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Weekly Portfolio Update - 2/13/2018

2/13/2018 - Weekly update on 4Thought Financial Group's Separately Managed Accounts for Investors
Strategy Performance Data

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This notification for the week of 2/13/2018 is part of an ongoing series of updates intended to keep you informed about the changes occurring in your 4Thought Financial Group separately managed accounts (SMAs) each week. We may provide general commentary, as well as planning techniques and ideas. Make sure to discuss with your advisor whether these are applicable to your situation before taking any actions with regards to your financial plan or investment portfolio.

 

Perspective and Positioning:

Stock indexes globally have experienced an abrupt slide during the last two weeks, following bonds, which had already begun to decline in market value in the weeks prior. The movement in stocks breached the technical definition of a correction (described as a 10% drawdown from the most recent record peak) on Thursday, after which they strongly rallied for 2 consecutive days. Nearly all major stock and bond indexes are now negative for their year-to-date performance (although only modestly). So far, this is a very ordinary run-of-the-mill correction if put in the broader context of market history. After one of the lowest volatility calendar years on record (2017) and a roaring start to stock markets in 2018, such a slide (or potentially something worse) was inevitable - the only question was when something like this would happen. As a result of our algorithmic analyses, the "Opportunistic" strategy portions of our client portfolios have been very conservatively positioned for some time now, and as a result have weathered the downturn quite well relative to the more conventional "Strategic" strategies also used for clients. The same algorithmic investment processes used to manage the Opportunistic elements of client portfolios currently indicate continued conservative exposures due to persistently high valuations in asset prices (even after the most recent correction) - however, this could change at any time, so be sure to remain patient as the broader markets fluctuate and avoid making any unecessary manual portfolio changes that might interrupt your potential to capitalize on the shifting markets. In general, assuming no significant recent changes to investor objectives, there should be no need for any manual client portfolio reallocations as a result of this market event. We are already executing any necessary changes within (and across) the separate account strategies used for each client. However, if for any reason (as a client) you have not recently completed a portfolio objectives review (during the last year), it is recommended that you contact your advisor for these purposes and/or you complete the digital questionnaire provided in our Annual Review email, which was recently delivered to all 4Thought clients (check your email inbox on 1/26/18). With regards to this year's asset class performances, bond returns are now roughly on par with stock returns (both are slightly negative for 2018). Emerging markets stocks are still the leading performer year-to-date (although this is mainly because of their massive rise early in the year - and not because of weathering the correction well). With the exceptions of US small and mid cap stocks, most stock types globally continue to be overvalued (expensive) even after the recent correction. Emerging markets stocks are measured as the most expensive currently, while US mid cap stocks are the least expensive (they are now slightly undervalued). Virtually all bond types are now either slightly undervalued or near fair valuation, with the exception of international developed markets bonds, which are still significantly overvalued. The continued overvaluation of the Strategic Asset Allocation investing method and global stocks as a whole point to the continued use of a cautious approach to cash deployment (see below "How Investors Can Take Action" for more info on this).

 

How Investors Can Take Action:

• For all investors:  In general, assuming no significant recent changes to investor objectives, there should be no need for any manual client portfolio reallocations as a result of the recent stock slide. We are already executing any necessary changes within (and across) the separate account strategies used for each client. However, if for any reason (as a client) you have not recently completed a portfolio objectives review (during the last year), it is recommended that you contact your advisor for these purposes and/or you complete the digital questionnaire provided in our Annual Review email, which was recently delivered to all 4Thought clients. As always, remember to contact your advisor(s) to notify them if any of the following have recently changed for you: Life circumstances (Family, career, home, business, etc.); Financial goals; Lump sum cash needs; Monthly income needs; Bank account cash balances; Other assets or liabilities; Your attitude towards risk. Significant changes in any of these areas may require a reallocation of your investment portfolio.

• For growth investors:  Make systematic investments of earned income into your investment portfolio so that the total annual contribution amount is less than your calculated available annual savings (Total earned income, minus living expenses, minus taxes, equals available annual savings). Use a cautious approach to contributions (not too much) based on current asset and method valuations. Consult with your advisor on this prior to taking action.

• For income investors:  Take systematic withdrawals from your investment portfolio so that the total annual withdrawal amount is more than your calculated portfolio income need (Portfolio income need equals annual living expenses, plus taxes, minus any non-portfolio income). Use an aggressive approach to withdrawals (not too little) based on current asset and method valuations. Consult with your advisor on this prior to taking action.

 

Valuation of Investment Methods:

• Liability-Driven Investing (for Bear Markets):  Currently roughly fairly valued (on an absolute basis), and it is the most attractively priced of the four method categories (on a relative basis) based on the measured average of our fixed income focused and risk transfer strategies.

• Selective/Concentrated Investing (for Eagle Markets):  Currently roughly fairly valued to slightly overvalued (on an absolute basis), and it is the second-most attractively priced of the four method categories (on a relative basis) based on the measured average of our private equity like strategies.

• Strategic Asset Allocation (for Bull Markets):  Currently slightly overvalued (on an absolute basis) and it is the third-most attractively priced of the four method categories (on a relative basis) based on the measured average of our hedge fund like strategies.

• Opportunistic Investing (for Wolf Markets):  Currently overvalued (on an absolute basis), and it is the least attractively priced of the four method categories (on a relative basis) based on the measured average of our diversified (primarily stock) portfolio strategies.

 

This information, along with details and actions specific to each 4Thought SMA, is emailed weekly to investors and interested advisors.

To learn more about investing with 4Thought contact us here or learn more about our Investment Methodology here.

Author: Jesse Mackey

Jesse Mackey is the Chief Investment Officer of 4Thought Financial Group, an SEC Registered Investment Adviser (RIA). As head of the firm's portfolio management operations, he provides investment planning and portfolio management expertise to aid affiliated financial advisors and partner firms in servicing their clients. He is also director of the economic theory, research, and publishing conducted at the firm. Jesse earned his MBA from Thunderbird School of Global Management in International Securities Investment, International Development and Entrepreneurship, and his Bachelor’s degree from Colgate University in Economics. He has more than 16 years of experience in the financial services industry. He holds the Series 66 Securities/Advisory license, and is also a licensed life and health insurance representative in several states.

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