Lowe Wealth Advisors 2013 Wrap-up and 2014 Outlook
We hope that you had a wonderful holiday season and we wish you a very Happy New Year!
The headlines will boast that 2013 was the best year for domestic equity markets since 1995 (Source: Wall Street Journal) but few investors reaped those full gains because they came from a very narrow spectrum of stocks. Prudent and diversified investors achieved reasonable gains, but the more diversified the portfolio, the more the gains tended to diminish significantly.
Many tactical, strategic, hedge fund and diversified investors followed research that indicated exposure to multiple asset classes and regions could prove beneficial. These investors produced returns that, while positive and successful in an average year, look somewhat meager for 2013.
Lowe Wealth Advisors was no exception to this situation. Without question we — as well as the majority of our clients — recognize that a managed, diversified portfolio remains a prudent strategy. When we see concentrated returns and headlines in the news it is natural to have “return envy,” so-to-speak, but we must consider that the markets could have moved in the opposite direction. (Remember 2008?) In that light, a diversified portfolio not only makes sense but is a must for investors who don’t have the tolerance for potential major declines.
During 2013, Lowe Wealth Advisors actively managed our discretionary portfolios by removing gold, most commodities, and emerging markets, and making numerous adjustments to our bond holdings. We prepared for many risks in 2013 that ultimately did not materialize or did not impact the markets the way most experts thought they would. Gold and emerging markets were negative for 2013 and while Europe was overall positive, the region still lagged domestic equities (Source: Wall Street Journal). Meanwhile, bonds on average had their worst annual loss in 19 years (Source: Ned Davis Research).
The good news is that as we move into 2014 we believe much of the political risk is diminishing from Washington. We know who the Fed Chair will be, the Fed Policy is clearer and it is not likely we will see another shutdown in the government. With midterm elections on the horizon most politicians are focused on re-election, so we don’t anticipate any significant surprises coming out of D.C.
Before we completely move away from 2013 we want to take a moment to highlight some accomplishments of which we are very proud. These activities demonstrate our ongoing efforts to provide you with the best possible experience and help you reach your goals.
- Lowe Wealth Advisors added Jennifer Koenig to our team to develop, oversee and manage our conservative stock option strategies. Her addition grows our professional team to five and our overall firm to a dedicated team of nine.
- Jennifer Kutchey obtained her CFP® designation and began the process of developing individual bond purchases for our portfolios.
- We successfully introduced private equity investments for certain accredited and qualified clients.
Overall, our view is positive for the start of the New Year. Capital Markets Analyst Morris Segall (Sage Policy Group) likes the trajectory of the economy. He points out that “while this is not a typical economic recovery, the economy seems to be picking up steam. Consumer spending is stronger, but much of that came from savings and accumulated cash and it remains to be seen if consumers will be able to sustain the current pace of spending. With all of the positives, consumer income is not growing as fast as consumer spending and job growth is not expanding in ‘high quality jobs’ but rather more seasonal and part-time work. Further, we will have to monitor added costs to consumers of the Affordable Care Act and whether it may put pressure on consumer spending.”
Lowe Wealth Advisors’ portfolio strategy in 2014 will focus on the following assumptions. (These items are subject to revision as conditions change and these statements are not predictive of future results.)
Potential positives for 2014
- Global monetary policy remains accommodative in most markets. Fed stimulus is still potentially supportive of markets. For now, the Fed has essentially underwritten the markets and their lack of tapering has telegraphed their intention to continue to do so.
- Global economic growth and recovery continues.
- Inflation is relatively subdued.
- Reasonable earnings growth continues.
- Consumer spending continues to be strong.
Risk Factors for 2014
- Investor Complacency: As investors become more bullish and the equity markets continue to go without a significant correction, the markets may become more vulnerable to inevitable disappointments and negative surprises. Missed earnings, poor jobs reports or a reduction in consumer spending could trigger a correction.
- A potential equity market correction is overdue and perhaps likely at some point in 2014. Our view is that — barring systemic poor economic news — any correction may be temporary. However, if the Fed accelerates tapering (we believe a significant portion of the market values are Fed-supported and the removal of that support could lead to a correction/decline) or if the bond market diverges from the Fed policy and rates begin to move, we could see substantial market volatility.
Strategic Focus (This is not a specific recommendation and individuals should not use these statements at the basis for taking any action without professional guidance taking in account their entire situation and tolerance for risk)
- Lowe Wealth Advisors plans to further reduce cash positions and to be allocated at or near our targets for equities in early 2014.
- Potential interest rate movements places elevated risk on bond assets. Our strategy where possible will be to utilize individual bonds that we would intend to hold to maturity thus reducing the risks seen in ETFs or mutual funds. The challenge has been and continues to be a lack of inventory, and this goal will take time to implement. (Individual bonds are also generally appropriate for portfolios over certain thresholds and have different risks than ETFs or mutual funds).
- The individual bond strategy will be complimented by a broadly diversified basket of bond ETFs, mutual funds and, as appropriate, cash. Some of the strategies may seek to provide yield and income while others may seek to manage potential risks in the event rates change. This means that for 2014 it is very important that the fixed income and cash portion of portfolios be considered as a whole when evaluating potential success.
- Our focus will likely remain primarily on large-cap domestic equities complimented by exposure to technology sectors, mid-cap equities, small-cap equities, European equities and perhaps industrial/manufacturing holdings should the economy continue to recover. We will avoid gold and emerging markets for the present allocations.
- Where appropriate, we may begin to compliment certain allocations with individual equity positions.
During our first discussion or meeting with you in 2014 we will be spending some time focusing on goals for the year. Our primary strategy is to provide potential protection to the wealth you have accumulated coupled with responsible potential growth, thereby seeking more stable returns over time. However, this is not our only approach and is by no means mandatory. We will take the time to ensure we are on the same page as you regarding what success you would like in 2014 and beyond.
Ahead of this conversation, we would ask you to be thinking about this question: If we were to speak 12 months from today, what would have had to happen for you to say the year was successful? We would encourage you to think beyond simply performance and focus ways we can partner with you to achieve your personal goals.
As a firm we are planning several initiatives beyond what we have already mentioned. First, we plan to enhance our client reporting system to provide an improved reporting platform and enhanced mobile connectivity. This initiative will be fully active in the 2014 to 2015 time frame and we look forward to sharing more about this exciting project. In that same time frame, we plan to add additional professional staff, particularly a planning specialist.
We are looking forward to a productive 2014!
Lowe Wealth Advisors is an SEC registered investment adviser with its principal place of business in the State of Maryland. Lowe Wealth Advisors and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which Lowe Wealth Advisors maintain clients. Lowe Wealth Advisors may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of Lowe Wealth Advisors, please contact Lowe Wealth Advisors, or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).
This commentary is intended for the dissemination of general information regarding market conditions to Lowe Wealth Advisors clients. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this report will come to pass. While any general market information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice.
- Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
- No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
- An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.
Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.
*Lowe Wealth Advisors is a registered investment advisor.