Weekly Insight: 4th Quarter Commentary & 2017 Outlook

I hope everyone’s year is off to a great start. 2017 marks our 15th year in business, and I am truly more optimistic about our style of investing and the opportunities for our clients than I’ve been in over a decade.

We made some very positive strategic shifts in our portfolios during the fourth quarter. These include reducing internal investment costs, eliminating mutual fund managers who have not performed, and narrowing our individual stock holdings to those we feel most strongly about. These changes, while still early in their assessment, are already paying dividends, and we believe they will add value for years to come.

On the planning side, our advisors continue to roll out new technology that elevates financial planning and wealth guidance to the next level. The investments we made in technology over the past year enable us (and you) always to have a current and complete picture of your financial life. Our advisors are in a better position than ever before to provide timely guidance and insights.

On to the market

The strong performance we saw at the end of the fourth quarter is continuing early in 2017. Our value-based approach and patience have paid off in sectors like the financials where we capitalized on a tremendous post-election rally. Some of our holdings rose over 20% in just a few weeks (e.g., JP Morgan, KBE regional bank ETF).

Some of the laggards of 2016 were our large cap growth stocks such as Apple and Google. In general, the overall U.S. growth sector only rose about 3% on the year, trailing the broader market.

We eliminated long-time holdings with many mutual fund managers who underperformed. After years of patience and continuing dialogue, we ultimately decided that they could not meet our clients’ growth needs. This decision is already looking like it was prudent.

Looking forward, I am very optimistic

My recent optimism about our portfolio models also stems from witnessing a few straight months of fund flows into globally diversified investment models such as the ones we favor. I believe this is just the beginning of a long-term structural shift where selectivity, a global perspective, and risk management will be rewarded. This environment is very much like the one we witnessed early in the 2000s, when several years of out-performance for U.S. large caps ended and was followed by several years in which portfolios styles like ours led the way. We highlighted that shift in our last quarterly commentary. These shifts tend to last for multiple years, and we believe we are just at the beginning. The timing of this shift makes sense when you look at valuations. The U.S. stock market is fully valued right now, trading at 24.1 times earnings. We are finding discounts abroad with international markets trading at 14.1 times earnings and emerging markets at 10.4 times earnings. Both areas are also providing investors with greater dividend yields than those found in the U.S. Finally, when you add in the forecast of 4.6% GDP growth in emerging markets vs. 2.2 % in the U.S., the stars are aligning. Additionally, most investors are under-allocated to international and emerging markets. This means that fund flows into these areas can fuel an extended rally.

Our mission is to help each client to live a life he or she loves, free of financial stresses. To this end, we are continually investing in the tools and technology to deliver the best wealth-management services. Our services are delivered through our team of highly educated and competent advisors who know you and understand your objectives. Please do not hesitate to let your advisor or I know if there is anything we can do to improve your experience with our firm.

We appreciate your business and thank you for the opportunity to work with you and the people you have referred to our firm this past year.

Robert J. Luna
Chief Investment Officer
Surevest Wealth Management

Robert has over 16 years of experience in managing assets for institutions, professional athletes, small business owners and high net worth investors. He is an alumnus of the Wharton School at the University of Pennsylvania graduating from the Wharton Advanced Management Program (AMP) and has been a Wharton Fellow since 2011.
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