Barrington Financail Advisors Sept Commentary BARRINGTON FINANCIAL ADVISORS, INC.
a Registered Investment Advisor
(Celebrating 42 years of Professional Service)
August 2014 Rebound
EQUITIES, MLPs and REITS:
We just experienced the best August in 14 years as the S&P 500 gained 3.8%. One indicator of why this happened is the S&P 500 Volatility index (VIX), which fell from 17.03% at the beginning of August 2014 to 12.09% at the end of August 2014. As you may know, this Index is a measure of fear in the market where many consider below a 20.0% index generally corresponds to less stressful, even complacent, times in the markets. Our Equity, MLP and REIT portfolios returned from a 4.2% to a high of 5.2% performance for August 2014 with the average of 4.65% thus beating the S&P 500 while having a lower risk rating.
During the month I put more of our money to work using the larger cash position to purchase MU, HCLP,HES,WLK,DOW,CPE,AMZN,UA,LNKD,FISI,REX,BITA,PLNR,CMI,Z,SWIR,EPD,TWTR and HMES. I also sold SINA. This was a lot of activity but many of the purchases were to buy back stocks that I sold at the end of July before the large drop in the market on July 31, 2014. These buybacks are now performing for us. A few examples are BITA up 9.48%, CPE up 5.99%, FB up 21.27%, FISI up 4.30%, HCLP up 12.82%, PLNR up 14.30% and WLK up 9.39%. Some have not yet began to perform such as SWIR down 1.96%, UA down 1.71% and EMES down 0.50% since these were purchased towards the end of August 2014 and have not had time to move.
In summary of the Equity, MPL and REIT holdings, I am well-pleased with our August 2014 performance and hope September is a good month as well.
FIXED INCOME:
We experience little change in the Fixed Income portion of our portfolios while keeping the percent of the total portfolio very low in relation to the overall Total.
ECONOMY
This is not the way things are supposed to be five years into an economic expansion, yet it’s the conclusion of yet another report probing chronic economic gloom. The new survey, by the Heldrich Center at Rutgers University, found 71% of Americans feel the recent recession changed the nation permanently and only 16% feel the next generation will end up better off. In 1999, 56% felt life would be better for future Americans.
It’s axiomatic that something is wrong with the U.S. economy — but gloom itself may be part of the problem. Americans are so dour by some measures, they seem to be looking past opportunities as if programmed to see only pitfalls. Prosperity doesn’t come from the places many people seem to be seeking it, and if the middle class is, in fact, in decline, a large part of the reason may be a lost instinct for how to get ahead.
To be sure, there are well-known problems with the economy that aren't easily solved. Wages are stagnant for many workers, household wealth remains depressed and many families are falling behind. Adding to the gloom, policymakers in Washington seem incapable of finding solutions, and they even make some problems worse.
It’s also true, however, that the economy is growing at a decent pace, companies are hiring, and consumer spending, on the whole, is pretty good. In reality, we don’t have one U.S. economy, we have two: one that looks like the old one, in which people work hard and get ahead, and another filled with those glum, underemployed laborers living on the edge. There has always been an American underclass, but it seems to be growing, fed by a continual drip of downwardly-mobile people departing the middle class.
The recession officially ended more than five years ago and ought to be a distant memory. These should be boom times with widespread optimism and robust spending. Yet, consumers are gloomy and the economy is limping along at subpar levels of growth.
It’s becoming clear why: While jobs have returned, incomes have not. The latest evidence is a study by the U.S. Conference of Mayors that highlights stark disparities between the jobs lost during the recession and jobs gained since. The types of jobs lost paid nearly $62,000 per year, on average. The jobs gained during the past six years pay only about $47,000. That 23% shortfall adds up to about $93 billion in lost wages per year — money not being spent because it vanished from the economy.
