been rewarded by snapping up attractively priced individual municipal bonds during these temporary market dislocations. Therefore, you may see us reduce positions in bond funds like Doubleline Total Return as we see individual opportunities in the municipal market. On that note, we are starting to hear market pundits talk about bargains in the municipal market so the pricing inefficiency may not last for much longer, but rest assured we are working on opportunities in the municipal arena.

On the equity side, we were also very pleased with many of our active managers versus the index this year as well. Many of them either beat their respective index or were in-line with far less risk, as most held more cash than the index or had portfolios with lower standard deviations and cheaper stocks in them. By way of example, American Century Equity Income was up 19.72% for the year versus its index at 14.81% and the S&P 500 at 11.96%. In a market that is at all-time highs, we applaud performance like American Century but more importantly we respect the fact that their 10 yr Beta is .66, Alpha is 1.86, Sharpe Ratio is 1.31. What do all of those Greek measures mean? It means that over a full market cycle when the market goes up and down, American Century Equity Income does better than the index because it goes down less than the market. Of course, when the market is eight years into a bull market and the average length is 4.3 yrs we are far more comfortable holding active managers rather than an index, in case Trump is not to able to deliver on his pro-business campaign promises or the Fed raises the Fed funds rates faster than the consensus expects.

Well another year is in the books and another quarterly letter has been wrapped up, so it is time to click our heels together and get back to the farm. Keeping with the Wizard of Oz motif, may your roads be golden, your cities covered in emeralds, and if you can’t get that, then at least have some laughs and reasons to smile. If you need any humorous subject matter, just turn on those same media pundits and wait for their next prediction (or punch line). In the meantime, we will sweat the details and try to keep the flying monkeys and wicked witches at bay. Please call with any 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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

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.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. 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 and Synovus Trust.  Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s).  We request you contact us immediately if you do not receive these statements or if the values reflected 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.

Use of Indexes

iThe 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). 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. 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.

 

3Q 2016 Asset Management Letter

October 10, 2016   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

Tailgating

The American Tailgaters Association (surprisingly, an actual group) cites the first tailgate as occurring in 1861 during the Battle of Bull Run. At this inaugural tailgate, “fans” packed baskets of food and watched the battle hoping to cheer on their side to victory. Spoiler: the gray team won that match, but the blue team won the title. Tailgating has evolved a great deal in the 155 years since.  Why do we bring this up? Because autumn is in the air: The smell of flame roasted beef, the roar of 90,000 college football fans and the touch of a cool breeze brings in one of the best seasons around… “Tailgating season”, a.k.a., fall.

If you have ever attended a tailgate, it is evident that not all tailgates are created equal. We mention this because setting up a good spot to grill out and entertain is sort of like “Fundamental Value” investing. Putting basics in place like lump charcoal, damp mesquite logs, and a 60 gallon smoker in contrast to showing up with chicken tenders, loud music, and cold beer parallels the contrast between fundamental investing and chasing trends. Call us old “fogeys”, but it is our belief that fundamentals win out over the long haul. When the rookie tailgater is running on fumes and cold chicken tenders, the grizzled veteran will be refreshing with a Bloody Mary from his Yeti Cooler and eating a warm rib.

Keeping with the metaphor, the fundamental investor struggles, however, to distance themselves from the trend chaser when money flows easily. Negative and zero interest rate policies artificially pump up the speculative investor fare and allow rookies to party longer than their normal cycle. A recent book called “Winning at Active Management” touches on this concept of how speculative fare perform best in easy monetary environments, which artificially inflate index returns. On that note, another report pointed out that correlation, since 1928 between the annual change in the ten year treasury rate and the S&P 500i’s total return is 0.02%. In layman’s terms, this means that interest rates rise and fall without any predictive value. Thus, interest rates and easy monetary policy take up way too much of the investment discussion in our opinion.  Fundamental investing is what matters most, not what some Federal Reserve Committee member said or didn’t say.

