The Intelligent Investor
A bi-weekly publication from Consultiva Internacional, Inc. (Registered Investment Adviser) May 10, 2017
Myrna Rivera, CIMA®
Whether you agree with her or not, it’s fair to say that Federal Reserve Chair Janet Yellen has based U.S. monetary policy decisions and efforts on economic metrics and fundamentals, keenly mitigating any perception of gender-based biases. However, as the keynote speaker at Brown University’s most recent conference on Women at Brown, Yellen shared her thoughts and experience on women in the economy and the gender differences that still impact our society. She began her story on women in the workplace at the end of the 19th century, at the time when only 54% of school-aged women in the U.S. went to school. By the 1930s the labor force participation rate was almost 50% for single women, but only 12% for those who were married. As they became more educated and workplaces began to offer jobs deemed suitable for them, the participation rose steadily reaching 74% of women between 25 and 54 years of age during the early 1990s. Nevertheless, Yellen stressed that progress had stalled since then. The participation rate has fallen (see graph below), and women working full-time earn 17% less per week than men. Some of this has to do with the types of jobs, but Yellen said that “even when we compare men and women in the same or similar occupations who appear nearly identical in background and experience, a gap of about 10 percent typically remains.” She concluded with suggestions on improving access to affordable quality childcare and developing working styles that enable women to better meet their duties at work and with their families. I would add that companies should increase leadership opportunities for women as a way to improve their bottom-line. A 2013 Harvard University study concluded that the net profit margin was significantly stronger in companies with boards that had at least three women directors. A 2014 Credit Suisse study found that more women in management coincided with better corporate performance and higher stock market valuations. In recognition of this, investment companies have launched vehicles such as the Pax Ellevate Global Women’s Index Fund and SPDR® SSGA Gender Diversity Index ETF (“SHE”), alternatives for investors we track closely. SSGA went further placing a bold symbol, a statue of a Fearless Little Girl representing the importance of women in leadership in a location that no one can ignore, in front of the bull on Wall Street, on the International Women’s Day. After all, market performance is many times the best test of impactful ideas.
Edmundo J. Garza
April new hires in the U.S. totaled 211,000, which coupled with an unemployment rate that fell to 4.4 percent, signals the labor market remains healthy and should support continued increases in consumer spending. The Bureau of Labor Statistics reported that employment gains were broad-based, though concentrated in services. Leisure and hospitality registered a 55,000 increase, education and health services were up 41,000 and financial activities rose by 19,000. Manufacturing and construction jobs also rose, but at a weaker pace. Total private employment climbed by 194,000 in April, following a 77,000 advance the prior month. Government payrolls rose by 17,000 in April, including a 6,000 decline at federal agencies and 23,000 increase at state and local governments. Wage growth accelerated on a monthly basis to 0.3 percent from a revised 0.1 percent gain in March. In April, average hourly earnings for all employees in private nonfarm employment rose by 7 cents to $26.19. Over the year, average hourly earnings have risen by 65 cents, or 2.5 percent. Unemployment continues to be strongly correlated to education (see the graph below), with less than 2.5% of those with a university degree in unemployed status, while 6.5% of those people 25 years or older and looking for a job with less than a high school degree remain unemployed.
(As of May 9, 2017)
CPI: 2.4% Chg. from yr. ago
Source: St. Louis Fed. Res.
CPI: 1.5% Chg. from yr. ago
CPI: 0.3% Chg. from yr. ago
CPI: -0.1% Chg. from yr. ago
Evangeline Dávila, CIMA®
Stocks: U.S. equities advanced in April amid a confluence of corporate, central bank, and geopolitical forces. First-quarter earnings season kicked into gear while the new administration provided indications that pro-growth policies may be on the way. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite each experienced monthly gains, while perceived safe-haven assets advanced amid geopolitical tensions which escalated during the month. Overseas, the MSCI EAFE advanced 2.5% in April as investors cheered the results of the French presidential election. In addition, the European Central Bank (ECB) concluded its April policy meeting leaving interest rates unchanged.