That startling wage gap reflects the demise of well-paying jobs that don’t require a college degree, which may be the single-biggest challenge facing families trying to uphold a middle-class lifestyle. The two sectors that lost the most jobs during the recession are manufacturing, with average pay of about $63,000, and construction, at about $58,000. Employment in those two fields is still about 3 million workers short of where it was at the start of 2008.
It is my prayer that America wakes up to the reality of how poor the country’s leaders are doing in managing our economy and we make a drastic change in the elections that are coming up soon. We need elected people who understand how to solve the economic problems facing our nation. A recent poll of American voters revealed that many people think that Global Warming is a greater threat to America than the threat from Terrorists. We need to support Israel and build our defenses before we have another attack on American soil. May America return to God and receive His continued blessings. AMEN.
Have a Blessed Day,
William C. Heath, CFP®
Chairman & CEO
(713) 785-7100
Many market sectors are struggling a bit, eh? Have we a small unwind period beginning? Junkster, I'm trying to understand your successful methodology. You are looking to sell funds that are at their highs, I'm guessing on the 'prospect' that they could fall with other income funds. Isn't that contrary to your success? I thought that you watch when a fund falls out of a tight channel or some percentage from it's high.
I'm watching your winning process so that I can structure my own with a small % of my own portfolio. I've found that it isn't only the vehicle that dictates success, but the driver of that vehicle. Trying to figure out if I can be a good driver.
Warning: Mike, the below will sound clear as mud.
I like old-skeet's answer. You are well aware that I believe trading is more art than science. I trade my equity curve. I want my equity curve to be in the same mode of the type of funds I trade, i.e. a tight, rising channel. At this point in my financial and personal life, I don't want to see even a 1% drawdown in my equity curve. So if things look a bit dicey, I will begin selling off a small portion before my 1% or 1.50% threshold. So hopefully if the decline continues I will eventually be mostly all off before that threshold is hit. I did that in July when I was all in NHMRX as junk munis got a small hit from being overbought and resurfaced worries over Puerto Rico. I was all out before it hit 1% and as it went down below 1% felt good because I had protected my equity curve from any more of a drawdown. However, the junk muni market turned around *quickly* and by the time I was able to get all back in, I would have been something like $8000 for the better had I just sat tight. That was the same situation many times with the tech funds in the 90s and early 2000, but at some point the market will breakdown and not come back. So giving up some monies here and there is worth it if that what it takes to avoid the big decline.
The junk munis are the last ones standing now. Two in that sector are right at their YTD highs - ABTYX and LMHIX. The others are down up to around .50% from their YTD highs. I haven't sold any ABTYX which is in my small taxable account but have sold around 21% of EIHYX which is in my much larger IRA and thus would have more of an impact of my equity curve. It's down a tad less than .50% from YTD highs. If I have to sell more based on adverse price action and if like July this is much ado about nothing, I will go back in but with whichever junk muni fund with the most YTD momentum had the least drawdown in September. So far this is looking like ABTYX.
There's no fear in the markets: Time to worry? "I think you're also looking at a smaller pool of retail investors as a % of the broad population than you had 5-10 years ago."
That might be a good thing, suggesting that the smaller pool is perhaps a little more seasoned, and maybe a little less inclined to cut and run. But, who really knows?
I think they're going to cut and run, it's just human nature (shrugs.) 1. There should be far more financial education in this country, but I doubt that will ever happen. 2. I actually do ponder whether investors who own individual names are less prone to cut and run, because if they have a set of individual names that they have a significant interest and attachment to, are they less likely to dump those shares then a diversified fund whose holdings they probably haven't researched? I dunno.
It does fascinate me when fund managers are surprised and upset at retail investors who run for the exits during a downturn - again, there should be better financial education in this country, but again, it's an element of human nature. It wouldn't surprise me to see more large fund managers open funds in London (see the Pershing Square IPO in London later this year) or start reinsurance vehicles in the US (Greenlight Reinsurance, Third Point Reinsurance) in a search for permanent capital.