To that end we continue to look for value in the marketplace and not chase trends. Our investments in the energy sector via exchange trade funds have impacted returns in a very positive manner this year.  In addition, over the past twelve to fifteen months, bond funds like JP Morgan Strategic Income Opportunities have juiced their returns this year to the tune of 7.92% with a current yield of 4.28% and a duration of 1.77 years by selectively dipping into the energy sector. As we have alluded to before, adding biotech and financial exposure via an ETF is something we have started to execute this year. Financials seem to have negative sentiment attached to them because of the misdeeds of a few and the specter of flat interest rates. On a recent conference call, one of our managers indicated their baseline scenario on financial holdings was +28% over the next three years and their bull case scenario was 100% (hypothetical, of course). Conversely, we have been held back by a few of our pure international plays, but emerging markets exposure and the First Eagle Global fund have more than neutralized the other international holdings.

We, of course, realize this letter has probably gone into more detail about tailgating than many expected. However, we felt the analogy of tailgating veterans versus a “Noob” might strike a chord. If it doesn’t, because you have not experienced the splendor of a crisp autumn football game with friends, then please allow us to suggest the following venues (in no particular order): The Grove in Oxford, Mississippi, War Memorial in Little Rock, Arkansas, South Bend, Indiana, Athens, Georgia, and Auburn, Alabama to name a few of our favorites. Not to exclude professional football teams, there are some great tailgating experiences in Pittsburgh, PA and Green Bay, WI as well. Regardless, any time good friends gather together with a mutual goal of gratitude and celebration, we are fans. On that note, we will continue to celebrate and express gratitude to you, our clients and friends. Please call with any questions or names of tailgating spots that we unfortunately left off due to length constraints.

 

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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

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.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. 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 and Synovus Trust.  Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s).  We request you contact us immediately if you do not receive these statements or if the values reflected 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.

Use of Indexes 

iThe 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). 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. 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.

2Q 2016 Asset Management Letter

July 20, 2016   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

Independence Day

Not to be outdone by fireworks and parades on July 4th the United Kingdom celebrated its own Independence Day on June 23rd in the form of “Brexit”. In a colossal upset, the mainstream media and the “Establishment” leadership were dead wrong on their assumption that citizens would vote to remain a part of the European Union. This vote by the British people to decide their own national and economic sovereignty roiled the markets for two days after the vote and then turned back up. Of course, if the United Kingdom does withdraw from the European Union, the process may take as long as two years. In the meantime many pragmatists argue the European Union may become much more responsive to individual county requests which may be a near term positive. On the other hand, many other pundits have argued that “Brexit” is the domino that brings about the destruction of the European Union and with it all of the positive impact from globalization and free trade.

Call us idealists, but we are big believers in freedom and the ensuing benefits associated with it. The European Union and the idea of “freer” trade throughout Europe is a great concept but with that should also be the ability to control one’s own economy and, for better or worse, the United Kingdom decided it wanted more freedom. In theory, with the pound dropping 8% after “Brexit”, exporters in the United Kingdom just became more competitive from a price standpoint. Sure there may be some additional boundaries imposed by a threatened bureaucracy in Brussels. However, it is our opinion the flow of profits inherent to capitalism will not be dammed no matter the man-made structure.

To forecast is folly so we are careful not to predict the future of the European Union. However, we feel the volatility presented by “Brexit” could be a fantastic buying opportunity. On that note, we have been adding a global fund for clients. Please pardon the pun but we realize that investing in European companies is not only foreign but scary to some. Thus, we have chosen to add to the international market with a global fund that can buy international or domestic firms. Therefore, they are not forced to buy international companies at all costs.

The fund we have chosen to pursue this strategy is First Eagle Global. The fund is up 6.94% through 6.30.16 versus the S&P 500i being up 3.83%, International (MSCI EAFEi) down 4.42% and small cap (Russell 2000i) up 2.22%. We highlight First Eagle not just because their performance is good but more importantly because they exhibit a strong value discipline that leaves them with no exposure to European banks and with 18% in cash as of 06.30.16. In 2008 when international (MSCI EAFEi) was down 43.38 and the S&P 500 was down 37%, First Eagle Global was only down 20.87% because of this same discipline.

In addition, with current P/E ratios in the US market trading higher than their 15 year average in every sector except small cap value, we find it useful to consider pockets of the market trading at a discount. The primary sectors exhibiting these characteristics are international, financial, energy and healthcare/biotech. Many have experienced us nibbling at energy and international last year, but this year we have begun to also selectively add healthcare/biotech and financials. Biotech is down 29.05% in the past year and financials are down 5.96%. Biotech/healthcare is down due to a significant run the previous six years and a normal reversion to the mean along with the political dust up caused by a few bad actors in the sector. The free market system seems to have already removed the egregious parties but the negative atmosphere still remains. What we hear from our managers is that there is not enough political willpower to stymie the growth of Biotech/Healthcare. The financial sector is the other end of the spectrum in our mind. The bad news is so priced into banks that any increase in interest rates or growth in the economy would cause a sector trading below its book value (in the banks case) to skyrocket carrying the financial sector with it, in our opinion.

