Investor Intelligence Aug 25, 2018
A bi-weekly publication from Consultiva Internacional, Inc. (Registered Investment Adviser) Aug 25, 2018
Myrna Rivera, CIMA®
U.S. equities have been boosted by strong corporate earnings and solid economic growth these past weeks. The S&P 500 hit an all-time high last week and tied the record for the longest bull market ever. The broad index rose 0.2 percent and reached an intraday record of 2,873.23, led by consumer discretionary and industrial. Investors seem to be betting on a strengthening economy and booming corporate profits, despite recent trade battles. The bull market turned 3,453 days old on the 23rd of August, and became the longest on record by most definitions. The S&P 500 has risen more than 300 percent since hitting its financial crisis bottom on March 9, 2009. For the year, the index is up more than 7 percent and since the start of 2017 (see below), the S&P 500 has risen more than 25 percent. The Dow Jones Industrial Average gained 63.6 points to close at 25,822.29, just 3 percent below a record high, with Intel and Goldman Sachs leading the index. The Nasdaq Composite outperformed, rising 0.5 percent to 7,859.17 as Micron and Netflix rose. The Russell 2000, which is made up of small cap stocks, also reached a record high. Strong corporate earnings, coupled with solid economic growth, has offset worries over tariffs and trade, particularly between the U.S. and China. However, we remain cautious of these and other global economy events.
S&P 500 since 1/1/2017
Edmundo J. Garza
Theminutes of the most recent Federal Open Market Committee meetingwere released last week. Federal Reserve officials continue to see a strong U.S. economic and expressed confidence in forecasting “strong” economic growth over the near term. However, ongoing global trade tensions continues to be a threat, and large-scale and prolonged disputes over trade policies could have an adverse effect on business sentiment, investment spending, and employment. Tariffs are generally considered inflationary as they add to costs for imports. Fed officials pointed that businesses have not yet cut back on investment and spending. That could change if trade issues are not resolved in a timely matter. Members at the meeting declined to vote on raising the federal funds rate from its current range of 1.75% to 2%, but officials said it would “likely soon be appropriate to take another step in removing policy accommodation”. This supports a widely anticipated hike at the September meeting and possibly one more in December. On inflation, members noted that the current trend is in line with their inflation goal. Various industry districts indicated that firms are feeling more comfortable hiking wages, though non-compensation benefits have been on the rise as well.
|Indicators (As of Aug 25, 2018)|
CPI: 2.9% Chg. from yr. ago
Unemployment Rate: 3.9%
GDP: 4.1% Comp. Annual rate of Chg. on 2018:Q2
Ind.Prod.Index: +0.1% change from previous month
CPI: 0.7% Chg. from yr. ago
Unemployment Rate: 2.4%
GDP: 0.5%, Comp. Annual rate of Chg. on 2018:Q2
Ind.Prod.Index: -2.1% change from previous month
Source: Moody’s Analytics
CPI: 1.9% Chg. from yr. ago
Unemployment Rate: 8.3%
GDP: 0.4%, Comp. Annual rate of Chg. on 2018:Q1
Ind.Prod.Index: -0.7% change from previous month
Source: Moody’s Analytics
CPI: 0.0% Chg. from yr. ago
Unemployment Rate: 9.3%
Payroll Employment: -4.0% Chg. from yr. ago
GDB Econ. Act. Index: -7.9% Chg. from yr. ago
Evangeline Dávila, CIMA®
Stocks: Non-U.S. equity markets posted weaker results when compared with their U.S. large cap counterparts, with the MSCI ACWI ex-U.S. Index returning 2.4% for the month of July. The International Monetary Fund reported real global GDP growth of 3.64% for the first quarter, and the ECB forecasts real GDP growth to hit 2.4% for 2018. International developed equities and emerging markets equities posted similar returns for the month, with the MSCI EAFE Index up 2.5% and the MSCI EM Index 2.2%.
Bonds: The Bloomberg U.S. Aggregate Bond Index was relatively flat in July (+0.02%) with the Bloomberg Corporate Bond Index (investment-grade) contributing 80 basis points for the month. Non-U.S. fixed income struggled relative to U.S. fixed income, as the Bloomberg Global Aggregate ex-U.S. Index lost 0.4%, but emerging markets debt was the best-performing asset class within fixed income, returning 2.6%.
Alternatives: The Bloomberg Commodity Index and the energy-heavy S&P-Goldman Sachs Commodity Index incurred a loss of 2.1% and 3.5%, respectively. Meanwhile, the FTSE-NAREIT Equity REIT Index posted a gain of 0.8%. Non-U.S. REITs outperformed U.S. with the FTSE EP/NA Global ex-U.S. gaining 1.1%. Hedge strategies posted gains in July, recovering from the narrow decline from June, and effectively navigating a primarily positive earnings season. The HFRI Fund Weighted Composite Index advanced 0.6% for the month, with contributions from equity, credit, M&A and currency exposures.
Source: Callan Associates
Ernesto Villarini Baquero, MBA
The Advisor’s Corner Advisor & Managing Director
Investing poses a great challenge for the smaller nonprofit institution. Not every nonprofit has a board member who wants to take on the responsibility of investment decisions. Even members with accounting or financial expertise may be unprepared when it comes to investing and capital markets. In our experience, what works for the smaller institutions begins with establishing an investment policy. This document helps the board meet three potentially competing interests when a nonprofit invests: (1) protecting the value of the initial invested assets; (2) growing those assets to increase their value; and (3) maintaining access to the assets, in the event funds are needed to maintain cash flow. These interests are met by stating purpose, objectives, spending needs, risk tolerance, and asset allocation in the investment policy. Through the investment policy the board is also able to delegate day to day responsibilities to a committee, staff and outside professional advisors. A well-developed policy helps in some key decisions, for example; whether to invest through active managers or passive instruments; whether to integrate environmental, social and corporate governance factors when selecting asset managers and investing strategies; and whether to consider investment vehicles with limited liquidity such as private equity funds. Before investing any funds, an investment advisor working with nonprofit institutions must begin the process here. Careful planning and well-thought out discussions with the board help the institution start investing with the right foot.
While July provided a positive start to the second half of 2018, the environment and general mood in the market remains cautious. Continuing tension between the U.S. and its key global trade partners (Eurozone and China chief among them) is still a significant concern. The pace of rises in domestic interest rates and inflation, equity volatility, changes in currency trends, and further policy normalization by global central banks continue to worry markets. Amid an uncertain scenariowe 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.