Broker Check

February Client Update

February 6, 2018


“Anxiety Clinic, Now Treating…


A burst of volatility jolted financial markets and sent stocks tumbling last Friday and again on Monday. Although the US equity markets, as measured by the S&P 500, were down over six percent over those two days, our globally diversified aggregate portfolio was down less than three percent. It is important to not get caught-up in the headlines that focus on the size of a “point-drop”, as the percentage of the decline is a measure that is more useful.  The Dow Jones (30 of the largest US companies) point drop of roughly 1,100 points on Monday made headlines and was sensationalized by the print and internet Press. It was the biggest one-day point-drop ever, but in percentage terms, the Dow had a bad day, but not historic. It was just the 25th worst one-day decline since 1960. 

The market predominantly goes up and periodically it will go down as volatility affects both the upside and downside.  The lack of volatility over the last year has put most of us in a lull.  Overall, volatility can provide opportunities to rebalance portfolios.  Much of the volatility has come from investors worrying over rising inflation in the US as this could push the Federal Reserve to raise interest rates more rapidly.  If you think the Fed will raise interest rates quickly, keep in mind that the national debt will become more expensive.   A slow and steady pace in managing interest rates is a more likely scenario than a sudden and abrupt increase in interest rates.  A market correction has been on the minds of financial experts for some time as US equity valuations have been going up quickly solely based on market momentum.  As we have stated before, a temporary correction is actually good for the markets over the long-term. 

On Monday, the yield on the ten-year Treasury note was 2.8 percent, which is the highest in years. When volatility sets in, this makes bonds more appealing to investors compared with stocks in the short run.  Over the past year, the stock market has been unusually calm, providing fertile ground for volatility, which can appear suddenly. The combination of economic growth in the US and other major economies, coupled with low interest rates and support from central banks, has paved the way for rising equity markets without many bumps along the way.  Despite the recent market turmoil, corporate earnings have exceeded expectations as the economy continues to grow.

Our actively managed aggregate portfolio has produced the following results over the twelve months ended January 31, 2018:

With the recent changes in tax laws and adjustments in industry regulations, a review of our billing process has necessitated making a change to how we bill client accounts.  Beginning with our April 2018 billing there will be a change in which account(s) will be billed for our investment management services. We will provide more details in a separate letter to all clients. 

Last week Laura and I attended the TD Ameritrade Institutional annual conference.  We collaborated and learned from national speakers such as Jeremy J. Siegel, Professor of Finance at the Wharton School of the University of Pennsylvania and Ian Bremmer, Geo-political analyst.  We reviewed industry compliance standards, long-term business planning and elements of a successful client experience.  Additionally, we discussed cyber-security issues and technological innovations for the investment management industry.  The conference provided an opportunity to evaluate our best practices as a Firm and guided us on how to maintain the highest standard in the industry as a Fiduciary for our clients. In 2018, we will focus on internal processes that continue to enhance the client experience.

As always, if you have any questions please call Steve or me.


Intelligent Investment Management, LLP

James Brost