Thus, all the media headlines aside, we feel there are opportunities we can continue to exploit. In some of these areas we will use managers with a flexible investment mandate like First Eagle Global and for others, we will use exchange traded funds and index funds like Vanguard Financial ETF, iShares Nasdaq Biotechnology Index and Energy Select Sector SPDR. In beaten down sectors and efficient markets, we are fine with index funds and ETF’s, but in inefficient and pricey markets we will continue to make use of managers with strong track records, stable organizations and low expense ratios.

We started out this quarterly with a bit of a nationalistic flavor and in light of current events, we feel even more compelled to keep the theme going in spite of the dry investment commentary in between. Winston Churchill said “Democracy is the worst form of government, except for all others.” Institutions, like people, are imperfect and yet they can still be a positive force. Please take time this Independence “Month” to reflect upon the greatness that life, liberty and the pursuit of happiness has brought to the land of the free and the home of the brave. Thanks to the “Founding Fathers” who laid the framework to protect our freedom at great personal risk and the ones that presently serve to secure that same freedom. As always, please call with any 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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

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.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. 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 and Synovus Trust.  Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s).  We request you contact us immediately if you do not receive these statements or if the values reflected 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.

Use of Indexes 

iThe 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). 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. 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.

1Q 2016 Asset Management Letter

May 3, 2016   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News

March Madness (or From Chaos comes Order)

Every year March and April presents us one of the best sporting events around in college basketball’s “March Madness”. The skill level displayed by the athletes is only matched by the high drama of the “Cinderella” teams who upset the storied programs. Of course, we are partial to the high drama given our contrarian tendencies. This year was particularly riveting as a #15 seed blew up many individual’s brackets as Middle Tennessee State defeated the #2 seed Michigan State (a pick many had winning the entire contest). Certainly underdogs capture the collective imagination, however, not many make it to the Final Four (the last four teams left standing in “March Madness”). More often than not the Final Four is heavy on top seeds, not #15 seeds. The similarities to investing are not lost on us.

The ‘Momentum/Growth’ vs. ‘ Value’  style reminds us of the “March Madness” pattern. Trendy teams can put together a small run in the tournament, but typically the teams with strong fundamentals and a deep bench are the ones left that last to the final games. Think of a team like Syracuse who runs a traditional but somewhat stodgy zone defense that hardly anyone uses anymore and therefore draws very little glamour throughout the year. However, come tournament time Syracuse is known for its deep runs into the tournament (see Final Four this year). We can’t help but speculate that many of the most renowned value managers must be fans of Syracuse if they follow basketball.

Similarly, our style of investing, global diversification with a “value” tilt may be bucking the trend.  Oftentimes it takes awhile for value to turn the tide and outperform momentum and growth stocks, but when it does it can be very significant. Barron’s magazine wrote an article in March titled  “Will Value Beat Growth” alluding to this direction and it is a movement we certainly support. Further to the point, AMG funds wrote another article ”Will Growth, Large and Mega-cap Stocks Continue to Dominate” that highlighted some very interesting patterns that support our desire to remain overweighted in value stocks. In 1999, 90% of the top 20 stocks were growth stocks and they made up 24% of the S&P 500 returns while sporting an equal weighted Price-to-Earnings ratio of 83.7 (which is very expensive). In 2015, 95% of the top 20 stocks were growth stocks and made up 16% of the S&P 500 return. This same group had a P/E ratio almost equal to 1999 with a P/E ratio of 69. Keep in mind that value stocks significantly outperformed growth stocks from 2000 to 2006.

There is a saying that “an ounce of patience is worth a pound of brains”. For this reason, we are spending so much time on this value ‘concept’. It is our feeling that our global value strategy will reward but patience is required. Similar to Villanova, the NCAA March Madness victor, one must hone a strategy with discipline and patience in order to come out on top. Villanova lost to Oklahoma earlier this year by 23 points before their strategy was hitting on all cylinders, but in the Final Four they beat Oklahoma by 44 points. A nearly 300% improvement in results is not one we expect, but it is certainly a trend we would welcome in value stocks.

