August 10, 2016
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Second quarter continued strong movement upward with the Wilshire 5000 moving forward 2.42% against the continued backdrop of global and interest rate uncertainty. For the year (1-1-2016 to 7-1-2016), the Wilshire 5000 has gained 3.05% and the Barclays aggregate bond index has gained 5.52%. Evergreen Wealth clients have experienced solid performance against these benchmarks. They say markets like to climb a wall of worry, and our discipline to remain balanced during times of worry is paying off with solid outperformance for the year.
The second quarter was dominated largely by interest rate concerns and global events such as the Brexit (Britain’s vote to leave the European Union). We believe that the Brexit and other international pressures will put the Federal Reserve on hold longer than initially anticipated. It is certainly possible we see 1 rate hike this year, but given the amount of negative rates worldwide we see the chances of a rate hike declining. This expectation for lower rates allows equities and bonds to be valued at higher levels. Thus, the market has continued to rally with even more vigor through today (7-20-2016).
Stabilization was the theme throughout most of the second quarter. Oil and currency markets steadied, which prompted improvement to credit markets and financials. When credit markets and financials are solid the markets generally move forward. This was the exact reversal of 2015 when oil and currencies added short term volatility to portfolios. We explained in many prior articles the likelihood this would be short lived and stabilize in 2016. We have been proven accurate and accounts are benefiting from our deep research that proved this true. In the short term we expect things to be somewhat stable, but we still remain cautiously optimistic as we move toward 9 years since last recession. Currently the recession indicators have backed down and we are encouraged by recent positive U.S. economic data. We will be watching closely the projections for the rest of the year made by company managements in light of the Brexit and shifting international events. If international sentiment spirals down on backs of poorly managed monetary policy, the resumption of earnings growth we expected to see in the second half of 2016 may have to be tempered. Thankfully we have received a years worth or more of returns in just 6 months, making offense the best defense.
Evergreen Wealth Actions
Income Accounts: Starting in August last year, when markets dipped over 15% the first time, we moved to take advantage of opportunity presented. These moves paid off with solid gains and higher incomes lifting many accounts back close to or above all time high water marks. As markets have rallied back, we are slowly shifting out and adding some “safer” assets to bring risk down. While we don’t anticipate any major market issues, it just makes sense to buy when things decline and sell when they return to normalcy. I am a big fan of clearance racks and blowout sales, you can just ask my wife how cheap I am. Over the past 12 months we had many sales in the market, however as of today we are just not seeing as many deals and desire to be very balanced in preparation for possible future opportunities.
Total Return / Growth Focused Accounts: We have remained more passive through the ups and downs for growth clients. Mainly because the volatility should be embraced through more purchases and/or the amount of time until retirement or needing the money. Our solid balance in small caps and international have started to pay off nicely this year and we expect this trend is likely to continue.
Evergreen Wealth Management, LLC remains committed to providing customized financial planning &investment solutions. We thank each of you for the trust you place in allowing us to steward your assets and financial goals.
Important Disclosures
*Results mentioned were taken using our model portfolios and client accounts at Folio Institutional. You should login to your own account to view actual results specific to your accounts. Results are given only for guidelines and discussion.
Evergreen Wealth Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Index results do not reflect management fees and expenses and you cannot typically invest in an index