Asset Class Performance Over the Last Twelve Months:
The portfolios performed well over the last twelve months ending March 31st. All asset classes used in our portfolios turned in positive returns over the period.
CASH
- Cash Assets/Money Market funds continue to pay low rates of return.
- Interest rates on short-term cash assets have moved up over the last year. The 4-week T-Bill rate has increased from 0.18% on March 31, 2016 to 0.73% a year later.
BONDS
- Short-term bonds turned in slightly positive returns, while longer-term bonds declined reflecting rising interest rates.
- Foreign bonds declined as a reflection of a strong U.S. Dollar.
STOCKS (see Equity Index Returns chart below)
- All Equity categories turned in double-digit returns except for Utilities.
- The Dow Jones Industrial Average climbed just over 3,000 points over the last year.
- U.S. equities generally did better than international equities.
- All the sectors we use in the portfolios turned in positive returns. Precious Metals led with a 34.1% return.
- The Utilities sector was the only equity asset class with single-digit returns.
12-24 Month Outlook:
- Domestically, we expect the economy to have improving GDP growth.
- We believe that the Fed has implemented a program to raise rates into the foreseeable future.
- With the electoral changes, we expect to see improving fiscal policy. Specifically, we expect a cut in corporate income taxes and a broad-based income tax cut.
- Unemployment is now at 4.5% domestically, and globally there are improvements.
- With the improving global economy, we expect increasing demand for goods and services worldwide.
- International markets should also see improving growth. The IMF is forecasting 3.5% Global growth for 2017. Europe and China appear to be recovering from recent slowdowns.
Investment Strategy Moving Forward:
- CASH – Although the Fed is raising rates for the near-term, we believe cash will continue to pay low returns. As a result, our cash allocations will remain low.
- BONDS – With the Fed raising interest rates, interest rate risk is higher. As such, we are keeping a short duration on our bond holdings. International bonds may do well as their economies improve.
- STOCKS – Looking forward, equities appear to have the best growth potential.
- Large-Cap stocks should benefit most in this economy, and they remain our largest Asset Class holding in the portfolio.
- European stocks look more attractive as their economies are improving and the valuations are cheaper than the U.S. We have increased our allocation in this asset class.
- Asian stocks should do well as growth continues to improve.
- All Sectors look attractive except for Utilities as they are somewhat interest rate sensitive. We have reduced our allocation in the Utilities holdings.
With all the above data, we see many positives worldwide. Continued growth should bode well for the stock markets globally. There is little chance of an economic recession occurring, and thus, we continue to maintain a bullish stance moving forward.
Please let us know if you have any questions on the overall strategy and holdings in your personal portfolio. We are always happy to chat about your individual financial situation. As always, we greatly appreciate the confidence you have shown in our services. Thank you for your business!
Sincerely,
Blair McCarthy
Bijan Golkar, CFP®
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