2017 was a tremendous transition year for Optivest. We added industry veteran Bart Zandbergen, CFP® as Senior Wealth Advisor and Stella Choi, CFA®, CFP® as Director of Portfolio Management who was responsible for implementing our successful risk-based model portfolios for Optivest clients. As 2018 commences, we continue to refine our portfolio models and upgrade our different portfolio software systems to enhance our management and reporting capabilities.
Financial Markets Review by Mark:
2015 Economic Review –
World markets have been caught between two strong forces: 1. the Federal Reserve’s desire to increase interest rates as a result of an improving U.S. job market, and 2. weakening economies in the rest of the world as a result of China’s deceleration, bringing commodity prices to multi-year lows. The result produced a volatile tug-of-war causing U.S. markets to deliver the worst year since 2008 after dealing with a soaring U.S. Dollar, sinking junk bonds, low yields and crashing oil prices.
Outside of the F.A.N.G.s (Facebook, Amazon, Netflix, and Google), U.S. stocks struggled all year, commodities and emerging markets dropped in sync, liquid alternatives faltered (average hedge fund was down 3%), and old European markets advanced thanks to a devalued Euro and heavy Central Bank stimulus. Interest rates rose, leaving most bond funds with either small gains or losses (including income). 2015 was quite a frustrating year for investors as there were few winners and multiple losing asset classes.
Economic data at mid-quarter is quite mixed. On the positive side: the U.S. stock and bond markets rebounded back to beginning of the year levels; hiring was up in October; and the third quarter GDP was revised from 1.5% up to 2.1%.
On the negative side: consumer sentiment hit a 15-month low this week (on November 24, 2015); the stock and bond markets saw a very narrow rebound mostly from the “FANGs” (companies like Facebook, Amazon, Netflix and Google with high P/E ratios); and revenue and profits for the S&P 500 are headed toward decline for the third quarter in a row. This combination of activity has raised the P/E level of the S&P 500 up to 23 from the 20 level we witnessed over the summer (the long-term average is 15.5%). These mixed signals force us to maintain a cautious stance, avoiding U.S. equities until fundamentals improve.
Financial Markets Review by Mark:
While both the first and second quarter GDP estimates were revised upward, the third quarter will likely slow to under 1% (according to the Federal Reserve Bank of Atlanta). There is growing concern that worldwide economic weakness will slow the U.S. economy next year. Adding to these reservations, the S&P 500’s third quarter earnings are expected to decline 4.9% (according to Reuters). This would be the second consecutive profit decline since 2009 and subsequently trigger an “earnings recession.” This second decline would be attributed to our strong Dollar, falling oil prices and weak global demand; forward 12 month earnings are also forecast to fall 2%. The probability of a “garden variety” U.S. economic recession (i.e. two consecutive quarters of GDP decline) is increasing.
(As reported in the Orange County Business Journal, September 7, 2015): “…Dana Point-based Optivest Foundation is the only newcomer to the list. It made $604,058 in total contributions last year, with $302,497 of that given to Orange County charities. Optivest is ranked No. 25. It was founded in 2007 and is funded by 10% of the gross revenue of Optivest Inc., Optivest Properties LLC, and Optivest Investment Banking, according to the foundation’s website. It has invested more than $2.3 million in local and international areas since 2007.
By Mark Van Mourick
As reported on CNBC.com, September 10, 2015:
You’ve worked hard and have been very patient, and now you have made money—lots of it.
Like many folks who have experienced a large liquidity event, you’re ready for some immediate gratification. So you are looking to splurge. Perhaps you want to buy a high-end car, a boat or a private jet. You may even look at purchasing a luxury watch. Whatever form of indulgence it takes, it’s a shiny trophy and it’s going to be yours.
Unfortunately, many luxury consumers fail to consider the extent to which their purchase will hold its value over the years. In many cases, buyers eventually decide to resell a luxury item, only to find themselves losing a big chunk of the purchase price to depreciation.
September 9, 2015 Market Update
Overview: Optivest sold their U.S. stock holdings before the August 24th major market decline based on over-valuation and market deterioration. This is only the third time since 1987 that Optivest has de-risked portfolios to this extent. The below report explains our rationale and our future forecast.
Great returns come from great opportunities; weak returns come from weak opportunities. Specifically, forward multi-year stock market returns are directly linked to how over-valued or under-valued shares are when you buy them… READ MORE
Hosted by Mark Van Mourick
Your estate is in order but is your family prepared? This webinar outlines the importance of legacy planning and passing along not just your financial estate but your values to a well-prepared next generation. Mark Van Mourick walks through outlining your family’s mission and values, giving your spouse and children money to “practice with,” how to hold a multi-generational family meeting and many more valuable insights for family wealth transfer and heir preparedness. For more information, reference Optivest’s Family Wealth Advisory Services.
The drop in the stock market over the last week was fast and unrelenting. Based on this reality, we want to share with you our trading activity and thoughts on the direction of the financial markets.
As outlined in our Second Quarter 2015 Newsletter, our Third Quarter 2015 Newsletter and our August 2015 Newsletter, we have been highly concerned with the U.S. stock market’s high valuations. We sold about half of our direct U.S. stock market exposure in May and June after our long-term timing indicator flashed a “sell” signal; this was the first “sell” signal in 6 years and only the 3rd in 17 years.
Year-to-date financial markets are frustrating both money managers and investors alike with flat returns. The U.S. stock and bond markets are waffling; they are either up 1%-2% or down 1%-2% on a monthly basis without any discernable direction. Unfortunately, this flat performance is also accompanied by near all-time high valuations across most financial assets (except commodities and emerging markets).
In this environment we have chosen to take profits in our potentially vulnerable stock positions, seeking equity-like returns of 5%-12% in non-correlated investment strategies. This decision has resulted in improved performance for our Optivest portfolios and reduced risk exposure via these securities. Once the financial markets pick a direction – up or down – we will adjust accordingly. In the meantime, we remain cautious with our clients’ hard-earned money.