P.S – To those clients who do not follow basketball, we apologize. We do have a few resident Kentucky fans who are happy to fill in the blank spots, as they are the most fanatical basketball fans we have found in the South. The majority of our clients are just bidding their time until football season and hopefully you can forgive our excursion into “March Madness”. Of course, if any of you have any pull to get a January Madness started for college football we would welcome that as fodder for an end of the year commentary.

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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior toJanuary 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.

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.

Use of Indexes 

iThe 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,). 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. 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.

4Q 2015 Asset Management Letter

January 13, 2016   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

“Bargain Shopping”

Do you ever feel like you are running in quicksand? 2015 was a year that felt exactly like that as the S&P 500i ended up 1.38% for the year (or down for the year if you omit the dividend). However, between that final number resides quite a few negative story lines: energy down 22.69%, high yield bonds down 4.64%, emerging markets down 16.96% and small cap down 4.88%. In fact, if you remove the top 10 performing stocks from the S&P 500i (names such as “FANG” Facebook, Amazon, Netflix and Google), the returns get even worse. Keep in mind that names such as Facebook, Amazon, Netflix  and Google sport trailing P/E ratios of 1,103, 918, 285, and 33, respectively, versus the S&P 500 at 19.

All in all, 2015 was not a great year to be an investor. However, six years into a bull market rally with oil prices free falling and a flat year could be interpreted as pretty encouraging. Couple that with the fact we are coming into an election year (which is historically positive) and there are reasons to be optimistic.  Of course, at the same time, with a Federal Reserve raising interest rates, unstable oil prices, and the Chicago PMIi (Purchasing Managers Index) at 2009 levels, there can be just as many reasons for caution.

Regardless, we hold out hope 2016 is a better year for equities. Historically, a flat year is followed by a positive year. However, if you look at the horizon for investing ideas it doesn’t appear clear. Of course, if investing was easy there would be a class on it, tuition would be expensive, and there would be a lengthy waiting list for it. Keep in mind, though, some of the instructors for this hypothetical class such as Warren Buffett from Berkshire Hathaway (down 11.48% in 2015), David Einhorn from Greenlight Capital (down 20% in 2015), Mason Hawkins from Southeastern Asset Management (down 18.80 in 2015) had terrible years last year as value managers struggled. We mention this to keep perspective as many value managers who attempt to buy companies on the cheap have only seen their companies get cheaper. Whereas stocks that were expensive (such as the “FANG” stocks mentioned earlier) outperformed in 2015. This type of momentum investing is akin to playing musical chairs; when the music stops things can get ugly. In effect, value stocks have a margin of safety that growth stocks do not because they are purchased at a discount to intrinsic value but you could not tell that in 2015. (The concept of “margin of safety” is one first put forth in Graham and Dodd’s book “Security Analysis” and popularized by many value managers such at Warren Buffet and Seth Klarman.)

That being said, we have exposure to growth stocks and those investments helped our portfolio returns,  but it was not enough. In fact, most dividend related stocks, oftentimes considered more conservative because of their dividend, did not perform well in 2015 (Utilities and energy were both down significantly more than the S&P 500i). However, we feel much better being invested in high quality names six years into a rally with interest rate increases on the horizon. Strangely, the areas considered dangerous by many in the mainstream media are the ones that interest us currently as they appear cheap enough to provide limited downside risk. To many these areas sound esoteric but areas like emerging markets, high yield bonds, energy, master limited partnerships, and developed international appear cheap when compared to US markets in a six year rally. However, we realize that many clients are disinclined to invest in these types of names so we will be discussing these ideas individually with you.

In the meantime, we appreciate your patience this year as we know the markets have tried your tolerance as well as ours. Investing can be made complex by a myriad of different metrics but over the long haul it can be made far simpler… “Buy low and sell high.” We will continue to look for bargains we believe will pay off in the future. Please call with any 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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

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.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. 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 and Synovus Trust.  Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s).  We request you contact us immediately if you do not receive these statements or if the values reflected 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.

Use of Indexes 

iThe 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). 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. 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.