Bonds: Geopolitical tension dominated headlines throughout the month, leading to a rise in the value of perceived safe-haven assets. U.S. Treasuries advanced with the yield on the 10-year note finishing 12 basis points lower for the month at 2.28%. The Federal Reserve announced it would leave interest rates unchanged at its May 3rd meeting. No changes in monetary policy had been expected. U.S. bonds returned 0.8% in April as measured by the Bloomberg-Barclays US Aggregate index.
Alternatives:The rising uncertainty supported demand for gold, with prices climbing to a five-month high. West Texas Intermediate crude prices dropped by 2.5%. Catalysts for the decline were reports from the U.S. Energy Information Administration that showed a surprising uptick in gasoline inventories and increasing shale production. The losses came despite indications from Saudi Arabia that OPEC would commit to extending its recently enacted production cuts.
When it comes to investing, most of us understand the importance of diversification, but determining how to create the optimum diversified portfolio isn’t easy to do. One of the many considerations is which markets or economies to invest in. When it comes to international investments, it is good to understand the general pros and cons to figure out what’s the right fit for your portfolio. On the positive side, by putting money into international stocks, you can take advantage of economic growth occurring abroad. The diverse nature of the global economy means the economic activity of different nations is influenced by a variety of sectors and industries. Economic growth rates vary widely by country and by what’s happened during any given year, and it can be related to the U.S. economy at different degrees. International economies can be more volatile than the U.S. economy, and this is a source of concern for U.S. investors. This was illustrated by the unexpected result of the Brexit referendum, which set off an array of financial consequences and questions about the United Kingdom’s separation from the European Union. Such uncertainty tends to shake up currency valuation and markets. Similarly, developing economies often exhibit social and governmental instability, which can also have a negative impact on markets. International stock investments may be an appropriate part of your portfolio, but the overall percentage of your portfolio that they make up can and should vary from investor to investor.
Quite a few political events happened in April: President Trump released a preliminary proposal for tax reform. Tensions rose on the Korean peninsula. British Prime Minister Theresa May called a snap general election. The first round of the French presidential election saw the centrist candidate, Emmanuel Macron, win the most votes and secure a place against the far-right candidate, Marine Le Pen, in the second round of the presidential election. Only the French elections seemed to have had a significant effect on the market. Results were seen as an indication that France would stay at the heart of the European Union, but concern remains as to the effectiveness of the country’s new president as a third electoral round will soon follow for legislative seats. Amid an uncertain scenario we continue to recommend prudent asset allocation and risk assessment, based on future capital needs, for plan sponsors, institutions and individual investors. Due diligence reviews and an adherence to a well-developed investment policy remain the most prudent course for long-term investors. Continued fiduciary education is paramount.
Consultiva is a Registered Investment Adviser. The registration with the Securities and Exchange Commission does not imply a certain level of skill or training. Consultiva has compiled the information for this report from sources Consultiva believes to be reliable. Sources include: investment manager(s); mutual fund(s); exchange traded fund(s); third party data vendors and other outside sources. Consultiva assumes no responsibility for the accuracy, reliability, completeness or timeliness of the information provided, or methodologies employed, by any information providers external to Consultiva. Conclusions reflect the judgement of Consultiva Investment Strategy Committee at this time and is subject to change without prior notice. There also can be no guarantee that using this information will lead to any particular result. Past performance results are not necessarily indicative of future performance. Diversification does not guarantee a profit or protection against loss. This document is for informational purposes only and is not intended to be an offer, solicitation, recommendation with respect to the purchase or sale of any financial investment/ security or a recommendation of the services supplied by any money management organization neither an investment advice or legal opinion. Investment advice can be provided only after the delivery of Consultiva’s Brochure and Brochure Supplement (ADV Part 2A and 2B) once a properly executed investment advisory agreement has been entered into by a client and Consultiva. This is not a solicitation to become a client of Consultiva. There are risks involved with investing including the possible loss of principal. All investments are subject to risk. Investors should make investment decisions based on their specific investment objectives, risk tolerance and financial circumstances. Global and international investments may carry additional risks that are generally not associated with U.S. investments, such as currency fluctuations, political instability, economic conditions and varying accounting standards. Annual, cumulative, and annualized total returns are calculated assuming reinvestment of dividends and income plus capital appreciation.