I *do* think that along with a smaller pool of investors than 5-10 years ago, you are also seeing alongside that significant buybacks at major companies and a smaller pool of shares outstanding, which those that are invested are benefiting from.
I am concerned by the mass of IPOs hitting the market. Not so much Alibaba (which I actually think is interesting, I'm rather fascinated by Alibaba and similar co Tencent), but things like Dave and Busters (which I think failed in plans to come to market once or twice before.)
As for Alibaba, I am concerned that the media isn't really discussing the fact that you aren't going to be investing directly in Alibaba with next week's giant IPO, but in a Cayman holding co. ("“You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law, we conduct substantially all of our operations in China and most of our directors and all of our executive officers reside outside the U.S.,” Alibaba said in its filing -
http://www.usnews.com/news/articles/2014/09/08/alibaba-aims-for-record-24-billion-stock-ipo.)
The roundabout way of investing in Alibaba via Yahoo or Japanese co Softbank is actually investing directly.
Finra Issues Risk Alert For Frontier Market Funds
Role of Bonds in a Long-term Portfolio? Funds & Strategies I've looked at include:
RNOTX, RNDLX, ARTFX - because we're young and while these might be volatile/riskier thats fine.
OSTIX, EVBAX - why make allocation decisions myself when these guys look like they do it well.
FTBFX - the most convenient low-cost fund for us
RSIVX - stabler ballast, but still with growth
DLTNX - solid core, where our current bond money is.
Pass on them all?
FWIW. FPNIX is something to consider. Better to have fund non-celebrity fund managers I think.
On that note, I've always been bond challenged, but in my 401k I continue to hold some PTTRX. It would seem Bill Gross is officially no longer the bond expert according to recent press. I never thought that would happen. Bill Miller I think has remained the equity expert on the other hand. Time will tell which was the right celebrity call by the financial pron industry.
Fund's "New Twist" ... (Manager of PRNEX Bearish on Commodities) By coincidence there's an interesting article in today's WSJ print version re China's management and financial difficulties in obtaining resources in other countries. The article discusses issues that China is facing with respects to resource acquisitions in a number of countries, including Canada and Australia.
Apparently no link available at this time.
Seeking Alpha: There Is Very Little Chance Of Beatting A Balanced Portfolio From Here
"
The bubble probably needs to continue in order to sustain the current global financial system and the necessary future deleveraging. However with yields moving ever lower in many parts of the world in recent times, partly due to weak growth, and with debt levels still moving higher,
the chances are that most government bondholders are unlikely to achieve a positive real return over the medium to long-term from this starting point. Inflation or even the risk of sovereign restructuring will likely prevent this."
http://www.zerohedge.com/news/2014-09-10/deutsche-bank-bubble-must-go-sustain-current-global-financial-system
American Funds Adapts To Changing Markets Charles- I don't think that anyone here is recommending or even suggesting that someone starting out today should consider American, or any other fund that charges a front load. As you say, it's no longer 1970. With respect to M*, I surely don't get the feeling that anyone here at MFO is particularly fond of them, either. Personally I use M* only for the free service which they offer to determine my YTD and X-ray figures, and that's it.
To understand the shortcomings of a commercial operation but opt to use it to one's own advantage certainly does not imply "succumbing to AF/M* hype". I take your point that continuing to use American Funds could be perceived as "supporting" them. If, however, one is using that company without load, with low ERs, via excellent direct internet access, and they are competently administering two IRA Distributions, it would be working against one's own interests to throw the whole setup overboard just to try to make a point which they would fail to recognize in the first place.
I understand your feelings with respect to financial boycott- I feel the same way about Bank of America and Wells Fargo, with their sorry record of screwing everyone possible as often as possible. I just don't see American as being in that sort of company simply because I don't appreciate one particular aspect of their operation that doesn't affect me in any case.
I use a MAC, but don't particularly care for some of their attitude either. I detest MS, and refuse to use their product unless there is no other option. Life is a compromise, in all respects.
Regards- OJ