2Q 2015 Asset Management Letter

October 14, 2015   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

Summer Reading Lists

We may be showing our age but we can still remember summer reading lists that contained Homer’s “The Illiad” and “The Odyssey”. Tragic and epic Grecian behavior seems to have always been a fixture throughout literary history so it probably fits that debt drama resides there now. Sadly for many it seems the classic they should have focused on was Shakespeare’s “Hamlet” where we hear, “Neither a borrower, nor a lender be; For loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.” Alas, others are experiencing similar issues:  China’s ballooning margin loans, real estate and local government debt and Puerto Rican debt to GDP of 70% along with their recession since 2006, to name the ones garnering the greatest attention.

The Greek debt issue is not one that gives us great concern. Our feelings are similar to the ones we had for our summer reading list: tedium. We have talked about Eurozone debt issues at length in past missives and frankly think that an economy with a GDP comprising less than 2% of the Eurozone is not worth our bluster. In fact, a Greek exit has seemed a foregone conclusion in our mind since 2011 when the ECB and its corresponding banks began preparing for this event. Forgive the pun here, but in our opinion any grandiose salvation at this point is a false prophet. As alluded to earlier, we certainly get the concept of debt and contagion but with the liquidity available to the ECB and the commitment of Spain, Portugal and Italy to the restructuring programs, we feel Greece is not the Black Swan that takes down the stock market. However, when leverage is part of a system, multiplier effects can occur. A fragile and indebted system in China coupled with Puerto Rico and Greece can provide greater volatility than the market can process for short periods of time. We emphasize short periods of time here because our feeling is that all three of these issues are not big enough to create another 2008. In fact, since we have stayed away from Puerto Rican bonds, speculative Chinese stocks, and Greece throughout our history, it is our feeling that our fund managers will be able to pounce on opportunities in the next correction.

That being said, China’s spillover effects do concern us more than Greece and Puerto Rico. From its peak on June 12th to July 8th the Shanghai Stock Exchange fell more than 30%. In reaction to this authorities halted trading on over 1300 firms (45% of the market), suspended IPO’s and threatened to arrest sellers. Those who can see 2008 in their rear view mirror will remember our government banning short selling on financial shares and how ineffective that was. Of course, China’s government has greater power than most over its economic direction and seems highly driven to orchestrate positive economic numbers no matter the cyclical nature of the market.  As the saying goes, “The trend is your friend until it is not”.  With over 85% of the stock trades coming from individuals and only a third of those having a high school degree we can’t help but think this ends badly for most individuals. In addition, many of these individuals are buying on margin and this margin makes up 18% of the country’s total credit if the government statistics can be trusted. Thus, there is greater risk in our opinion via China than in Greece or Puerto Rico. Remember that China is the second largest economy now.

All of our dreary words aside, where there is risk, there is oftentimes greater opportunity. China is still up significantly for the year despite the 30%+ correction and should the government halt the downward momentum, then China’s potential reward may counterbalance all the risk. It is our feeling that with China’s pro-growth government, the Eurozone and Japan’s quantitative easing, and the Federal Reserve’s glacier-like movement on raising rates we are short-term cautionary but long term bullish on international holdings. Valuations are not as high in the international arena and dips are a buying opportunity, in our opinion. By contrast, we view many domestic stocks as fuller in valuation and therefore, may correct faster than our very conservative holdings. Consequently, our domestic holdings will not change much but you should look for us to continue to add to international holdings unless you tell us otherwise.

Summer reading jokes aside, we wish we could create epic quarterly letters for you. Too often, we call on our muse and instead get a wrong number. Speaking of numbers, you have ours, please call with any questions. We will be happy to talk about the market as well as literature. To paraphrase Homer, discourse is the sweeter banquet of the mind and we certainly welcome dialogue with our clients.

1Q 2015 Asset Management Letter

May 6, 2015   ·   By   ·   No Comments   ·   Posted in Asset Management Letter, News, Newsletters

 “After Midnight”

