2013 was definitely a banner year for investors. If you factor in reinvestment of dividends, the markets performed as follows:
Russell 2000 +38.8%
S & P 500 +32.4%
MSCI EAFE +23.3%
ASSET ALLOCATION* +14.9%
MARKET NEUTRAL +7.9%
BARCLAYS AGGREGATE BOND -2.03%
MSCI EMERGING MARKETS -2.3%
DJ UBS COMMODITY -9.5%
As no client would ever be invested fully in just one of these areas, it may be useful to view the asset allocation data above as more representative of a well-diversified portfolio in an approximate 60/40 mix stocks to bonds. Please note that it is not possible to invest in an Index directly, so the numbers above do not reflect the true cost of purchasing and owning these Indices, slightly overstating performance.
*(The “Asset Allocation” portfolio assumes the following weights: 25% S&P 500, 10% Russell 2000, 15% MSCI EAFE, 5% MSCI EMI, 25% Barclays Capital Aggregate, 5% Barclays 1-3M Treasury, 5% CS/Tremont Equity Market Neutral Index, 5% DJ UBS Commodity Index, 5% NAREIT Equity REIT Index).
We anticipate that 2014 returns will not be as lofty as those experienced during 2013. We also anticipate that volatility will return to the marketplace driven by several variables:
1. The start of the Fed Taper. While the market has seemingly already priced in the Taper, keep in mind the Fed has also given guidance that it will be keeping short term rates in the lower range for the near term, and focusing primarily on raising the longer term rates. It is worth noting that we have managed our clients’ portfolios to maintain an overall bond duration of less than 5 years.
2. There is anticipated uncertainty overseas primarily in Asia (specifically in China and Japan), that we feel will also add to the volatility.
3. March will represent 5 years since the Market bottomed, and it would not be unrealistic for us to experience a 5-10% correction at some point in 2014. If that occurs, we will stay the course as corrections are normal healthy events in a growing stock market. We do feel that we are now in a Secular Bull Market that may last another 10 years plus.
On the positive side, the US Economy is still growing and expanding albeit slower than we would hope, however the trend is still upward. The European economy (which is larger than the US), is also in recovery stages and we feel represent good opportunity. For Bonds, we feel with the Fed keeping short term rates low, combined with the initial hit that bonds took mid-year with the first hints of a Taper, the bonds we own will continue to drive income and reduce volatility in our clients’ portfolios. From a political standpoint, we now finally have a budget deal with hints of a more compromising government structure.
We believe that Markets have settled into what has generally been a sweet spot for equities driven by low but rising rates, low inflation and continued uptick in economic growth. We think that we are on the road to more normal times and that the US equity markets should continue to climb higher.
To discuss how this
subject or other financial subjects may relate to your own financial
circumstance, please contact me at the contact information below:
Christopher N. Congema, CFP®
President, Investment Advisor
Core-X Wealth Management, LLC
900 Walt Whitman Road, Suite 208
Melville, NY 11747
This communication is from Core-X Wealth Management, LLC, a New York State Registered Investment Advisory firm. The information in this blog is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax, legal, or investment advice from an independent professional / financial advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.