The success of any active money managers often relies on his or her ability to sift through and analyze data without being distracted by outside noise. This concentration allows them to base their investment decisions on actual metrics rather than on the media interpretations of them. They look at market drivers, consumer sentiment, sector growth, each company’s fundamental and technical health, industry structure and sustainable competitive advantages. Our investment team, for instance, has been tracking companies related to cloud computing for more than five years and that persistence has paid off. Stocks driven by cloud computing have outperformed the S&P by 8.53% year-to-date, by 9.28% in 2019 and by 21.37% in 2018. Examples of this type of stock include Amazon, Microsoft, Google, Salesforce, Alibaba Group and Adobe. Companies related to cloud computing have been outperforming analyst’s predictions and have become some of the fastest growing on Wall Street with high profit margins and return on capital. According to a recent article in Bloomberg Magazine, though, many active managers missed this trend, with just 37% beating their benchmarks in January. One major reason for this lag has been the tendency of these active money managers to shy away from the technology sector, believing many of its strongest performers have run their course. Based on metrics, though, this sector – and those companies related to cloud computing in particular – still have room to grow. The companies enjoy high barriers to entry, maintain power over their suppliers, possess pricing power and face little threat of substitute products. When the economy does slow down, cloud-related companies should remain resilient due to their efficiency, lower operating costs and easy access to state-of-the-art innovation. As with any sector, the technology sector will face its challenges and our analysts will be working hard to take advantage of new opportunities and to mitigate any losses these challenges present. An added advantage our active managers enjoy is that… | Read More »
active money management
Yes, the stock market recently set a new all-time high, but…
Just last week, the S&P 500 Index pierced the 1900 level for the first time in history. However, some important divergences still exist in the stock market. For example, small-cap stocks, as represented by the Russell 2000 Index, are down approximately 5% year-to-date. In addition, technology stocks, as represented by the PowerShares QQQ ETF, are only up 1% year-to-date and are below their all-time highs. The S&P 500, which represents large-cap stocks, is up over 2.5% year-to-date. Thus, there has been significant variation in stocks returns across many equity benchmarks leaving investors confused by the volatile market action. The heavy selling in technology and small-cap names over the past few months is indeed making some investors nervous. While divergences among market indexes typically can be a cause for concern, we believe the market has just been self-correcting the high valuations in some areas of the market. We are believers in the sustainability of the recent market highs set by the S&P 500. Indeed, since the beginning of the year, we have been pruning many of the higher valuation stocks in our Portfolios and replacing them with large-cap core and large-cap value stocks. We are of the belief that these types of stocks will continue to offer a superior risk/reward tradeoff versus the tech-heavy NASDAQ Index and small-cap stocks. It is all a matter of valuation and fundamental positioning. While the S&P 500 is not cheap, we do not find it expensive either given the backdrop of low interest rates and signs of an accelerating industrial economy. We believe the importance of being in the right stocks is paramount right now. This is not a market that is driving all stocks higher. There are clear fundamental and valuation concerns within some pockets of the stock market. While we would clearly prefer to see more market breadth with all market averages setting all-time highs, we recognize it has become a stock-picker’s market. … | Read More »
Investment team stays busy during corporate earnings season
What is earnings season? Every quarter, publicly traded companies are required to file a report stating their sales and earnings as well as to provide a general business update. For lack of a better description, it is like a quarterly report card. Typically earnings season starts a few weeks after the completion of the calendar quarter and runs for approximately four weeks. At Winch Financial, the Investment Team is busy sifting through all of the various earnings reports and listening to management conference calls summarizing the business results of the first quarter of 2014 and analyzing the operating direction for the remainder of the year. Earnings season is an important time in the Investment Department. It presents an opportunity to analyze the most recent financial statements of a company and get a key read of operating results and direction. For our stock and bond investments we want to make sure everything is on track with our forecasts. Earnings season also gives the Investment team the opportunity to evaluate trends in corporate America and reposition our holdings, if necessary, to capitalize on emerging trends. It also provides the Investment Team with the data it needs to develop new financial models and assess individual company valuations. Just like a child’s school report card, an earnings report provides insight into a company’s strengths, weaknesses and opportunities. While it is still early in earnings season, our initial read shows companies handled the impacts of a harsh winter effectively. Importantly, corporate America sounds confident a pick-up in economic activity in the developed markets will accelerate as the year progresses. The one worrisome trend is a general slowdown in activity in emerging markets. Overall, companies appear well positioned and confident on future business activity. Winch Financial remains optimistic the bull market for stocks is still intact and we are seeing clear signs of acceleration in economic conditions. Lastly, Winch Financial is expecting interest rates to start… | Read More »
In life and wealth management, change is the only constant
Change is the only constant. Although Greek philosopher Heraclitus said this more than 2500 years ago, it’s especially true today, particularly when we look at retirement scenarios. Financial headwinds– shrinking interest rates and rising inflation, taxes, Social Security and health care costs – continue to batter potential retirees. Most troubling for people trying to plan their golden years is the very real notion of change. Calculate a tax rate and, with the next election, you know it will change. Adjust your withdrawals based on health care costs and brace yourself for an unplanned medical situation that will wreak havoc on your insurance premiums. Unpleasant events including deaths, divorces, job loss, illness and accidents hover on the fringes of any financial plan and, in today’s financial environment, those troubles in a second generation generally impinge financially on retirees. Adult children are returning home in record numbers. Constant change also affects the global markets, where we’ve seen economic uncertainty, political upheaval and fragile monetary units challenge investors. With a sure cycle of change affecting family budgets, Wall Street investments and global economics, clients need to rely even more heavily on sound fiscal advice. We advocate active money management, in which an investment team meets daily to analyze investment opportunities and monitor markets to keep abreast of the constant change. We also strongly encourage a fiduciary relationship with an advisor who has a legal responsibility to act in his or her clients’ best interest. Contact us today to see how we can help you make the market’s constant changes work for you.
Trap or boon: annuities require fiduciary analysis
Annuities became a popular refuge after the market crash of 2008. Investors, promised a guaranteed return, flocked to the annuity market as insurance companies ramped up their sales efforts. While a carefully evaluated annuity can play an important role in a well-balanced retirement plan, some annuities can work against an investor’s retirement goals and offer little of the liquidity necessary for successful active money management. We have seen some instances in which frightened investors fled to annuities and found themselves trapped by long surrender periods and guarantees they didn’t understand. Recently, a new client asked us to review the five annuities she owned. They ranged from a simple, fixed product, to indexed annuities with income guarantees. The annuities left her unable to access her money until between 2015, for the annuity with the shortest surrender period, to 2021, for the annuity with the longest. One of the more alluring qualities of annuities is the guaranteed growth, but those guarantees can be deceiving. For instance, in our new client’s case, she could never take a lump sum withdrawal from the growth account, which is the only account with the 8% guaranteed growth rate. The account values of annuities grow according to the indices into which it is allocated. Extra riders like lifetime income features cost extra money up to and exceeding 90 basis points. The only way our new client could access her 8% growth was to turn on a fixed lifetime income payment stream, which is age banded. This left her with the following options: Access it from age 60-69 and take 5% of the value annually for life Access at age 70-79 and take 6% Access from age 80 and up, and receive 7%. This feature is designed for investors with a larger portfolio who can justify putting a significant amount into something with these account limitations and can wait 10 years to get money out without penalty. We’re working hard… | Read More »