This quarter’s missive is a little departure from our normal writings in that it pulls a lot of information and charts from an outside source. Specifically we are highlighting a report from the Office of Financial Research called “Quicksilver Markets”, http://financialresearch.gov/briefs/files/OFRbr-2015-02-quicksilver-markets.pdf. We are focused on this report because we feel it makes a very objective argument for why we continue to position portfolios in a very conservative manner. Our cautious temperament causes us to worry when we begin to hear more and more calls to get more aggressive or buy index funds when the bull market is in month 72 and the average is 57 months. Of course, as this report highlights, P/E ratios are not alarmingly high so markets may continue higher.  More important to us, though, is the analysis of other metrics that are more robust than a simple P/E ratio that point to a possible overvaluation in the market which could then lead to disappointing results. For instance, CAPE ratio, Q-Ratio and Buffett indicator included in Charts 1, 2, and 3 indicate we are almost two standard deviations above the historical norm. Meanwhile the forward PE ratio indicates we are a little above the average (Chart 4) but nothing like 1999/2000. However, please note it did not signal risk in 2007 whereas the others such as the CAPE ratio and the Buffett indicator were starting to look a little dicey. Of course, valuation alone is not necessarily sufficient to trigger a downturn. In fact, none of the valuation metrics cited predict the timing of market inflection points as markets may remain over or undervalued for a long time.  However, one of the best indicators mentioned in this report is corporate earnings. Robust growth in earnings has been the primary driver behind stock market gains since 2009. However, at the same time sales growth has been modest. This higher trend in earnings is due to profit margins and corporate profitability being well above historical averages (Charts 5 and 6). Secular and cyclical trends such as productivity enhancement, higher margin sectors rising, low interest rates and low labor costs have helped significantly but if you believe in the capitalist model, then you realize that these factors must revert to the mean. Thus, the current market valuations may be elevated if record high margins are not sustained. Also noted on the report are other areas that can drive market correction such as asset bubbles and financial instability. These areas are more complex than valuation and earnings arguments and, therefore, are left alone by many market commentators. Suffice it to say that leverage is higher than it needs to be but financial industry regulation and institutional importance have been scrutinized since 2009 to the point they are not as precarious as similar historical periods. Of course, the interconnected and complex nature of asset bubbles, leverage, financial stability and other systemic issues makes this arena such a mixed bag that the sentiment can change in a millisecond. Of course, if valuations and earnings are overly optimistic, then marketplace swings can be extremely volatile and asymmetric with even a hint of financial instability. All of this aside, the market could certainly go higher. If our Federal Reserve slows the printing of money and the raising of rates at a measured rate, then we could power higher. Add to this all of the other central banks that have joined the party and decided to refresh the punch bowl with their versions of quantitative easing and this market could move even higher. We might even see four standard deviations above the market like we did in 1999 (although we doubt it). The concern, though, is how do we know when the party is about to end and when do we need to run for the door? It is sort of like when your Mom used to tell you that nothing good happens after midnight. The risk is high at this point and we need to be mindful of the downside. For instance, consider the U.S. market that has shot up 200%+ since March of 2009, while other markets have languished. Turn to the first quarter of 2015 the S&P is only up .95% for the first quarter while global equities are up far more significantly (MSCI EAFE US dollar denominated was up 4.88%). In addition, the hedge fund index was up 2.06%. This hedge fund index most closely resembles what we are trying to do with our flexible mandate funds to mitigate downside risk. We realize that the quarterly was lengthy this time around but given all of the reports that came out about index and U.S. equity returns last year, we felt it was important to spend a little more time digging into the details. The global index returned between two and four percent last year (depending on which one you use) and the S&P 500 was up 13.69%. Many of the managers we use underperformed the market capitalization weighted index last year as they see many of the same risks we see when viewing a rally 72 months long. The investment du jour right now is index funds because it is widely believed they beat active management in a bull market. While we take exception to this statement for many reasons as many of these reports use arbitrary time frames, or argue that a fund has to beat the index every year to achieve its goal; our main reason is behavioral. According to Rob Isbitts’ study last year¹, during the past two bear markets, the S&P 500 index beat only 34% and 38% of its active management competitors.  It has been our experience that when the market falls people do not hold onto their index funds and, therefore, never achieve index-like returns. We are focused on reducing downside risk so our clients stay invested and don’t chase returns to the detriment of their long term returns. The financial planning module we use focuses on a globally diversified portfolio to depict a thirty year cash flow for our clients. Our conviction is that this perspective is more stable and important than short term investment returns: of which, one year qualifies. Please call with any questions (as long it is not after Midnight). Sincerely, Richard Raby, AAMS   ¹http://www.marketwatch.com/story/index-funds-beat-active-90-of-the-time-really-2014-08-01

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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; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee. 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. 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. Use of Indexes


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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